September Tax News

Explore the recent pivotal updates in Malta's tax landscape, from expanded VAT exemptions in healthcare to strategic amendments in intellectual property deductions, in our latest coverage.

𝐋𝐨𝐜𝐚𝐥 𝐓𝐚𝐱 𝐔𝐩𝐝𝐚𝐭𝐞𝐬

1. VAT treatment of Health Care Services

By virtue of Legal Notice 228 of 2024, published on 13 September 2024, the VAT Act has been amended to also recognise the Counselling Profession and the Psychotherapy Profession as medical professions for the purposes of the VAT exemption in relation to the provision of medical care provided by persons acting in the exercise of such professions.

Therefore, medical care provided by persons acting in the exercise of any profession regulated by the Counselling Profession Act (Cap. 538) and the Psychotherapy Profession Act (Cap. 587) shall now also be exempted from VAT without the right of deduction.

Other changes and improvements have also been introduced to the relevant provisions in the VAT Act through such Legal Notice.



2. Intellectual Property – Capital Expenditure Deductions

The articles regulating the deductions in respect of capital expenditure on intellectual property and/or any intellectual property rights (‘Qualifying IP’), as per the Income Tax (Deductions) Rules (Subsidiary Legislation 123.07), have been amended by Legal Notice 229 of 2024, published on 13 September 2024. The amendments will apply with effect from the year of assessment 2024 (basis year 2023).

By virtue of the second proviso to Article 14(1)(m) of the ITA, any expenditure of a capital nature incurred on Intellectual Property or Intellectual Property Rights may, at the option of the person that has incurred such expenditure, be claimed in full (subject to certain considerations).



𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐓𝐚𝐱 𝐔𝐩𝐝𝐚𝐭𝐞𝐬

1. Entry into force of the Double Tax Treaty between Malta and Curaçao

As per Legal Notice 209 of 2024, published on 6 September 2024, the Double Taxation Relief (Taxes on Income) (The Kingdom of the Netherlands, in respect of Curaçao) Order (Subsidiary Legislation 123.166 by virtue of Legal Notice 1 of 2016), the Convention between the Republic of Malta and the Kingdom of the Netherlands, in respect of Curaçao, for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income, has retrospectively entered into force on 1 September 2024.

This treaty aims to prevent fiscal evasion and ensure tax efficiency for income generated across both jurisdictions. This development offers significant benefits for businesses and individuals engaged in cross-border operations between Malta and Curaçao, promising enhanced economic interactions and investment flows.



2. The CJEU’s Decision in EU Commission vs Apple & Ireland (C‑465/20)

On 10 September 2024, the Grand Chamber of the Court of Justice of the European Union (CJEU) ruled in favour of the European Commission in the appeal case C-465/20, reversing a prior decision by the General Court. The ruling is a major milestone in EU transfer pricing jurisprudence, particularly addressing the arm's length principle, functional analysis, and the separate entity approach. The Court emphasised the lack of substance in Apple’s profit attribution to its Irish branches, which were crucial to the company's sales and intellectual property (‘IP’) management, while the head offices did not manage Apple’s IP-related functions effectively.

The ruling found significant procedural and substantive errors in the General Court's earlier analysis. The Irish tax rulings in 1991 and 2007, which allowed Apple to compute branch profits on a conditional basis, were deemed incompatible with EU law. The CJEU held that Apple’s Irish branches should have been allocated IP profits at arm's length, citing the OECD’s Authorised Approach.

The case underscores the importance of substance over form, rigorous transfer pricing documentation, and a proactive approach to tax risk management for multinational enterprises. The ruling also has implications for the attribution of profits to permanent establishments and serves as a warning against tax structuring based on insufficient economic substance.