Master of Laws (LL.M) International Fiscal Principles Past Papers
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Advice from an Alumna By Dr Priscilla Mifsud Parker
The law course is a long journey, but one that, if well-travelled, will lead to beautiful destinations. In an industry which is today attracting many young individuals looking to develop their career in law, it is important to stay ON the beaten track and remain focused. It may go without saying that it is of great importance for all students to attain good academic grades, to be dedicated to their work, as well as to be determined in this highly-competitive industry in order to fulfil their dream of becoming lawyers one day. However what is crucial is that as students and later on as professionals we are innovative by being sensitive to the changes around us. These changes might be political, economic, environmental, socio-cultural or others; what is for sure is that they all have an impact on the profession of a lawyer. We are members of a dynamic profession which is very sensitive to its surroundings. The type and ‘genre’ of advice which is required from us is all affected by what is being experienced by the receivers of this advice. Work experience is considered as a vital part of the staple diet of any prospective lawyer in order to put into practice and refine the knowledge gained from the theorethical reality of the lecture halls and lawbooks into the skills required for a successful career in law. An internship will not only show future recruiters that you have a genuine interest in pursuing a career in this sector, but that you have the practical knowledge and skills to the succeed in your role. Here are some personal suggestions that I feel helped me during my journey:
1. Being Ambitious A powerful trait in any competitive industry, ambition will help you in your law course, in your career as a lawyer, as well as in your life. Whilst the law course can be quite intimidating and challenging, an ambitious individual who is dedicated to learning new things has the potential to understand and realize long-term goals. Do not view the journey as one whole insurmountable mountain but focus on the next small goal and once achieved move on to the next and goal by goal you will reach your final target point. In this respect, gaining valuable work experience through an internship is an important step taken by an ambitious young lawyer who wants to attain certain skillsets, and remain a step ahead of his/her peers. By being inquisitive, analytical and humble enough to accept guidance and mentoring one is guaranteed a fruitful experience in a law firm. It is also not only a means to start focusing on the direction of your career and to build upon your chosen path, but will undoubtedly expose you to the international world. This is crucial, as most of the traditional legal sectors have been intertwined with new areas of legislation and all these together now present much more opportunity for intra-jurisdictional work. 2. Networking By engaging with counterparty students abroad and in international fora one gains an insight into another reality and is exposed to different cultures, ways of communicating and is able to bridge
the differences between parties to a mundane discussion which will eventually become a transaction or a major project in professional life. 3. Organisational Skills Organisation is key in any industry. Good organisation skills always stand out to a recruiter when considering potential applicants. Such skills can be obtained by gaining experience either through organising one’s own work, study plan,student events or cultural/philanthropic events. Going hand-in-hand with this, is having a study plan. By planning your studies ahead, one will have a sufficient amount of time to meet all the demands, while also being able to participate in productive outside activities. Reviewing notes or case briefs before class can also help you follow and participate in class discussions better , whilst following case-law allows you to apply them for specific situations. In view of the amount of material involved summarising and carving out the most crucial points is essential to then build your argument in papers. 4. Taking your own class notes It is always important to take down your own notes as laws are always evolving and passed-down notes would provide the context but are not ideally used for the detail. Researching the particular topic and comparing Malta’s law with that of other jurisdiction gives one a completely different outlook and commenting on these variances in an exam paper, dissertation or assignment would distinguish one student from another. Not to be overlooked are also the consultation papers, commentaries and other official public documents that are issued by local authorities from time to time on different areas of law and industry. Being abreast of what is happening in industry will help putting the particular law or regulation in context. 5. Participation Participation is a main element of the learning process. Being actively involved during seminars and lectures and participating in legal debate sessions, mock trial competitions and moot courts are essential in order to improve your persuasive and presentation skills. If you find this very difficult (all of us have different characters and traits), then try to focus on participation in other events which will expose you to public speaking starting off in smaller groups in a more familiar environment and trying out new experiences and larger audiences as you go along. 6. Practice is the key to success This leads us to our next point – practice. Attaining good grades is undoubtedly an important part of the law course, however, in themselves, they are not enough to show that you have substantial material to succeed. Working within a law firm introduces you to the world of work, and allows you to gainspecific industry-related skills which one will only ever be able to learn in a workplace setting. Work experience can provide you with valuable insight which will help you decide what your career aspirations are and in which areas you would like to further delve into.
University of Malta Faculty of Laws June 2019 Examination Session CML5029 INTERNATIONAL FISCAL PRINCIPLES
Date: Monday
10th
June 2019
Duration of Examination: 10:00AM
—
1:05PM
INSTRUCTIONS TO STUDENTS: Answer any THREE (3) questions. Use of silent, electronic calculators is allowed.
1.
Mr Sielem Ghajn is an individual resident in Kerc Emirates, an Asian jurisdiction which does not impose tax on companies and individuals. Mr Ghajn is sole shareholder of Lawrenz San Ltd, a company resident in the Republic of Zebbug, a European Union member state imposing a 12% corporate tax rate and an identical additional tax rate on payments of dividends to non-residents. He desires to transfer the shares in Lawrenz San Ltd to T. San Nat Ltd, a new Maltese company directly 100% owned by Mr Ghajn. None of the said companies is a property company pursuant to the Income Tax Act. Furthermore the plan is that T. San Nat Ltd would: (a) directly finance Lawrenz San Ltd through interest bearing loans; (b) carry on sales of goods in Raxnumland, another EU Member State having a 40% corporate tax rate and pursuing an aggressive policy regarding the taxation of nonresidents. Such sales would be made by shipping them direct from Malta (i.e. without a place of business in Raxnumland) but with some of T. San Nat Ltd’s employees being located in Raxnumland, carrying on sales activities at clients’ premises. Such employees would negotiate the entire sales contract with customers but without signing the actual contract (which would be signed in Malta). Double tax treaties based on the OECD Model Convention exist between Malta and each of the Republic of Zebbug and Raxnumland. However Kerc Emirates has no double taxation treaties with any other jurisdiction. Making reasonable assumptions, briefly answer the following, explaining your reasoning: i.
Explain to Mr Ghajn which Income Tax Act and Duty on Documents and Transfers Act provisions could enable him to transfer the shares in Lawrenz San Ltd in a tax-efficient manner from both the income tax and the stamp duty perspectives? Does Mr Ghajn need to be concerned about any Kerc Emirates tax liability on such transfer? (7 marks) Page 1 of 4
ii.
Briefly refer to the most advantageous Maltese tax treatment that T. San Nat Ltd could be entitled to in respect of dividends and interest which it will receive from Lawrenz San Ltd and income from sales of goods in Raxnumland, and what key conditions would need to be satisfied in this respect. (6 marks)
iii. Advise I. San Nat Ltd about whether, and if so, on what grounds, it may be exposed to the risk of being treated as having a permanent establishment in Raxnumland in terms of provisions based on Article 5 of the OECD Model Convention and what it can do to limit such risk. (6.5 marks)
2.
iv.
In terms of the relevant provisions of any applicable EU Directive, what maximum rate of tax, if any, would the Republic of Zebbug be entitled to charge in respect of dividends distributed by Lawrenz San Ltd to T. San Nat Ltd and what are the main conditions for the benefits of the said directive to apply in the circumstances? (6 marks)
v.
What general transfer pricing and interest deduction limitation considerations should T. San Nat Ltd typically bear in mind when lending at interest to Lawrenz San Ltd and what would be the typical implications of such legislation? (7.83 marks)
Niddy Ltd, a Maltese company resident for tax purposes in Malta, forms part of an international group of companies operating in the technology sector. Niddy Ltd performs the group’s treasury function by providing financing (via numerous loans) required by the various group companies across the world. As at 31 December 2018, Niddy Ltd had receivables consisting of (a) €10,000,000 in interest bearing loans and (b) another €2,000,000 which did not carry any interest. Apart from its share capital, Niddy Ltd also borrows funds from its non-Maltese-resident shareholder which it uses (similarly to its share capital) for its lending (trading) activities. As at 31 December 2018 Niddy Ltd had borrowed €8,000,000 on an interest free basis and another €1,000,000 in interest bearing loans. Niddy Ltd also holds 100% of the equity shareholding of Svemarbob Ltd, a limited liability company incorporated in an EU Member State. The investment of Niddy Ltd in Svemarbob Ltd amounts to €600,000. Niddy Ltd’s issued share capital amounts to €3,000,000 and its retained earnings as at 31 December 201$ amounted to €600,000. For the year ended 31 December 201$, Niddy Ltd generated taxable profit (post tax adjustments) of €890,000 from its treasury activity, with no foreign tax being suffered thereon. Niddy Ltd did not receive any dividend income from Svemarbob Ltd. Page 2 of 4
Carry out the following calculations, providing the necessary explanations for the respective tax treatment: i.
Ignoring the Notional Interest Deduction Rules, calculate Niddy Ltd’s Maltese tax liability and the Maltese tax refunds that may be claimed by Niddy Ltd’s nonMaltese-resident shareholder under the Income Tax Management Act upon a distribution of all the 2018 taxed profits. (6 marks);
ii. Taking into account the Notional Interest Deduction Rules and excluding for this purpose the Maltese tax refunds for the shareholder, calculate Niddy Ltd’s Maltese tax liability assuming a 7% ‘reference rate’. (9 marks); -
iii.
Based on your tax computation in (ii), allocate Niddy Ltd’s taxable profits to its tax accounts. (8.33 marks);
iv. In terms of your above calculations, is it possible to combine the tax refund mechanism and the Notional Interest Deduction in this case? If yes, prepare a calculation combining the Notional Interest Deduction and the tax refund at shareholder level. In your calculations please also provide the combined Maltese tax leakage post-NID and post-tax refunds, i.e. the total tax suffered in Malta by Niddy Ltd and its shareholder. (10 marks).
3.
(a)”The concept of the resident but not domiciled person is accorded a specific tax treatment under the Maltese Income Tax Acts and it features in various provisions in the Income Tax Act, such as the provisos to Article 4(1) (charging article), Article 12(1)(c) (exemption on interest, royalties etc), Article 43(6) (anti-abuse re tax refunds etc), article 61 (dividends from the UntaxedAccount).” Explain the meaning of the said concept and
the tax treatment accorded to persons falling within it in terms of the said Articles. (17 marks) (b) “Maltese law contemplates a number of programmes aimed at non-domiciled individuals taking up residence in Malta, such as the Malta Residence Programme, the Global Residence Programme and the Malta Retirement Programme. Although there are some differences between these programmes, most of their key features are similar, even if each programme is targeted at people having specific life circumstances.” Discuss this statement critically, challenging it where appropriate, through making appropriate reference to the applicable provisions. (16.33 marks)
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4.
(a)”Articles 1 (Personal Scope) and 2 (Taxes Covered) of the OECD Model Convention are fundamental to the structure and operation of a double taxation treaty because they set the boundaries as to who can qualify for tax relief and in respect of which taxes. Without these articles it would be virtually impossible for the treaty’s substantive provisions to be applied in a clear and consistent manner.” Discuss this statement critically and where appropriate challenge it, by reference to the relevant provisions of the OECD Model and any specific treaties. (17.33 marks) (b) “Anti-controlled foreign company (anti-CFC) legislation varies to some extent from one jurisdiction to another but a lot of similarities exist in respect of (I) the ‘abusive” situations involving subsidiaries resident in foreign jurisdictions which are targeted by such legislation and (ii) the anti-abuse measures resulting from such anti-CFC laws, aimed at neutralising any undue benefits obtained through such non-resident entities.” Discuss critically and, where appropriate, challenge this statement, making due references to typical features of anti-CFC laws. (16 marks)
5. Write notes on any THREE of the following (total: 33.33 marks): (a) VAT on intra-community acquisitions; (b) Article 52 (Advance Revenue Rulings) of the Income Tax Act; (c) Article 11 (Interest), OECD Model Convention; (d) Article 73 (Income paid to non-resident) of the Income Tax Act.
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L-Università
ta' Malta
FACULTY OF LAWS DEPARTMENT OF COMMERCIAL LAW
JUNE/JULY 2020 EXAMINATION SESSION Thursday, 11h June 2020
CMLS029 International Fiscal Principles
Examinationtime: 13:00-16:00+60 extra minutes for uploading/downloading. In case of difficulty during the examination (issues with exam paper, electricity power cut, internet connection, etc), you may contact the Faculty of Laws on the following:
Telephone: 2340 3251; 2340 3143 Email: laws@um.edu.mt Please note that for immediate feedback it is best to communicate using telephone. Use email only if there are circumstances when the use of telephone is not possible. Keep your mobile phone handy since important communications during the examination may be communicated by the University through SMS. You have the option to either type in your answers on a word document or write down your answers on an A4 sheet/s of paper.
Once you have completed the examination, you are to save your answers in pdf format or scan your handwritten answers using Adobe Scan app and Microsoft Office Lens app, and upload them within the time indicated for the examination. The name you should assign to the file
you are going to upload tothe VLE dropbox should be the study-unit code. The VLE will then rename the file automatically to also include your name and surname. You have been allowed 60 minutes for downloading the examination paper and uploading your responses. Make sure that you upload the correct document. If you upload the wrong
document, simply upload again and the system will overwrite the document originally submitted. You may be subject to an additional oral examination to safeguard against plagiarism, collusion or other misdemeanours. You may not obtain or seek to obtain
advantage
in an
examination;
or
give
or
endeavour
to
give
assistance to other students. Students who are found guilty of a breach of the University Assessment Regulations are liable to disciplinary action which may result in the examination
being cancelled and other consequences. By sitting for this examination, you declare that you are aware of the provisions of the
regulations regarding conduct during examinations and you pledge to observe them. Page 1 of 5
INSTRUCTIONS TO STUDENTS: Answer any THREE
(3) questions.
awarded All questions carry equal marks. One mark is
ex gratia. Use of silent, electronic calculators is allowed. Students may have access to a non annotated copy of
lation;
(ii)
(i) the OECD
Model Convention,
(i) relevant Maltese statutory legis
relevant European Union directives.
1. Mr Fonda is
an
domiciled here. He is individual who is resident in Malta but not
the sole shareholder in a Maltese company, Gere Ltd, which has the following investments:
(a)
a
a holding of 12% in the share capital of Harrison Ltd,
company
a Member State of the incorporated and resident in the Kingdom of Irving, 4% of profits available to European Union. This holding grants rights only a director on the for distribution, but gives an entitlement to appoint
Board of Harrison Ltd;
(b)
a jurisdiction which is permanent establishment (PE) in Jackson State, which Gere Ltd conducts not a European Union member state, through
a
sales of goods there; (c)
10%
a
Maltese collective investment scheme (CIS) whose and 1O% securities as to 90% securities situated in Malta
holding in a
investments are
income and situated outside Malta. Its income consists of investment and capital dividends derived from its Maltese investments and dividends
gains derived from
its
foreign
investments.
Malta has a double taxation treaty based on the OECD Model Convention with both the
Making
Kingdom of Irving and
with Jackson State.
reasonable assumptions,
answer
the
following, explaining your
reasoning in brief:
(a)
In respect of the
holding referred to in paragraph (a) above:
i. what is the maximum rate at which the dividends
paid by Harrison Ltd to Gere
Kingdom of Irving can tax Ltd given the provisions of the
OECD Model Convention and relevant EU Directives? (4 marks) ii. what is the most
advantageous
Maltese tax treatment for Gere Ltd
and Mr Fonda applicable to the said dividends, and do any conditions need to be satisfied in this respect? (4 marks)
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key considerations should be taken into account by Gere Ltd in determining whether its holding in Harrison Ltd would fall within the
ii. what
controlled foreign company (CFC) rule in the Anti-Tax Avoidance
implemented in Malta and what would be the Maltese rule? (4 tax implications if the holding fell within the purport of this marks) Directive
as
dividend income iv. to which tax account of Gere Ltd should the above distributions be allocated and what is the tax treatment applicable to
thereof to Mr Fonda? (3 marks)
(b)
In respect of the permanent establishment referred to in
paragraph (b)
above: i. what is the maximum tax rate at which Jackson State
can tax
profits
of attributable to such PE bearing in mind the applicable provisions the OECD Model Convention? (4 marks)
advantageous Maltese income tax treatment Fonda's applicable to the said profits from Gere Ltd and Mr perspectives? (4 marks)
ii. what is the most
ii. to which Gere Ltd tax account should these what would be the tax treatment
profits be allocated and
applicable to distributions thereof
to Mr Fonda? (3 marks)
(c)
In respect of the CIS referred to in
paragraph (c) above:
i. what is the Maltese tax treatment of the income earned thereby? (3 marks) ii. to which tax account should the CIS allocate its profits and what is the tax treatment of distributions thereof to Gere Ltd and then to Mr
Fonda? (4 marks)
2. Cantona Ltd is a Maltese incorporated and tax resident company which was set up earlier in 2020. It is fully owned by De Gea Limited, another company which is incorporated and tax resident in Malta. In turn, De Gea Limited is fully owned by Whiteside Limited, a company incorporated and tax resident in Whiteland. Cantona Ltd has the following activities:
Cantona Ltd has a branch (fixed place of business) in Robsonland and it is expected to earn business income attributable to the said branch of ¬200,000 during the financial year ending 31 December 2020. No foreign tax would be incurred en such income.
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Cantona Ltd is expected to from one long-term loan
¬120,000 interest income during this year granted to Schmeichel Ltd (a company incorporated in Schmeichel Land). Under its domestic law, Schmeichel Land
earn
imposes a withholding tax of 20% on
interest.
Cantona Ltd is expected to derive ¬500,000 in 2020 from
a
50%
shareholding in Tevez Ltd, a company incorporated and resident in Tevezland. All the shares in Tevez Ltd carry equal rights to dividends and votes. 60% of Tevez Ltd's income consists of passive royalties. Tevezland does not impose corporation tax nor withholding tax on dividends.
WhiteLand, Robsonland and Schmeichel Land are Member States of the European Union whilst Tevezland is not. Malta has double tax treaties based on the OECD Model Convention with the above-mentioned countries. As tax advisor of Cantona Ltd, you have been requested to prepare a report as
follows: (a) Explain the Maltese tax treatment of the income sources to be derived by Cantona Ltd during financial year 2020-you should assume that the Maltese tax refunds (if any) on dividend distributions would be claimed by the shareholder; (8 marks) (b) Prepare a tax computation of Cantona Ltd for the financial year 2020; (9
marks) (c) Explain and provide your reasoning as to whether De Gea Limited would be entitled to any tax refunds upon a dividend distribution from Cantona Ltd. You are also to compute the amount of such tax refunds (if any); (9
marks) (d) Examine whether Cantona Ltd can claim the Notional Interest Deduction (NID) under Maltese law (no calculations are necessary), Explain the manner in which the NID may impact the Maltese tax treatment of Cantona Ltd's three sources of income. (7 marks) 3. Answer both of the below:
(a) "The provisions dealing with the "tax accounts" or "taxed accounts" in the Income Tax Acts are not an end in themselves but only a means to an end.
Their role must be considered in the context of determining issues relative to the applicability of tax and tax refunds on distributions of profits and certain matters concerning relieffrom double taxation among others." Discuss this statement critically, referring to, and commenting on, the relevant statutory provisions. (16 marks)
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(b) "The OECD Model Convention includes various provisions aimed ot preventing abuse of the treaty; some anti-abuse provisions are included in
articles dealing with the scope of the treaty, others are contained in important definitions, others in substantive articles dealing with sources of
income, whilst yet others are found in ad hoc anti-abuse articles." Identify and discuss at least four anti-abuse provisions, explaining their aims ana
how they set out to prevent treaty abuses. (17 marks) 4. Answer both of the below: securities is
(a) "Duty on documents and transfers relative to marketable certain chargeable in respect of the execution or use in Malta of then such securities but documents and transfers/ transmissions relative to situations which the legislator in provides exemptions applicable
specific
in statement critically, outlining did not wish to discourage." Discuss this the sets about balancing The process the manner in which the legislator marketable the context of charging articles with exemptions in
in the
Duty on
Documents and Transfers Act.
securities
(16 marks)
Directive and
(6)
Avoidance "The interest limitation rule in the Anti-Tax countries' laws are in
Transfer Pricing provisions
many
different focets of
in that transactions (financing the same coin. Both are aimed at ensuring transactions in case of and a wider range of case of the interest limitation made at commercial terms between related parties are
transfer pricing)
and not on terms or
both
result orfor values which would
a tax
benefit for one
critically, making due marks) relevant provisions/ features of such legislation. (17
of the parties." Discuss this
reference to
in
statement
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