TAX AVOIDANCE: US Treasury leveraging more resources to detect tax evaders in Malta schemes

As published on: theshiftnews.com, Wednesday 16 August, 2023.

The US Treasury and IRS are to leverage more resources to detect Americans using Maltese personal retirement scheme tax loopholes to improperly claim exemptions, it said in a statement this morning.

The additional resources to tackle the Malta schemes will come from the Inflation Reduction Act, the Treasury said in a statement marking a year since the Act’s inception.

The US Internal Revenue Service has been investigating the Malta loophole and has pledged a crackdown on such tax evasion schemes.

As part of the IRS’ efforts to pursue unlawful offshore tactics, the Department of Treasury and IRS in June issued proposed rules that define Maltese personal retirement schemes used to avoid US taxes as listed transactions.

The Treasury said today that, “IRS is working to identify taxpayers who are improperly using Malta-US Treaty rules to improperly claim exemptions.

“Inflation Reduction Act resources will enable IRS to detect those who leverage these offshore schemes.”

This was the second strong statement In just about as many weeks from the Treasury and IRS about the Malta pension schemes. At the end of July, the IRS said it is currently in the process of tracking down tax evaders and has launched criminal investigations into the practice.

In a recent quarterly press call, IRS Commissioner Daniel Werfel was quoted as saying that one of the “swift and aggressive action[s]” the agency is taking to strengthen enforcement efforts against high-income individuals is escalating enforcement efforts around Malta pension plan transactions.

The number of such schemes began to grow when Malta and the US struck a taxation agreement in December 2021.

The IRS is currently seeking feedback on the proposed rules to designate certain Maltese personal retirement funds and similar arrangements as listed transactions that would have to be reported to the IRS.

A failure to report, once the new rules come into force, will land account holders with stiff penalties.

The US Treasury and the IRS “believe that transactions involving a Malta personal retirement scheme described in the proposed regulations, and substantially similar transactions involving a retirement arrangement established in Malta, unless specifically excepted, are tax avoidance transactions and should be identified as listed transactions,” the agency said in a statement on the new rules being proposed.

Before June 2023, Maltese pension plan enforcement was conducted mainly through civil tax examinations.

The IRS’s Criminal Investigation Division has reportedly begun in-person visits to taxpayers and advisors, presenting summonses and conducting criminal investigations into individuals who contributed to or promoted these transactions.

Those under investigation include lawyers, accountants, estate planners and other financial advisors.

Some taxpayers have also reportedly begun receiving summons.

The IRS could be expected to assert civil tax penalties, including negligence penalties, against participants in the Malta schemes. It may also impose criminal penalties on taxpayers and the promoters of the transactions.

Because some participants in these transactions lacked any connection to Malta, the IRS has suggested that the transactions exploited the intentions of the US-Malta Income Tax Treaty.

According to the IRS, “[b]y improperly asserting the foreign arrangement as a ‘pension fund’ for US tax treaty purposes, the US taxpayer misconstrues the relevant treaty provisions and improperly claims an exemption from US income tax on gains and earnings in and distributions from the foreign individual retirement arrangement.”

In 2021, the IRS had also placed Maltese pension plans on its ‘Dirty Dozen’ list of abusive tax shelters, along with syndicated conservation easements and abusive micro-captive arrangements.



Tax Avoidance Malta US Treasury Tax Evasion

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