Malta pension scheme administrators ‘must report under CRS by 30 April’

Amid all the shouting in the overseas pension transfer industry about UK Chancellor Philip Hammond’s surprise announcement, last month, of a new “Overseas Transfer Charge” of 25% on most transfers of UK pensions out of the country, some pension industry experts have been keeping an eye on certain other major developments in the overseas pensions space.

Among those who have been watching, with some concern, has been Bethell Codrington, global head of pensions at TMF Group and an expert on pension transfers, particularly those into Malta, where TMF has a registered overseas pension scheme (ROPS, formerly and also still known as a QROPS).

Here, Codrington looks at how the Common Reporting Standard – the OECD’s new international regime aimed at enabling countries around the world to automatically exchange financial information about one another’s citizens and taxpayers – will affect those with pensions that are administered in a country other than the one in which the plan member happens to live.

Strange, but hardly anyone seems to be talking about what is formally known in Brussels as the “EU Council Directive 2014/107/EU of the 9th of December 2014 amending Directive 2011/16/EU”, even though it is coming into force imminently.  This, of course, has to do with the mandatory automatic exchange of information that is called for under the OECD’s Common Reporting Standard (CRS), which will begin to take effect later this year, and is set to continue to do so through 2018.

The EU directive setting out how the CRS is to be adopted is to a degree jurisdictionally dependent, but in Malta, at least, the CRS will require all pension schemes to  collect and report certain information about an account holder’s tax residence.

For this reason, individuals who have pensions there but aren’t tax resident in Malta, as well as their advisers, urgently need to understand what this will involve.

Around the world, most countries have their own rules for defining “tax residence”. In general, tax residence is the country in which a person is living; if they live in more than one country, it’s the one they live in mostly during the course of the year in question.

Special circumstances (such as studying abroad, working overseas, or extended travel) may cause a person to be resident elsewhere for a time, or resident in more than one country at the same time (known as dual residency).

The country/countries in which a person pays income tax are, therefore, likely to be their country/countries of tax residence.

Pension scheme information 

Once the CRS is in force, Maltese pension scheme administrators will be legally obliged to pass on information about any scheme members they have who happen to be tax resident elsewhere. They will be required to do this in line with the provisions of “Regulation 8 of the Cooperation with Other Jurisdiction on Tax Matters Regulation (LN 295 of 2011 as amended)”, and they will need to do it by 30 April (in other words, by the end of this month).

What this means is that those who are members of pension schemes held in a country other than the one in which they are tax resident will no longer be able to “fly under the radar”, with respect to their tax obligations, on disclosure of their pension fund income.

Penalties regime, for failure to report

Below is how Malta intends to enforce compliance with the Common Reporting Standard.

The Penalties imposed upon Pension Scheme Trustees will encourage Compliance

Failure to report
Where a Scheme fails to report the information required to be reported in accordance with regulation 41 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations within the time provided in section 9.3 above, the Trustees will be subject to a penalty of:
(i) two thousand five hundred euro (€2,500); and
(ii) one hundred euro (€100) for every day during which the default existed: provided that this penalty shall not exceed in total twenty thousand euro (€20,000);
Failure to report in a complete and accurate manner
Where a Trustees fails to report the information required to be reported in terms of regulation 41 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations in a complete and accurate manner, the Trustees will be subject to a penalty dependent on the nature of the breach of the obligation, in line with regulation 44(1)(e) of the Regulations.

Minor errors
In the event that the information reported is corrupted or incomplete, the Commissioner shall contact the Trustees directly to try and resolve the problem. Examples of minor errors could include:
• Data fields missing or incomplete;
• Data that has been corrupted;
• Use of an incompatible format.

Where this leads to the information having to be resubmitted this will have to be via the Commissioner.
Continual and repeated administrative or minor errors shall be considered as significant non-compliance where they continually and repeatedly disrupt and prevent transfer of the information. For this purpose “continually and repeatedly” means more than two times in a row. Guidelines for the Implementation of the DAC2 and CRS into Maltese legislation v.1| Reporting 112

In cases of minor errors, the Trustees will be subject to a penalty of:
a. two hundred euro (€200); and
b. fifty euro (€50) for every day during which the default existed: provided that this penalty shall not exceed in total five thousand euro (€5,000).

Significant non-compliance
Significant non-compliance27 will be determined by the Commissioner subsequent to communications and sufficient proof given by a foreign competent authority with which the Maltese competent authority automatically exchanges information. Where this occurs, there is an 18-month period from the date of such notification in which the Trustees must resolve the non-compliance.
In such cases of significant non-compliance, the Trustees will be notified in writing indicating:
• What the non-compliance consists of; and
• An 18-month period from the date of such notification within which the Financial Institution must resolve the non-compliance.

The Commissioner will also engage with the Trustees to:
• Discuss the areas of non-compliance;
• Discuss remedies/solution to prevent future non-compliance;
• Agree measures and a timetable to resolve its significant non-compliance.

Such engagement from the Commissioner’s side does not exempt the Trustees from any applicable penalties. In the event that issues remain unresolved after a period of 18 months, then the Commissioner will apply any relevant penalties under the Income Tax Acts, Chapters 123 and 372 of the Laws of Malta, and regulation 44 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations. In cases of significant non-compliance the Trustees will be subject to a penalty of fifty thousand euro (€50,000).
The following are examples of what would be regarded as significant non-compliance:
• Repeated failure to file a return or repeated late filing;
• Ongoing or repeated failure to register, supply accurate information or establish appropriate governance or due diligence processes;
• The intentional provision of substantially incorrect information;
• The deliberate or negligent omission of required information.

The Commissioner will inform the foreign competent authority that would have communicated such non-compliance to the competent authority of Malta of any updates in the case.

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Bethell Codrington is global head of pensions at TMF Group. Further information on the new CRS regime as it applies to Maltese pension scheme administrators may be obtained from TMF Group at internationalpensions@tmf-group.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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