In a decision that will provide for a severe headache for Prime Minister Theresa May, the British High Court has decided that in order for Article 50 to be triggered and the process of the UK exiting the European Union is formally commenced, the British Parliament must notify Brussels.  The Government alone does not hold that power, contrary to what the same Prime Minister has argued repeatedly.

This decision will, in all probability, be appealed by the Government, and a decision by the British Supreme Court should be given in a couple of months.  In an ironic turn of events, the Court may also refer the question to the European Court of Justice, in a move that would be a slap in the face to all opponents of the same institution.

This decision will likely slow down the pace of the proposed exit of the UK from the EU, also because the decision towards ascertaining Parliament’s sovereignty may undermine the Prime Minister’s role in conducting the negotiations without further approval required.

The European Commission has announced this week its proposal to reform the way in which companies are taxed in the Single Market.  Thus the Common Consolidated Corporate Tax Base (CCTB) was re-launched as part of a broader package of tax reforms. The CCTB is aimed to deliver a fair system which curtails tax avoidance and at the same time makes it easier and cheaper to do business in the Single Market.  The proposal entails EU-wide rules for corporations to calculate their tax payments.  This would mean harmonisation of rules across all member states which would be mandatory for multinationals (over EUR 750 million global turnover a year).  The tax base would ensure that the large companies are paying taxes where they make profits, and this will be shared between the member states where the companies are active.

At the same time, tax deductions or allowances for companies investing in innovation, research and development, as well as for companies increasing equity for financing instead of debt are proposed to be provided in order to further incentivise growth. Simultaneously, the Commission is also proposing an improved double taxation disputes’ resolution system within the EU and the extension of the hybrid mismatches rules to third countries.  In this way, the EU seeks to ensure that profits are not taken out of the EU without effective taxation.

These legislative proposals will now be submitted to the European Parliament for consultation and to the Council for adoption.

Even though the EU’s Fourth Anti-Money Laundering Directive (EU 849/2015) ‘on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing’ (hereinafter referred to ‘4AMLD’) has only recently hatched from its legislative egg, the European Institutions and the Member States’ governments agreed , in the aftermath of the Paris attacks, that further action is required to counter the novel terrorist financing trends as well as the technological advancements. This eventually led to the ‘Proposal for a Directive amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC’ (hereinafter referred to as the ‘Amending 4AMLD’), the final draft of which was published on the 7th July 2016.

The EU legislators proceeded with this Amending 4AMLD in an attempt to create a Bellerophon to the ML/FT Chimaera. However, whilst some amendments are not merely welcome but also imperative in view of the ever-evolving ML/FT landscape, the proposed Article 32a gives birth to certain legal debate.

The budget speech was delivered by Professor Edward Scicluna, Minister of Finance, on the 17^th October 2017 with the title of ‘Malta: Wealth to reach Everyone’.  In fact, while many provisions were made to continue to work towards better investment, tourism capacity and tax incentives, the budget this year was seemingly focused on social measures in order to empower further every person living in Malta, no matter their background or income.

For a breakdown of the main points please read our article through the link below:

Malta Budget 2017

GM Corporate and Fiduciary Services Limited has won the Award of the ‘Contributor With Most Popular Article In Malta’ for the month of October.

The article which is titled ‘‘What’s Wrong with the Privacy Shield?’’ was written by Dr Christine Sammut.

Please click here to read the full article.

The Rolex Middle Sea Race has become a classic offshore sea race in the Mediterranean Sea widely expected by spectators and boat crews annually.  This annual 608 nautical mile race starts from the picturesque Maltese Grand Harbour and goes around Sicily through the Strait of Messina, and around Lampedusa and its surrounding islands and ends in a celebration around Marsamxett Harbour in Malta.  The interest and response towards this annual Race has increased through the years and its now a renowned appointment in the sailing calendar in Europe and beyond.  In fact boats from New Zealand and Australia, as well as popular European boats participate annually.  In previous years up to 120 boats from around 24 different countries participated in the race.

The 37th Edition of the Rolex Middle Sea Race is scheduled to start on Saturday 22nd October 2016.  Entries’ registrations are still underway and close on the 7th October 2016.  The race usually takes around two days.  The Royal Malta Yacht Club, one of the most renowned yacht clubs in Malta, offers great hospitality and assistance in all the preparations for the race.

The European Commission launched the process of establishing the first common EU list of non-cooperative tax jurisdictions. The aim is to publish the definitive list of non-cooperative jurisdictions by the end of 2017. The list will be based on a scoreboard of all third countries according to key indicators. As a first step, the scoreboard presents factual information on every country under three neutral indicators, economic ties to the EU, financial activity and stability factors.

The jurisdictions that feature strongly in these three categories are then set against risk indicators, such as their level of transparency or potential use of preferential tax regimes. The assessment does not represent any judgement of third countries while the intention is to help Member States to narrow down their focus when deciding which countries to screen in more detail from a tax good governance perspective. The EU will work closely with the OECD during the listing process, and will take into account the OECD's assessment of jurisdictions' transparency standards.

The new EU listing process is part of the EU's initiatives to limit tax avoidance and promote fairer taxation, within the EU and globally. The common EU list is only intended as a tool to deal with third countries that refuse to respect tax good governance principles, when all other means have failed.

The President of the Commission of the European Union delivered his annual State of the Union address today wherein he tackled the big issues preoccupying the Union in the last year and the future of the Union in the years to come.

President Juncker called for all the member states of the Union to embrace the Union’s values and ways of life and to focus on unity and commonality in the stead of rivalry and populism, and this also within the new reality of Brexit. While embracing democracy and tolerance, Juncker also insisted on strengthening the Union’s external borders.  Juncker stated that the Union must know who is crossing the borders and these must be defended with a new European Border and Coast Guard and further strict controls. Reinforcement of Europol, and other crime and migration related authorities, is also in the pipeline.   Additionally, Juncker also emphasised the need for further investment in order to encourage growth and jobs with an extended Investment Plan for Europe and also an External Plan dealing with other areas of the world such as Africa.  This aims to sustain further investment and increase low investment levels in Europe. 

Juncker also proposed modernisation of Union copyright rules in order to encourage European culture while taking steps towards better internet connectivity for all citizens and businesses of Europe.  In fact, by 2025, the aim is to have all European households with access to reliable connection and fifth generation coverage (5G) available in all major roads and cities in the Union.

The Prime Minister of Greece Alexis Tsipras welcomes today in Greece the leaders of six Mediterranean EU Member-States in an attempt to strengthen the ties between the Southern European States ahead of the European Union leaders' summit in Bratislava.

The Prime Ministers of Malta, Cyprus, Italy, Portugal, France and the State Secretary for European Affairs of Spain will participate at the meeting during which Athens will seek to enhance cooperation and reach common positions of Southern EU States on key issues such as economic policy, migration and security.

Greece will be calling for growth-friendly measures, better use of EU funds, more support for the EU-Turkey agreement and the strengthening of the European Asylum Service, among others.

South Korea’s Hanjin Shipping, one of the world’s largest shipping lines, has filed for bankruptcy last Wednesday after its creditors, starting with one of the largest state-run South Korean banks, stopped offering their support to the company which has been constantly losing money the last few years.

This has thrown the retail shipping industry into turmoil as several container ships of the company around the world, especially in Asia and North America, have been left unanchored in the middle of the oceans or seized by creditors while retailers worry about their merchandise currently left on the docks of ports or on board the vessels.  This is because pilots and other operators in ports have been unwilling to carry out work for the company whose assets are currently frozen. 

Experts in the field, including the bigger retailers, have explained that it is unlikely that the company will be able to recover from the current situation.  At the same time, the US’ National Retailer Federation has insisted that the South Korean government and other authorities must work with the other world powers in order to safeguard the interests of the many retailers left in limbo. 

This disruption has had a negative impact on worldwide retail shipping as retailers scramble to find alternative shipping possibilities on time constraints, prices per containers have escalated and experts have predicted that such higher prices may last for more than a couple of weeks.

The European Commission found that Apple received illegal State Aid by the Irish Government up to €13 billion between the years of 2003 to 2014, and that Ireland must recover the tax benefits. The European Commission announced its decision in a press release earlier today stating that the selective treatment allowed Apple to pay substantially less tax than other businesses, which is illegal under EU State Aid rules.

Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. Ireland violated EU laws on competition by giving Apple significant tax benefits over other businesses that are subject to the same national taxation rules. However the Commission can only recover illegal state aid for a ten-year period preceding the Commission's first request for information in this matter, which dates back to 2013.

According to Commissioner Margrethe Vestager “this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014”. Both the Irish government and Apple will appeal the European Commission's ruling.

For further information you can visit the official website of the European Commission at http://europa.eu/rapid/press-release_IP-16-2923_en.htm

The United States and the European Union has been negotiating in order to conclude the largest free trade deal in the world for three years and counting.  The Transatlantic Trade and Investment Partnership was to be a wide-ranged free trade deal between two of the biggest economic blocs in the world.  The EU had stated that this partnership would potentially increase the GDP of the Union significantly.  However, while Angela Merkel, German Chancellor, was quoted in saying that the partnership was in the EU’s interests, other EU member states’ leaders were not so in favour of opening the EU to further competition from the US.  In the last week, the German Vice-Chancellor Sigmar Gabriel has been quoted as saying that the deal was “de facto” dead and the negotiators have failed to agree on any aspect of the deal whatsoever.  In contrast, the lead negotiator concerned with the deal from the EU’s side, Ignacio Garcia Bercero refuted such claims without, however, going into further details.

The United Kingdom was a big proponent of the deal but has now chosen to exit the EU.  Therefore, this could lead to a further weakness in negotiation leverage.  Furthermore, widespread ongoing protests in France and Germany against the potential deal must also be a worrying factor.  Labourers in the EU have shown their preoccupation towards the safeguarding of EU labour and environmental standards which would be potentially depleted by way of the trade deal with the US.  An agreement between the two major economic blocs by the prescribed deadline of the end of the year 2016 seems therefore currently farfetched.

After months of negotiations between the European Commission and the Maltese Government, the Commission has found Malta's plans for setting up a development bank to be in line with EU state aid rules and thus has approved Malta’s proposal to set up the Malta Development Bank (MDB).

The bank will carry out non-commercial activities to finance small to medium sized enterprises (SMEs) and to support infrastructure projects. The MDB will mainly step in when private commercial banks fail to make appropriate financing available or if financing is not offered at normal market rates. Initially, the Bank will operate through guarantee schemes provided to the main commercial banks and according to its statute, it will only finance commercially viable projects. The bank will also be eligible to participate in EU financial instruments, such as COSME (EU program for SMEs), Horizon 2020 or the European Fund for Strategic Investments (EFSI), which aims to support strategic investments in key areas throughout the European Union.

The Commission’s approval does not come free from obligations. To the contrary, the approval comes with a list of agreed parameters for the bank’s operation, including compliance with various rules related to state aid and the General Block Exemption Regulation. The decision also specifies the financing envelopes for the bank for the first three years of operation, following which these will be reviewed in light of developments.

The bank will be 100% owned by the Maltese Government and will have a guarantee from the same on both assets and liabilities, to the extent negotiated and agreed upon by the MDB with the Ministry of Finance. The bank will be a non-profit institution and an unregulated financial institution with a supervisory board monitoring its operations.

It is believed that the introduction of this bank would enhance Malta’s financing structure and contribute to the country’s economic growth. 

During the post-AIFMD era, whereby most jurisdictions seem to have fallen into a regulatory hibernation with reference to funds, Malta has once again proven to be abreast of developments. The Malta Financial Services Authority (‘MFSA’) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds (the ‘Notified AIFs’) which will be promoted to Qualifying or Professional Investors (as defined below).

The new framework will be applicable to collective investment schemes which are not in possession of a licence issued by the MFSA, in terms of the Investment Services Act (Chapter 370 Laws of Malta), and are managed by a full-scope Alternative Investment Fund Manager (‘AIFM’), authorised and regulated under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (‘AIFMD’). In respect of such a collective investment scheme, an AIFM, which is in possession of either (i) a licence granted by the MFSA under the Investment Services Act or (ii) a management passport under Article 33 of the AIFMD, shall make a notification to the Regulator undertaking responsibility for it and for the fulfilment of its obligations. Third country AIFMs will be able to submit a request for notification of an AIF once passport rights under the AIFMD have been extended to their country of establishment.

Under the novel regime, the Notified AIFs may be established as either closed-ended or open-ended and can avail themselves of any legal structure from the wide spectrum already in place, catering for both corporate and unincorporated forms (e.g. SICAV, INVCO, Incorporated Cell Company, Incorporated Cell of a Recognised Incorporated Cell Company, contractual fund etc.). However, the following types of collective investment schemes shall fall outside the scope of the notification process: (1) funds which do not fall under the definition of ‘AIFs’, (2) self-managed AIFs, (3) AIFs which are sold and promoted to investors other than those who fall under the definition of ‘Qualifying’ or ‘Professional Investors’ (see below), (4) AIFs managed by third country AIFMs (pre-passport), (5) loan funds and (6) AIFs that invest in non-financial assets such as antiques, works of art etc. (currently real estate funds are excluded from the notification process as well but this will most probably be amended as per MFSA’s preliminary feedback).

As stated above, Notified AIFs may be marketed only to Professional and Qualifying Investors. ‘Professional Investors’ are investors who are considered to be professional clients or may, on request, be treated as professional clients within the meaning of Annex II to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (‘MiFID’). ‘Qualifying Investors’ (a new regulatory term introduced by MFSA) are defined as those investors who (a) invest a minimum of EUR 100,000 or its currency equivalent in the AIF – which amount shall not be reduced below this threshold at any time by means of a partial redemption, (b) declare in writing to the AIFM and the AIF that they are aware of and accept the risks associated with the proposed investment and (c) either have net assets in excess of EUR 750,000 or are senior employees or Directors of service providers to the Notified AIF.

As soon as the duly completed notification pack (the notification request along with a Prospectus and supplementary documentation) has been filed with the MFSA, the Authority will proceed to include the AIF in the list of Notified AIFs within ten business days. The same period applies in case of amendment of a Notified AIF’s Prospectus as well. Such inclusion shall not be construed as licence, authorisation or approval on behalf of the MFSA whereas a list of Notified AIFs in good standing (hereinafter referred to as the ‘List’) will be maintained and updated on the Authority’s website. The procedure used for the notification of AIFs shall also be used for the notification of additional sub-funds.

Since the new framework essentially places reliance on the AIFM’s regulated status, it follows that the said AIFM has increased powers and responsibilities placed on its shoulders to offset the lack of direct prudential regulation with reference to the investment product. In view of such reliance policy, the AIFM, prior to submitting a request for the AIF’s inclusion in the List, is required to perform the ‘fitness and properness’ test on both the service providers as well as the governing body of the AIF and may therefore veto any appointment thereof on such grounds. Furthermore, any rights (other than any rights to income or capital) of any founder or similar shares must be transferred to and exercisable only by the AIFM upon inclusion of the AIF in the MFSA’s List.

The attractive tax regime currently applicable to licenced collective investment schemes (based on the dual classification into prescribed and non-prescribed funds) will be extended to the Notified AIFs as well, thus easing the investors’ minds. This decision was hailed by the industry as it put an utterly appealing package deal on Malta’s investment table, placing the country once again in the vanguard of pioneering jurisdictions.

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF - or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the AIF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.