ARTICLE · 10 JANUARY 2020

Substance And Value Creation

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It has become generally accepted that the international tax system is based on the principle that the profits of a business should be taxed in the countries in which it created value.

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Franklin Cachia

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It has become generally accepted that the international tax system is based on the principle that the profits of a business should be taxed in the countries in which it created value. The alignment between the taxation of profits and the notion of value creation or substance was the main driver of the Organisation for Economic Co-operation and Development's (OECD) Base Erosion Profit Shifting (BEPS) Project and its final reports.

The implementation of the BEPS Project has triggered considerable influence within all EU Member States, including Malta and this led to the transposition of the Anti-Tax Avoidance Directive (ATAD). The concept of value creation or substance in order to ensure that profits are taxed where a genuine economic activity is creating value has become extremely important worldwide.

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