Background
The Income Tax Management Act, Chapter 372 of the Laws of Malta ('ITMA') grants extensive powers to the Commissioner for Revenue ('CfR') especially in the context of income tax collection. Specifically, the ITMA lays down a list of notices which constitute executive titles (which essentially means that these notices have a similar effect of a court judgement). Therefore, following the applicable procedure described in this article, a notice for the collection of tax due can be enforced through the filing of an executive warrant without the need for instituting a full-blown court case.
The law empowers the CfR to serve a demand note upon a person for any tax due. If payment is not made within 30 days from the date of service of such notice, the CfR can then file a judicial letter demanding payment and after the lapse of two days from the date of service of such judicial letter, he will benefit from an executive title over the relative tax debt.
In the context of companies and bodies of persons, it is important to note that an income tax claim may also be enforced directly against every manager or other principal officer thereof in their personal capacity. This is because the ITMA imposes joint and several liability on such officers for the payment of tax by the relative body of persons.
A question which comes to mind is whether taxpayers have any available remedies when faced with the enforcement of a tax debt which now constitutes an executive title. This question was recently addressed by the First Hall Civil Court in the case in the namesAlfur Limited u Godwin Friggieri ghal kull interess li jista' jkollu vs Il-Kummissarju tat-Taxxi (case no. 597/2022 MS) wherein the taxpayer managed to contest the enforcement of an executive title issued in terms of the ITMA on the basis that the underlying claim was time-barred.
Facts of the case:
On the 15th of September 2020, the CfR sent a demand note to Alfur Limited and this was followed by a judicial letter dated 11th of May 2022, by virtue of which the CfR demanded payment of €99,855 representing taxes, additional tax, and interest in relation to the various years of assessment. Alfur replied to this letter on the 17th of June 2022 stating that CfR's claim was time-barred in part.
Subsequently, Alfur filed proceedings before the First Hall Civil Court and requested the Court to declare that CfR's claim was time-barred in part and to revoke the relative executive title purportedly obtained by the CfR pursuant to its judicial letter. In his reply, the CfR argued, inter alia, that the action brought by Alfur was null and void as it had no legal basis and that furthermore, the First Hall Civil Court did not have the competence to assess the validity of the judicial letter in question.
considerations of the court
The Nullity of the Action:
The Court noted that in this case, the executive title held by the CfR was based on the demand note sent to the taxpayer. The Court further considered that the law does not prescribe a specific action by virtue of which a person against whom a demand note is issued may contest such claim. Conversely, the law solely prescribes a contestation mechanism when the CfR issues an assessment. The Court confirmed that just because a specific action is not contemplated in the law, it does not necessarily mean that such an action cannot be instituted.
Therefore, the Court stated that in the absence of a specific procedure, the proper mode of action in such cases was to institute ad hoc proceedings before the Courts of Civil Jurisdiction by means of a sworn application. The underlying reasoning of the Court was based on Article 32(2) of the Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta which provides that "The Civil Court shall take cognisance of all causes of a civil and commercial nature, and of all causes which are expressly assigned by law to the said Civil Court."
The Competence of the First Hall Civil Court
The argument of lack of competence was based on the fact that Alfur did not proceed in accordance with the rules prescribed under the ITMA. In this regard, the Court noted that a taxpayer may contest the amount requested by the CfR solely within the confines of the objection and appeal procedures laid down under the ITMA, which are triggered upon the issue of a tax assessment. Furthermore, if these contestation measures are not filed within the prescribed form and time limits established at law or if they are determined, the taxpayer cannot subsequently bring an action to contest the amount of tax requested by the CfR.
That being said, the Court considered that this was not an action to contest the amount of tax due by the taxpayer as it was based exclusively on Article 47(2) ITMA which provides that:
"Save as otherwise expressly provided in the Income Tax Acts and saving in particular the provisions article 30(5) and of article 31(7), action for the payment of tax, additional tax, interest or any penalty may be taken during any time from the date on which it becomes due and payable up to eight years from that date or, where an assessment in respect thereof has been made, from the date on which that assessment becomes final and conclusive"
The Court concluded that since this 8-year time-limit starts to run from when the tax becomes due or in case an assessment is made, when such assessment becomes final and conclusive, an action under Article 47(2) ITMA can only be brought after the procedures related to the assessment are concluded. Accordingly, such arguments could not be brought at the objection or appeal stage since the assessments would not be final and conclusive at that stage.
Furthermore, the Court also held that an action under Article 47(2) ITMA is not an action to contest the tax due but is an action to extinguish the right of action for the recovery of the tax due. Therefore, the plaintiff was not attacking the tax debt itself but the enforceability of such debt.
On the issue of Prescription:
With regards to the plea of prescription, the main point of contention in this case was whether the executive titles listed under the ITMA are also subject to the prescriptive period laid down under article 47(2) ITMA. On this point, the Court confirmed that the law does not state that tax debts which are rendered executable are not subject to the rules on prescription found under article 47(2) ITMA. Therefore, when the CfR obtains an executive title in accordance with the provisions of the ITMA, the right to claim prescription is not extinguished but the prescriptive period is merely interrupted.
Decision
In its decision, therefore, the Court upheld the plaintiff's requests and declared that the CfR's claim was prescribed in part and therefore revoked the executive title held by the CfR over such part of the tax debt which was prescribed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.