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Malta: Malta publishes tax grouping rules

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The recently published Consolidated Group (Income Tax) Rules, 2019, grant groups, as defined therein, the option to be treated as a single ‘fiscal unit’ for income tax purposes.

The recently published Consolidated Group (Income Tax) Rules, 2019, grant groups, as defined therein, the option to be treated as a single 'fiscal unit' for income tax purposes.

These rules apply to companies generally (including entities treated as such for income tax purposes), with some exceptions, as well as to trusts whose trustees have opted to have them taxed as a company and foundations, thus offering opportunities for increased efficiencies across different types of groups. The rules also address the reality of groups that include both resident and non-resident entities.

The rules come into force with respect to fiscal units having accounting periods commencing in 2019. Income tax grouping is optional – the option is exercised by the parent company (as defined) subject to the approval of any minority shareholders external to the group, if any. The exercise of the said option is subject to certain conditions, including:

  • The parent company must have at least 95% of any two of voting rights, beneficial entitlement to profits and beneficial entitlement to assets available on a winding up, in the subsidiary (as defined); and

  • All group entities must have an identical financial year end.

Groups exercising this option shall constitute a 'fiscal unit' for income tax purposes, said unit being composed of the 'principal taxpayer', being the parent company, and its direct and indirect subsidiaries, and its 'transparent subsidiaries'.

The rules provide that the parent company within the fiscal unit is to be considered as the principal taxpayer, and as such it assumes the rights, duties and obligations under the Income Tax Acts of its transparent subsidiaries. There is, however, joint and several liability for the payment of tax, additional tax and interest where the transparent subsidiaries are fully owned by the parent company. The rules also cater for the apportionment of intra-group taxes.

During such time as the group is considered to be a single fiscal unit, the rights, duties and obligations of the transparent subsidiaries are suspended. In practice, a single tax return is to be submitted by the principal taxpayer on behalf of the fiscal unit, and this on the basis of audited consolidated financial statements (it is noted that there appears to be no requirement for these financial statements to be submitted to various regulators for registration).

The rules also contain detailed provisions catering for several important matters, such as:

  • The way in which the balances of tax-deductible items, such as capital allowances and tax losses, are to be transferred and applied intra-group. The rules also permit group entities to charge a fee intra-group for the transfer of the same. The rules also cater for the treatment of these balances upon the exit of an entity forming part of the fiscal unit;

  • The way in which balances on the tax accounts of the various group members are to be transferred and treated intra-group; and

  • The chargeable income of the fiscal unit for the year of assessment in question is to be computed as if such income was derived by the principal taxpayer and is brought to charge in its name at the applicable rate/s. In computing such chargeable income, intra-group transactions generally are to be ignored. Likewise dividends: the same principle also applies to outgoings and intra-group expenses, refunds of taxation, and so forth, all of which are to be taken into consideration in determining the tax rate to be applied to the fiscal unit's chargeable income computed according to the Income Tax Acts.

Naturally, the rules also include detailed anti-abuse provisions.

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