The Malta Consolidated Group (Income Tax) Rules: The Salient Features of the Fiscal Unity

MEDIA ROOM

A parent company may make an election in order for itself and its ninety-five per cent (95%) subsidiary to form a fiscal unit. A parent company means a company that holds shares in another company (hereinafter, for the purposes of this definition, “the subsidiary company”) that, in the year prior to the year of assessment in which an election is made, meets any two of the following conditions:

(a) the parent company holds at least ninety-five percent (95%) of the voting rights in the subsidiary company;
(b) the parent company is beneficially entitled to at least ninety-five per cent (95%) of any profits available for distribution to the ordinary shareholders of the subsidiary company;
(c) the parent company would be beneficially entitled to at least ninety-five per cent (95%) of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.

Where a parent company has made an election in respect of more than one ninety-five per cent (95%) subsidiary, each ninety-five per cent (95%) subsidiary in respect of which the election is made shall form part of the same fiscal unit of its parent company.

Important Features

– No company shall form part of more than one fiscal unit at any one time.
– An election made in terms of this rule shall be made in such form as the Commissioner may require. The fiscal unit shall be registered as such and the principal taxpayer shall assume the rights, duties and obligations under the Income Tax Acts relative to that fiscal unit.
– An election made in terms of this rule may be revoked in such form and under such conditions as the Commissioner may require.
– An election made by a parent company shall become effective as from the year of assessment in which it is made.

Where a ninety-five per cent (95%) subsidiary joins a fiscal unit, the effects are as follows:

(a) the balance of any item allowed to be carried forward or any other tax credits that may be carried forward in terms of any other law, and
(b) the balance of any profits allocated to the tax accounts, excluding the untaxed account, of the ninety-five percent (95%) subsidiary, existing at the end of the basis year preceding that with regard to which the election for the ninety-five per cent (95%) subsidiary to join the fiscal unit becomes effective, shall be considered to be a balance of the principal taxpayer as from the basis year with regard to
Which the election for the ninety-five per cent (95%) subsidiary to join the fiscal unit becomes effective.

The Chargeable Income of the Fiscal Unit

The chargeable income of a fiscal unit for a year of assessment shall be computed as if such income was derived by the principal taxpayer and shall be chargeable to tax in the name of the principal taxpayer at the rate/s applicable thereto and as prescribed by the rules.

Double Tax Relief

Any foreign tax suffered by a company forming part of the fiscal unit shall be deemed to have been incurred by the principal taxpayer, and where evidence of such foreign tax is in the name of a company forming part of the fiscal unit, it shall be deemed that such evidence is in the name of the principal taxpayer.

Tax Accounts

The principal taxpayer shall be required to allocate the profits attributable to it in terms of these rules to the same tax accounts and in the same manner as it otherwise would have, had it derived those profits directly. The distributable profits of the transparent subsidiaries shall be allocated to the untaxed account.

Consolidated audited accounts

Every principal taxpayer shall be required for each year to prepare a consolidated balance sheet and consolidated profit and loss account covering all the companies in the fiscal unit of which it is the principal taxpayer up to the day immediately preceding the commencement of the next following year of assessment or up to such other day as has been permitted.

Income Tax Return

Every principal taxpayer shall file a self-assessment and return in respect of the fiscal unit of which it is the principal taxpayer in such manner as the Commissioner shall determine. The provisions of the Act and of the Income Tax Management Act and of any rules prescribed thereunder shall apply mutatis mutandis to such self-assessment and return in the same manner as they apply to any company to which these rules do not apply.

Where a company other than the principal taxpayer forms part of a fiscal unit, such company shall be exempted from the requirement to file a self-assessment and an income tax return.

Anti-Abuse Measures

Without prejudice to the provisions of article 51 of the Income Act or any other general anti-avoidance rules under the Income Tax Acts, where in relation to a transaction, or to a series of transactions, the principal taxpayer, the shareholders thereof or the individual direct or indirect beneficial owners of the principal taxpayer, or any person which is controlled and beneficially owned directly or indirectly to the extent of more than fifty per cent (50%) by the same individuals, is in a position to obtain an undue advantage which has the effect of reducing their liability to tax in a manner which is not reconcilable with the object and purpose of this sub-rule, the Commissioner shall determine the relevant liability to tax in such manner and in such amount as may be necessary so as to nullify any such benefit or advantage.

Leaving a Fiscal Unit

Where an existing company ceases to remain part of the old fiscal unit or where a fiscal unit ceases to exist, amongst others, the effects are:

(a) the balance of any trading loss, unabsorbed deductions for wear and tear, except for those unabsorbed deductions;
(b) losses claimed under the group relief provisions and any other loss, allowance or otherwise, and the balance of any profits allocated to the tax accounts, that are considered in terms of these rules to be balances pertaining to the principal taxpayer, shall continue, for all intents and purposes of the Income Tax Act, to pertain to the company being the principal taxpayer of the fiscal unit and the relevant provisions of the Acts shall accordingly apply to such losses, unabsorbed deductions for wear and tear or such other loss, allowance or otherwise.

Contact our Tax Team to benefit from the applicable Fiscal Unity Rules on [email protected]