Guidelines in relation to the Consolidated Group (Income Tax) Rules

The Commissioner for Revenue (CfR) has recently published new guidelines in connection with the Consolidated Group (Income Tax) Rules.  These guidelines include aspects such as the registration process and the eligibility to form or leave a fiscal unit. (i) Eligibility to form part of a fiscal unit  In order to join or form part of […]

Written By Stephen Balzan

On May 23, 2020
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The Commissioner for Revenue (CfR) has recently published new guidelines in connection with the Consolidated Group (Income Tax) Rules.  These guidelines include aspects such as the registration process and the eligibility to form or leave a fiscal unit.

(i) Eligibility to form part of a fiscal unit 

In order to join or form part of a fiscal unit, a company should neither have any outstanding balances due nor any outstanding filings required in terms of the Income Tax Acts, the Value Added Tax Act and the Final Settlement System Rules.  Furthermore, in order for a company to join a previously established fiscal unit, the said fiscal unit would also need to have no overdue balances and/or penalties due to the CfR.  

Moreover, when the principal taxpayer elects for a ninety-five percent (95%) subsidiary to join or form part of the fiscal unit, and such company has already filed an income tax return for that year of assessment, the election will enter into effect as from the following year of assessment.  In order to join or form part of a fiscal unit, a company must be a ninety-five (95%) subsidiary of its parent company throughout the whole of the basis year. However, the provisions of article 18(2) of the Income Tax Act shall apply, meaning that newly incorporated companies  and companies which are wound up part way through the accounting period will still be considered to form part of the fiscal unit throughout the whole of the basis year.  

(ii)  Timeline 

The principal taxpayer shall be granted a 6-month period in order to register a fiscal unit, starting from the morrow of the financial period end, but not before 1 August of the calendar year of the financial period end.   For the following years of assessment, the principal taxpayer shall be granted a 6-month period in order to inform the CfR of any changes to the composition of the fiscal unit for the applicable year of assessment. Such period shall start from the morrow of the financial period end, but not before 1 August of the calendar year of the financial period end.  The above timeframes for the first year of assessment are outlined in Schedule A of the guidelines published by the CfR below and are subject to the discretion of the CfR (exceptionally, the first timeframe for registering a fiscal unit shall run from the launch date of the application till 31 August 2020). The timeframes for the following years of assessment should be construed accordingly.  

Thus those principal tax payers with a December 2019 year end, who will be preparing their financial statements for the calendar year ended 31st December 2019, must notify the CFR of their intention to form a fiscal unit by not later than the end of August 2020.

Following the lapse of the 6-month period, the principal taxpayer may not add or remove any subsidiary companies to the fiscal unit and may only remove existing transparent subsidiaries in instances where a change is effected in the structure. In order to remove transparent subsidiaries from the fiscal unit post the 6-month period mentioned above where there is a change in the structure, a request in writing should be made to the CfR. 

The obligation to notify the CfR of any changes rests with the principal taxpayer. 

(iii) Registration process 

Registration of the fiscal unit may only be done through the online profile of the principal taxpayer as accessed from the CfR income tax portal. 

Upon the initial formation of the fiscal unit, the registered tax representative is required to enter the total number of transparent subsidiaries that will be forming part of the fiscal unit, in which the principal taxpayer has direct or indirect ownership.  In order for the registered tax representative to add a company to the fiscal unit, the majority shareholder of such company should already be included within the registration form of the fiscal unit. 

On the other hand, the registered tax representative may only remove a company from the fiscal unit once all subsidiaries of such company have already been removed from the registration form of the fiscal unit. This is done to ensure that parent companies are not removed prior to the removal of the subsidiary companies. 

(iv) Registered tax representative 

In order for a company to join or form part of a fiscal unit, such company must be represented by the same registered tax representative as that of the principal taxpayer. The registered tax representative should have authorisation to submit the income tax returns of all companies which are to join or form part of the fiscal unit as at the date of the election as set out in Rule 3(1) of the Rules. 

In the instance where the principal taxpayer changes its registered tax representative with respect to the submission of the income tax return, it is deemed that the new registered tax representative is the representative of all companies within the fiscal unit for the purpose of submitting an income tax return, even when a company exits the fiscal unit. 

During the period in which a transparent subsidiary forms part of a fiscal unit, the option to alter its registered tax representative with respect to the submission of the income tax return will not be available. 

(v) Approval of minority shareholder/(s) 

In terms of Rule 3(1) and Rule 4(1) of the Rules, where the approval of the holders of the equity shares which are not owned, directly or indirectly, by the parent company is required, such approval is to be maintained by the principal taxpayer to be available in the event that this is requested by the CfR. 

(vi) Non-resident company registration 

In terms of the Rules, in order for a non-Maltese-resident company to form part of a fiscal unit (whether as a principal taxpayer or a transparent subsidiary), that company should fall within the definition of “a company registered in Malta”.  A company registered in Malta is defined by Article 2(1) of the ITA to be a company which is resident in Malta or a company which although not resident in Malta, carries on any activity in Malta.  In the case of a company which is nether incorporated nor resident in Malta, a company registered in Malta must be a company which is registered for Maltese income tax purposes with the CfR.

Thus, in such instances, the foreign company would also be required to register with the CfR in order for it to be granted a Maltese income tax registration number.    In order to satisfy such a definition for the purposes of the Rules, a foreign principal taxpayer would need to have a fiscal representative in Malta. Such a fiscal representative may be a Maltese-resident transparent subsidiary forming part of the fiscal unit.  

(vii) Termination of a fiscal unit 

Prior to terminating a fiscal unit, all transparent subsidiaries must be removed from the registration form of the fiscal unit.  

Where the principal taxpayer is the exiting company in terms of Rule 5(1) of the Rules, the fiscal unit is deemed to cease existing with effect from the start of the basis year in which the principal taxpayer exits.

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

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