Article 16 to 22 of the Income Tax Act Chapter 123 of the Laws of Malta (hereinafter referred to as the ‘ITA’), referred to as ‘The Group Relief Provisions’ contemplates the possibility for companies forming part of the same group (as defined in Article 16 of the ITA) to surrender tax losses to one another. This enabled companies with excess current losses to surrender them to other companies forming part of the same group, resulting in cash flow benefits. The amounts to be surrendered have to be tax losses and therefore no unabsorbed capital allowances could be surrendered by a surrendering company or claimed by a claimant company.
By means of Legal Notice 205 of 2022 entitled ‘Group Deductions (Income Tax) Rules, 2022’, it has now become possible for companies to form part of the same group to surrender unabsorbed capital allowances to other members of the same group with effect from year of assessment 2022, subject to the following conditions:
- Allowable deductions which may be surrendered are unabsorbed capital allowances resulting in respect of years of assessment 2021 and 2022. Unabsorbed capital allowances carried forward from year of assessment 2020 and previous years are not to be considered as allowable deductions.
- Balancing allowances resulting from the disposal of plant and machinery in respect of years of assessment 2021 and 2022 shall be treated in the same manner as capital allowances for the purpose of these Rules
- Such allowable deductions can only be surrendered if either the claimant or the surrendering company is a beneficiary under which they were entitled to postpone the payment of certain taxes under the COVID-19 Fiscal Assistance – Postponement of Payment of Certain Taxes Tax Deferral Scheme
- The total allowable deductions that may be claimed shall not exceed Eur1,000,000 per group of companies
- The total amounts surrendered must be equal to the amounts claimed, thus eliminating the possibility for the claimant company to claim deductions in excess of its current total income for these to be carried forward. Thus the total allowable deductions which may be claimed by a claimant company shall not exceed the company’s total income for year of assessment 2022 (computed before any deductions are made in terms of these rules)
- Restrictions related to the set off against profits and the carry forward of losses by the claimant company found in Article 18(c) and (d) of the ITA, depending on to which tax accounts such losses would have been allocated had they been a profit are not applicable to these Rules.
A new TRA 125 had been included as part of the tax return for companies, by virtue of which claimant and surrendering companies may claim and surrender unabsorbed capital allowances as per the above-mentioned rules.
Prior to the publication of these Rules, the CfR had issued guidelines on the implementation of such rules. Such guidelines can be found by clicking here.