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The Consolidated Group (Income Tax) Rules

The Consolidated Group (Income Tax) Rules provide the possibility for a group of companies to elect to compute their chargeable income or losses on a collective basis. 

Guidelines were issued by the Commissioner for Revenue on the 18 May 2020 on the online registration process. 

Formation of a fiscal unit

Members of a fiscal unit may be either Maltese companies or foreign entities that fall within the definition of ‘a company registered in Malta’ for the purposes of the Income Tax Act.

For a fiscal unit to be formed, the parent company must hold at least 95% of the shares of its subsidiaries. Furthermore, the election is only possible where the group companies have the same accounting periods.

Once a fiscal unit is formed, the parent company would be the principal taxpayer and the subsidiaries would be transparent entities.

The principal taxpayer would assume all the rights, duties and obligations under the Income Tax Acts with respect to the subsidiaries forming part of the fiscal unit with the exception of any rights, duties and obligations arising from the Final Settlement System Rules which would remain attached to the respective subsidiaries.

With respect to the payment of any tax, administrative penalties and interest arising under the Income Tax Act, all the members of the fiscal unit would be jointly and severally liable.

Where a foreign company is involved, it would be required to register with the Commissioner for Revenue in order to be granted a Maltese income tax registration number.

Furthermore, the fiscal unit is required to prepare audited consolidated financial statements on an annual basis exclusively for those entities within the fiscal unit. 

Computing the chargeable income of a fiscal unit

In calculating the chargeable income of a fiscal unit, the following should be considered:

• Any income and gains earned by transparent entities is directly allocated to the principal taxpayer;
• All transactions between members of the same fiscal unit are ignored, subject to some exceptions relating to immovable property;
• Any balances carried forward by any of the transparent entities, such as unabsorbed losses, capital allowances and tax credits, and any profits allocated to the tax accounts, excluding the Untaxed Account, are taken over by the principal taxpayer;
• Relief for foreign income tax suffered by the transparent entities would be claimed by the principal taxpayer.

Should the shareholder of the principal taxpayer be registered for Maltese income tax refund purposes, the Rules allow the fiscal unit to apply an effective tax rate which would have been achieved post-dividend distribution and post-tax refund. As a result, in the context of groups eligible for tax refunds, the Consolidated Group (Income Tax) Rules could help achieve a low effective tax liability, without the need for a dividend distribution to the shareholder and without the need to pay tax at the standard rate and subsequently request a refund from the Maltese Tax Authorities.

Timeline

The timeframe within which an application to form a fiscal unit may be filed with the Commissioner for Revenue is between 1 August of the calendar year of the relevant financial period and not later than 6 months after the end of the financial year.

For further information, please contact Nicky Gouder or Luana Farrugia.