2018, as amended by Legal Notices 348
2019 and 29
these regulations is the European Union AntiTax Avoidance Directives Implementation Regulations. Citation. 2.
Directive (EU) 2016/1164
12 July 2016, as amended by Directive (EU) 2017/952
29 May 2017, adopted by the Council
the European Union, laying down rules against tax avoidance practices that directly affect the functioning
the internal market. Scope. Amended by: L.N. 348
2019.
the Income Tax Acts. 3. For the purposes
these regulations, unless the context otherwise requires: "associated enterprise" means: (a) an entity in which the taxpayer holds directly or indirectly a participation in terms
voting rights or capital ownership
25 per cent or more or is entitled to receive twentyfive per cent (25%) or more
the profits
that entity; (b) an individual or entity which holds directly or indirectly a participation in terms
voting rights or capital ownership in a taxpayer
twenty-five per cent (25%) or more or is entitled to receive twenty-five per cent (25%) or more
the profits
the taxpayer: If an individual or entity holds directly or indirectly a participation
twenty-five per cent (25%) or more in a taxpayer and one or more entities, all the entities concerned, including the taxpayer, shall also be regarded as associated enterprises For the purposes
regulations 9 and 10: Definitions. Amended by: L.N. 348
2019. 2 [ S.L. 123.187 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION (
the definition
"hybrid mismatch" or where an adjustment is required under regulation 9
the voting rights or capital ownership
an entity shall be treated as holding a participation in all
the voting rights or capital ownership
that entity that are held by the other person; (iii) an associated enterprise also means an entity that is part
the same consolidated group for financial accounting purposes as the taxpayer, an enterprise in which the taxpayer has a significant influence in the management or an enterprise that has a significant influence in the management
the taxpayer;; "borrowing costs" means interest expenses on all forms
debt, other costs economically equivalent to interest and expenses incurred in connection with the raising
finance taking into consideration definitions found in Maltese law, including, without being limited to, payments under profit participating loans, imputed interest on instruments such as convertible bonds and zero coupon bonds, amounts under alternative financing arrangements, such as Islamic finance, the finance cost element
finance lease payments, capitalised interest included in the balance sheet value
a related asset, or the amortisation
capitalised interest, amounts measured by reference to a funding return under transfer pricing rules where applicable, notional interest amounts under derivative instruments or hedging arrangements related to an entity's borrowings, certain foreign exchange gains and losses on borrowings and instruments connected with the raising
finance, guarantee fees for financing arrangements, arrangement fees and similar costs related to the borrowing
funds; "consolidated group for financial accounting purposes" means a group consisting
all entities which are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or any other financial reporting system as may be determined by means
guidelines issued under article 96
the Act; "exceeding borrowing costs" means the amount by which the deductible borrowing costs
a taxpayer in terms
the Act, were it not EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 for the provisions
these regulations, exceed taxable interest revenues and other economically equivalent taxable revenues that the taxpayer receives; "financial undertaking" means any
the following entities: (a) a credit institution or an investment firm as defined in point
Directive 2004/39/EC
the European Parliament and
the Council or an alternative investment fund manager (AIFM) as defined in point (b)
Directive 2011/61/EU
the European Parliament and
the Council or an undertaking for collective investment in transferable securities (UCITS) management company as defined in point (b)
Directive 2009/65/EC
the European Parliament and
the Council; (b) an insurance undertaking as defined in point
Directive 2009/138/EC
the European Parliament and
the Council; (c) a reinsurance undertaking as defined in point
Directive 2009/138/EC; (d) an institution for occupational retirement provision falling within the scope
Directive 2003/41/EC
the European Parliament and
the Council; (e) pension institutions operating pension schemes which are considered to be social security schemes covered by Regulation (EC) No 883/2004
the European Parliament and
the Council and Regulation (EC) No 987/2009
the European Parliament and
the Council as well as any legal entity set up for the purpose
investment
such schemes; (f) an alternative investment fund (AIF) managed by an AIFM as defined in point (b)
Directive 2011/ 61/EU or an AIF supervised under the Investment Services Act; (g) UCITS in the meaning
Directive 2009/65/EC; (h) a central counterparty as defined in point
Regulation (EU) No 648/2012
the European Parliament and
the Council; (i) a central securities depository as defined in point
Regulation (EU) No 909/2014
the European Parliament and
the Council; "hybrid mismatch" means a situation involving a taxpayer or, with respect to regulation 9
time; and (ii) the mismatch outcome is attributable to differences in the characterisation
the instrument or the payment made under it. For the purposes
sub-paragraph (i), a payment under a financial instrument shall be treated as included in income within a reasonable period
time where: (A) the payment is included by the jurisdiction
the payee in a tax period that commences within twelve
the end
the payer's tax period; or (B) it is reasonable to expect that the payment will be included by the jurisdiction
the payee in a future tax period and the terms
payment are those that would be expected to be agreed between independent enterprises; (b) a payment to a hybrid entity gives rise to a deduction without inclusion and that mismatch outcome is the result
differences in the allocation
payments made to the hybrid entity under the laws
the jurisdiction where the hybrid entity is established or registered and the jurisdiction
any person with a participation in that hybrid entity; (c) a payment to an entity with one
differences in the allocation
payments between the head
fice and permanent establishment or between two
the same entity under the laws
the jurisdictions where the entity operates; (d) a payment gives rise to a deduction without inclusion as a result
a payment to a disregarded permanent establishment; (e) a payment by a hybrid entity gives rise to a deduction without inclusion and that mismatch is the result
the fact that the payment is disregarded under the laws
the payee jurisdiction; (f) a deemed payment between the head
fice and permanent establishment or between two
the fact that the payment is disregarded under the laws
the payee jurisdiction; or (g) a double deduction outcome occurs: Provided that for the purposes
this definition: (
f against an amount that is not dualinclusion income; (iii) a mismatch outcome shall not be treated as a hybrid mismatch unless it arises between associated enterprises, between a taxpayer and an associated enterprise, between the head
fice and permanent establishment, 5 6 [ S.L. 123.187 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION between two
the same entity or under a structured arrangement: Provided further that for the purposes
this definition and regulations 9, 10 and 11: "deduction" means the amount that is treated as deductible from the taxable income under the laws
the payer or investor jurisdiction. The term "deductible" shall be construed accordingly; "deduction without inclusion" means the deduction
a payment or deemed payment between the head
fice and permanent establishment or between two
that payment or deemed payment in the payee jurisdiction. The payee jurisdiction is any jurisdiction where that payment or deemed payment is received, or is treated as being received under the laws
any other jurisdiction; "disregarded permanent establishment" means any arrangement that is treated as giving rise to a permanent establishment under the laws
the head
fice jurisdiction and is not treated as giving rise to a permanent establishment under the laws
the other jurisdiction; "double deduction" means a deduction
the same payment, expenses or losses in the jurisdiction in which the payment has its source, the expenses are incurred or the losses are suffered (payer jurisdiction) and in another jurisdiction (investor jurisdiction). In the case
a payment by a hybrid entity or permanent establishment the payer jurisdiction is the jurisdiction where the hybrid entity or permanent establishment is established or situated; "dual inclusion income" means any item
income that is included under the laws
both jurisdictions where the mismatch outcome has arisen; "financial instrument" means any instrument to the extent that it gives rise to a financing or equity return that is taxed under the rules for taxing debt, equity or EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 derivatives under the laws
either the payee or payer jurisdictions and includes a hybrid transfer; "financial trader" is a person or entity engaged in the business
regularly buying and selling financial instruments on its own account for the purposes
making a profit; "hybrid entity" means any entity or arrangement that is regarded as a taxable entity under the laws
one
one
another jurisdiction; "hybrid transfer" means any arrangement to transfer a financial instrument where the underlying return on the transferred financial instrument is treated for tax purposes as derived simultaneously by more than one
the parties to that arrangement; "inclusion" means the amount that is taken into account in the taxable income under the laws
the payee jurisdiction. A payment under a financial instrument shall not be treated as included to the extent that the payment qualifies for any tax relief solely due to the way that payment is characterised under the laws
the payee jurisdiction. The term "included" shall be construed accordingly; "mismatch outcome" means a double deduction or a deduction without inclusion; "on-market hybrid transfer" means any hybrid transfer that is entered into by a financial trader in the ordinary course
business, and not as part
a structured arrangement; "person" means an individual or entity; "tax relief" means a tax exemption, reduction in the tax rate or any tax credit or refund (other than a credit for taxes withheld at source); "structured arrangement" means an arrangement involving a hybrid mismatch where the mismatch outcome is priced into the terms
the arrangement or an arrangement that has been designed to produce a hybrid mismatch outcome, unless the taxpayer or an associated enterprise could not reasonably have been expected to be aware
the hybrid mismatch and did not share in the value
the tax benefit resulting from the hybrid mismatch; "tax period" means the year immediately preceding the year
assessment referred to in articles 10 and 11
the Act, as applicable; "transfer
assets" means an operation whereby Malta loses the 7 8 [ S.L. 123.187 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION right to tax the transferred assets, whilst the assets remain under the legal or economic ownership
the same taxpayer and "transferred assets" shall be construed accordingly; "transfer
tax residence" means an operation whereby a taxpayer ceases to be resident for tax purposes in Malta, whilst acquiring tax residence in another EU Member State or third country; "transfer
a business carried on by a permanent establishment" means an operation whereby a taxpayer ceases to have taxable presence in Malta whilst acquiring such presence in another EU Member State or third country without becoming resident for tax purposes in that Member State or third country. Interest limitation rule. Amended by: L.N. 348
2019. 4.
the taxpayer's earnings before interest, tax, depreciation and amortisation (hereinafter referred to as "EBITDA"). For the purpose
this regulation, and in accordance with guidelines issued by the Commissioner, the following may also be treated as a taxpayer: (a) an entity which is permitted or required to apply the rules on behalf
a group, as recognised for the purposes
Maltese tax law; (b) an entity in a group, as recognised for the purposesof Maltese tax law, which does not consolidate the results
itsmembers for tax purposes. In such circumstances, exceeding borrowing costs and the EBITDA may be calculated at the level
the group and comprise the results
all its members.
sub-regulation
subregulation
three million euro (€3,000,000) shall be considered for the entire group; (b) fully deduct exceeding borrowing costs if the EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 taxpayer is a standalone entity. For the purposes
this paragraph, "a standalone entity" means a taxpayer that is not part
a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment.
such loans; (b) costs incurred on loans used to fund a long-term public infrastructure project where the project operator, borrowing costs, assets and income are all in the European Union, where the Commissioner is satisfied that the financing arrangements for the project have special features which justify such treatment with regards to other financing arrangements subject to the provisions
this regulation: Provided that – (
the taxpayer, and any excluded exceeding borrowing cost shall not be included in the exceeding borrowing costs
the group vis-à-vis third parties referred to in paragraph (b)
sub-regulation
a consolidated group for financial accounting purposes, the taxpayer may fully deduct its exceeding borrowing costs if it can demonstrate that the ratio
its equity over its total assets is equal to or higher than the equivalent ratio
the group and subject to the following conditions: (a) the ratio
the taxpayer's equity over its total assets is considered to be equal to the equivalent ratio
the group if the ratio
the taxpayer's equity over its total assets is lower by up to two
guidelines issued under article 96
the Act. 9 10 [ S.L. 123.187 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION
five
sub-regulations
a consolidated group for financial accounting purposes.
this regulation, the consolidated group for financial accounting purposes consists
all entities which are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or any other accounting standard as determined by means
guidelines issued under article 96
the Act. Exit taxation. 5.*
the transferred assets, at the time
exit
the assets, less their value for tax purposes, in any
the following circumstances: (a) a taxpayer transfers assets from its head
fice in Malta to its permanent establishment in another EU Member State or in a third country in so far as Malta no longer has the right to tax capital gains from the transfer
such assets due to the transfer; (b) a taxpayer transfers assets from its permanent establishment in Malta to its head
fice or another permanent establishment in another EU Member State or in a third country in so far as Malta no longer has the right to tax capital gains from the transfer
such assets due to the transfer; (
such assets due to the transfer.
an exit tax referred to in sub-regulation
the following circumstances: (a) a taxpayer transfers assets from its head
fice in Malta to its permanent establishment in another EU Member State or in a third country that is party to the Agreement on the European Economic Area (EEA Agreement); (b) a taxpayer transfers assets from its permanent establishment in Malta to its head
fice or another permanent establishment in another EU Member State or a third country that is party to the EEA Agreement; (
this sub-regulation relating to deferment
payment
the exit tax shall apply – (a) also to third countries that are party to the EEA Agreement if they have concluded an agreement with Malta or with the European Union on the mutual assistance for the recovery
tax claims, equivalent to the mutual assistance provided for in Council Directive 2010/24/EU; and (b) where the Commissioner has approved a request made in writing for such deferment.
article 44(2A)
the Income Tax Management Act. (b) Where there is a demonstrable and actual risk
non-recovery, the Commissioner may request taxpayers to provide a guarantee as a condition for deferring the payment in accordance with sub-regulation
payment shall be immediately discontinued, and the tax debt becomes recoverable in the following cases: (a) the transferred assets or the business carried on by the permanent establishment
the taxpayer are sold or otherwise disposed
; (
time, which shall not exceed twelve
tax claims, equivalent to the mutual assistance provided for in Directive 2010/24/EU. Cap. 372.
the relevant assets for tax purposes in Malta shall be that established by that other EU Member State, unless the Commissioner determines through an enquiry and assessment made in accordance with the provisions
article 31
the Income Tax Management Act that such value does not reflect the market value. For the purposes
the said determination, the Commissioner shall engage an independent person that is an expert in the field.
sub-regulations
this regulation shall not apply in the case
asset transfers related to the financing
securities, assets posted as collateral or where the asset transfer takes place in order to meet prudential capital requirements or for the purpose
liquidity management: Provided that such assets are set to revert to Malta within a period
twelve
exit
such assets from Malta. General anti-abuse rule. 6.
calculating the tax liability in according with the Income Tax Acts, there shall be ignored an arrangement or a series
arrangements which, having been put into place for the main purpose or one
the main purposes
obtaining a tax advantage that defeats the object or purpose
the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 13
sub-regulation
the Income Tax Acts. 7.
which the profits are not subject to tax or are exempt from tax shall be treated as a controlled foreign company where the following conditions are met: (a) in the case
an entity, the taxpayer by itself, or together with its associated enterprises holds a direct or indirect participation
more than fifty per cent (50%)
the voting rights, or owns directly or indirectly more than fifty per cent (50%)
capital or is entitled to receive more than fifty per cent (50%)
the profits
that entity; and (b) the actual corporate tax paid on its profits by the entity or permanent establishment is lower than the difference between the tax that would have been charged on the entity or permanent establishment under the Income Tax Acts and the actual corporate tax paid on its profits by the entity or permanent establishment: Provided that for the purposes
this paragraph, the permanent establishment
a controlled foreign company that is not subject to tax or is exempt from tax in the jurisdiction
the controlled foreign company shall not be taken into account: Provided also that the tax that would have been charged in Malta means the tax as computed according to the Income Tax Acts.
the entity or permanent establishment arising from non-genuine arrangements which have been put in place for the essential purpose
obtaining a tax advantage. For the purposes
this sub-regulation, an arrangement or a series thereof shall be regarded as non-genuine to the extent that the entity or permanent establishment would not own the assets or would not have undertaken the risks which generate all, or part
, its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income: Provided that the said company is the taxpayer and the said significant people functions are carried out in Malta. Controlled foreign company rule. 14 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187
sub-regulation
no more than seven hundred and fifty thousand euro (€750,000), and non-trading income
no more than seventy-five thousand euro (€75,000); or (b)
which the accounting profits amount to no more than ten per cent (10%)
its operating costs for the tax period: Provided that the operating costs may not include the cost
goods sold outside the country where the entity is resident, or the permanent establishment is situated, for tax purposes and payments to associated enterprises. Computation
controlled foreign company income. 8. For the purposes
regulation 7 - (a) the income to be included in the tax base
the taxpayer shall be limited to amounts generated through assets and risks which are linked to significant people functions carried out by the controlling company. The attribution
controlled foreign company income shall be calculated in accordance with the arm's length principle; (b) the income to be included in the tax base shall be calculated in proportion to the taxpayer's participation in the entity as defined in paragraph (a)
regulation 7
the taxpayer in which the tax year
the entity ends; (d) where the entity distributes profits to the taxpayer, and those distributed profits are included in the taxable income
the taxpayer, the amounts
income previously included in the tax base pursuant to regulation 7 shall be deducted from the tax base when calculating the amount
tax due on the distributed profits, in order to ensure there is no double taxation; (e) where the taxpayer disposes
its participation in the entity or
the business carried out by the permanent establishment, and any part
the proceeds from the disposal previously has been included in the tax base pursuant to regulation 7, that amount shall be deducted from the tax base when calculating the amount
tax due on those proceeds, in order to ensure there is no double taxation; (f) there shall be allowed a credit
the tax paid by the entity or permanent establishment against the tax liability
the taxpayer. The credit shall be calculated in accordance with the provisions
articles 77 and 82
the Act. EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 * 9.
f against dual inclusion income whether arising in a current or subsequent tax period.
the payment that would otherwise give rise to a mismatch outcome shall be included in income if Malta is the payee jurisdiction and the deduction is not denied in the payer jurisdiction.
transactions between associated enterprises or entered into as part
a structured arrangement except to the extent that one
the jurisdictions involved in the transaction or series
transactions has made an equivalent adjustment in respect
such hybrid mismatch.
application: (a) paragraph (b)
sub-regulation
the definition
"hybrid mismatch" in regulation 3; (
sub-regulation
interest under a financial instrument to an associated enterprise where: (
satisfying loss absorbing *Applicable from 1st January, 2020. 15 Hybrid mismatches. Added by: L.N. 348
2019. 16 [ S.L. 123.187 EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION capacity requirements applicable to the banking sector and the financial instrument is recognised as such in the taxpayer's loss absorbing capacity requirements; (iii) the financial instrument has been issued: (A) in connection with financial instruments with conversion, bail-in or write down features at the level
a parent undertaking; (B) at a level necessary to satisfy applicable loss absorbing capacity requirements; (C) not arrangement; and as part
a structured (iv) the overall net deduction for the consolidated group under the arrangement does not exceed the amount that it would have been had the taxpayer issued such financial instrument directly to the market: Provided that the provisions
this paragraph (b) shall only apply until 31 December 2022.
a disregarded permanent establishment
a taxpayer resident in Malta which is not otherwise subject to tax in Malta, that taxpayer shall include in its income the income that would otherwise be attributed to the disregarded permanent establishment. This applies unless Malta is required to exempt the income
the permanent establishment in terms
a double taxation treaty entered into by Malta with a third country.
the parties involved, the benefit
such relief shall be limited in proportion to the net taxable income regarding such payment. Reverse hybrid mismatches. Added by: L.N. 348
2019; Amended by: L.N. 29
2020. 10.
the voting rights, capital interests or rights to a share
profit in a hybrid entity that is incorporated or established in Malta are located in a jurisdiction or jurisdictions that regard the hybrid entity as a taxable person, the hybrid entity shall be regarded as a resident
Malta and taxed on its income to the extent that that income is not otherwise taxed under any other provision
the Income Tax Acts or in any other jurisdiction.
this regulation, "collective EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION [ S.L. 123.187 17 investment vehicle" means an investment fund or vehicle that is widely held, holds a diversified portfolio
securities and is subject to investor-protection regulation in the country in which it is established. 11.* To the extent that a deduction for payment, expenses or losses
a taxpayer who is resident for tax purposes in Malta and in another jurisdiction is deductible from the tax base in Malta and in that other jurisdiction, the deduction shall be denied to the extent that the other jurisdiction allows the duplicate deduction to be set
f against income that is not dual-inclusion income. If the other jurisdiction is a Member State, the deduction shall be denied only if the taxpayer is not deemed to be resident in Malta according to the double taxation treaty between Malta and the other Member State concerned. *Applicable from 1st January, 2020. Tax residency mismatches. Added by: L.N. 348
2019.
AI explanation based on the official legal text. Indicative, not a substitute for legal advice.