Tax Accounts (Income Tax) (Amendment) Rules, 2011

L.N. 247 of 2011

INCOME TAX ACT

(CAP. 123)

Tax Accounts (Income Tax) (Amendment) Rules, 2011

IN EXERCISE of the powers conferred by articles 2 and 96 of

the Income Tax Act, hereinafter referred to as "the Act", the Minister

of Finance, the Economy and Investment has made the following

(1) The title of these rules is the Tax Accounts (Income

Tax) (Amendment) Rules, 2011, and these rules shall be read and

construed as one with the Tax Accounts (Income Tax) Rules,

hereinafter referred to as "the principal rules".

(2) These rules shall be applicable as from the year of

assessment 2012.

Rule 3 of the principal rules shall be amended as follows

(a) paragraph (a) thereof shall be substituted by the

following

"(a) profits after tax resulting from income which

has been charged to tax under the investment income

provisions, and where such investment income is that

referred to in article 41(a)(viii) (2), (3), (4) and (5) of the

Act such income shall be allocated to the final tax account

of the company only when such company has actually

received that income;"; and

(b) immediately after paragraph (e) thereof, there shall

be added the following new paragraph

"(ee) gains or profits chargeable to tax in

accordance with the provisions of article 23 of the Act.".

Rule 5 of the principal rules shall be amended as follows

(a) the present provisions of sub-rule (2) thereof shall

be renumbered as paragraph (a) of sub-rule (2) and immediately

thereafter there shall be added the following new paragraph

"(b) The amount of chargeable income after tax

resulting from any profits or gains in respect of which a

company has exercised its option to make an election in

accordance with rule 9.";

(b) sub-paragraph (ii) of paragraph (b) of sub-rule (3)

thereof shall be amended as follows

(i) for the words "at the rate of 5% in terms of

item 1" there shall be substituted the words "at the rate

established in terms of item 1"; and

(ii) for the words "5% Vatable Sales" wherever

they occur in the said sub-paragraph, there shall be

substituted the words "Vatable Sales";

(c)

immediately after sub-paragraph (ii) of paragraph

(b) of sub-rule (3) thereof, there shall be added the following

new sub-paragraph

"(iii) the amount of chargeable income after tax

resulting from profits directly derived from, and not

merely from the utilisation of, services provided through

the use of cables, wires, pipes and any other material,

device or apparatus, where such cable, wire, pipe, material,

device or apparatus is annexed to a tenement or installed in

the ground permanently to remain incorporated therewith.

For the purpose of this sub-paragraph, the provision of

services shall include the provision of electricity, energy,

gas, fuel, water, telephone services, telecommunication

infrastructures, electronic communications services,

electronic communication networks, associated facilities,

services and data, radio and television;";

(d) in paragraph (d) of sub-rule (3) thereof, for the

words "5% Vatable Sales" there shall be substituted the words

"Vatable Sales";

(e)

in the proviso to sub-paragraph (ii) of paragraph (e)

of sub-rule (3) thereof, for the words "which for such reason

could not be allocated shall be added to the amount to be

allocated for the following year" there shall be substituted the

words "which for such reason could not be allocated shall, in so

far as not allocated to the immovable property account of a

related company or companies in accordance with sub-rule (7),

be added to the amount to be allocated for the following year";

(f)

in paragraph (h) of sub-rule (3) thereof, for the

words "sixty euro (€60) per annum:" there shall be substituted

the words "two hundred and fifty euro (€ 250) per annum:" and

for the words "which for such reason could not be allocated

shall be added to the amount to be allocated for the following

year" there shall be substituted the words "which for such

reason could not be allocated shall, in so far as not allocated to

the immovable property account of a related company or

companies in accordance with sub-rule (7), be added to the

amount to be allocated for the following year";

(g) immediately after sub-rule (6) thereof, there shall be

added the following new sub-rules

"(7) (a) Where, in accordance with the provisions

of sub-rule (3)(e) and (h), the allocation of profits in terms

of the said paragraphs cannot for any year be made by a

company because there are no or insufficient profits which

have suffered tax, or is not made as a result of the company

making an election in accordance with rule 9, the amount

required to be allocated to the immovable property account

in accordance with the said paragraphs, which for such

reason could not be so allocated or is not so allocated, shall

be allocated to the immovable property account of a

related company. For the purpose of this sub-rule a related

company excludes a company which has made an election

in accordance with rule 9

Provided that the amount allocated to the

immovable property account of the related company shall

not exceed the amount of distributable profits derived by

the related company, which would have, ignoring the

provisions of this sub-rule, been allocated to the Maltese

Taxed Account and the Foreign Income Account.

(b) For the purpose of allocating profits to the

immovable property account of a related company in

accordance with this sub-rule, the allocation of profits to

the tax accounts of the related company shall first be made

ignoring this sub-rule and thereafter the amounts which are

to be allocated to the immovable property account in

accordance with this sub-rule shall be transferred from the

amount of distributable profits derived by the related

company in the accounting period ending in the year

preceding year of assessment 2012 and subsequent years of

assessment which would have, ignoring the provisions of

this sub-rule, been allocated to the Maltese Taxed Account

and the Foreign Income Account; and for this purpose such

amount shall first be transferred from amounts which

would have been allocated to the Maltese Taxed Account

and then from amounts which would have been allocated

to the Foreign Income Account.

(c) Where the company referred to in paragraph

(a) is related to more than one company, the amount to be

allocated in accordance with this sub-rule shall first be

allocated by the related company in which the parent

company, as defined in sub-rule (9)(a), has the highest

beneficial entitlement to the amount of distributable

profits derived in the respective accounting period

allocated to the Maltese Taxed Account and the Foreign

Income Account, and any balance of the amount not so

allocated by the said related company shall then be

allocated by the related company in which the said parent

company has the second highest beneficial entitlement to

the amount of distributable profits derived in the

respective accounting period allocated to the Maltese

Taxed Account and the Foreign Income Account, and so

on

Provided that, for the purposes of determining the

related company in which the parent company has the

highest beneficial entitlement to the amount of

distributable profits derived in the respective accounting

period allocated to the Maltese Taxed Account and the

Foreign Income Account as required in terms hereof, the

parent company shall, itself, constitute one of the related

companies by which an allocation must be made in terms

of paragraph (a) and, for the purposes of determining the

hierarchy in the manner as prescribed immediately above,

the parent company shall be deemed to hold a 100%

beneficial entitlement to the amount of distributable

profits derived in the respective accounting period

allocated to the parent company’s Maltese Taxed Account

and the Foreign Income Account.

(d) Where the tax return date, as determined in

accordance with article 10 of the Income Tax Management

Act, of the company referred to in paragraph (a) is later

than the tax return date of the related company, the amount

to be allocated to the immovable property account of the

related company in accordance with the said paragraph

shall be transferred from the amount of distributable

profits derived by the related company in the accounting

period ending in the year preceding the year of assessment

immediately following the year of assessment of the

company referred to in the said paragraph.

(e) Dividends received from a company

registered in Malta shall be disregarded for the purposes of

the allocation referred to in paragraph (a) and for the

purposes of making the hierarchical determination required

in terms of paragraph (c) and the term ‘distributable

profits’ shall, throughout this sub-rule, be read and

construed accordingly.

(8) (a) Where, in the year preceding year of

assessment 2012 and subsequent years of assessment, a

company derives profits consisting of interest, royalties,

fees or any other consideration howsoever described

(hereinafter collectively referred to as ‘the consideration’)

derived from the granting of loans or any form of credit or

from the provision of services to a related company or

from the use of tangible or intangible assets by a related

company, the company deriving the said profits shall be

required to allocate to the immovable property account an

amount to be determined in accordance with the following

formula

Y = A – (B+C)

Where -

(i) ‘Y’ represents the amount to be

determined;

(ii) ‘A’ is the amount of the profits after

tax for the year that would have been allocated to

the immovable property account of the related

company without taking into account the

consideration paid or payable and ignoring

amounts not allocated to the immovable property

account in the previous year which are required to

be added to the amount to be allocated for the year

in question;

(iii) ‘B’ is the amount of profits after tax

for the year actually allocated to the immovable

property account of the related company ignoring

amounts not allocated to the immovable property

account in the previous year, which are required to

be added to the amount to be allocated for the year

in question;

(iv) ‘C’ is the amount of profit after tax

derived from the said consideration allocated to the

immovable property account of the company,

ignoring amounts not allocated to the immovable

property account in the previous year, which are

required to be added to the amount to be allocated

for the year in question

Provided that the provisions of this sub-rule

shall not apply if the company deriving the said profits has

made an election in accordance with rule 9.

(b) Where the allocation of profits in terms of

paragraph (a) cannot for any year be made because there

are no or insufficient profits which have suffered tax, the

amount required to be allocated to the immovable property

account in accordance with this sub-rule, or part thereof,

which for such reason could not be allocated shall be

added to the amount to be allocated for the following year

and deemed to be part of that amount, or if there is no such

amount in respect of that year, be deemed to be the amount

to be allocated for that year and so on for subsequent years.

(c) For the purpose of allocating profits to the

immovable property account in accordance with this sub-

rule, the allocation of profits to the tax accounts shall first

be made ignoring the provisions of this sub-rule and

thereafter the amounts which are to be allocated to the

immovable property account in accordance with this sub-

rule shall be transferred from the amount of distributable

profits derived in the respective accounting period which

would have, ignoring the provisions of this sub-rule, been

allocated to the Maltese Taxed Account and the Foreign

Income Account; and for this purpose such amount shall

first be transferred from amounts which would have been

allocated to the Maltese Taxed Account and then from

amounts which would have been allocated to the Foreign

Income Account.

(d) The amount which cannot be allocated to the

immovable property account in terms of this sub-rule

because there are no or insufficient profits which have

suffered tax shall be the amount which cannot be allocated

to the immovable property account in accordance with the

procedure set out in paragraph (b).

(9) (a) For the purpose of sub-rule (7), a

company shall be deemed to be related to another company

if during the year preceding the relevant year of

assessment or any part thereof, both companies are

(i)

resident in Malta; and

(ii) one is a subsidiary of the other or both

are subsidiary companies of a third company,

resident in Malta.

For the purpose of this sub-rule a company shall be

deemed to be a subsidiary of another company, hereinafter

referred to as the "parent company"

(i) if and so long as more than 25% of its

ordinary share capital and more than 25% of its

voting rights are owned directly or indirectly by the

parent company; or

(ii) the parent company is beneficially

entitled either directly or indirectly to more than

25% of any profits available for distribution to the

ordinary shareholders of the subsidiary company;

or

(iii) the parent company would be

beneficially entitled either directly or indirectly to

more than 25% of any assets of the subsidiary

company available for distribution to its ordinary

shareholders on a winding up.

The Commissioner may, in his absolute discretion,

deem a company to be related to another company where,

in his opinion, the relationship between the companies has

been structured with the sole or main purpose of

circumventing the provisions of sub-rule (7).

(b) For the purpose of sub-rule (8), a company

shall be deemed to be related to another company if

(i) both companies are, directly or

indirectly, controlled or beneficially owned to the

extent of more than 25% by the same persons; or

(ii) one company owns, directly or

indirectly, more than 25% of the ordinary share

capital or voting rights of the other company.".

In paragraph (b) of sub-rule (2) of rule 6 of the principal

rules, for the words "sixty euro (€60) per square metre per annum,"

there shall be substituted the words "two hundred and fifty euro

(€250) per square metre per annum,".

B

Immediately after rule 8 of the principal rules, there shall Addition of new

rule 9 to the

be added the following new rule

principal rules.

" Election made

(a)

Notwithstanding

the

provisions contained in the definitions of

by company.

"Foreign Income Account" and "Maltese

Taxed Account" in article 2 of the Act, but

without prejudice to any obligation to

allocate profits to the final tax account and

the immovable property account, a company

may elect that the profits or gains derived on

or after the effective date of the election,

which would, in accordance with the above

definition, stand to be allocated to the

Foreign Income Account and the Maltese

Taxed Account will not be so allocated

Provided that an election as aforesaid

may only be made by notice on such form as

the Commissioner may require, and which

notice shall indicate acceptance by all the

directors of the company or by the company

secretary where such election is approved by

the board of directors of the company

Provided also that when an election as

aforesaid has been made, it shall also apply

to all subsequent years and may not at any

time be renounced unless, upon being

requested, the Commissioner gives his

permission in writing and in granting his

permission the Commissioner may impose

such conditions as he deems fit and

reasonable, and where the company which

has requested permission to renounce the

election accepts the conditions laid down by

the Commissioner, such conditions shall be

operative notwithstanding any provisions of

these rules and the Act

Provided further that, when an election

as aforesaid has been made, the profits or

gains derived by the company which have

been allocated to the Maltese Taxed Account

and Foreign Income Account, which, as at

the effective date of the election, have not

been distributed, shall be allocated to the

immovable property account.

(b) Where a company makes an

election in accordance with the provisions of

paragraph (a), the provisions of paragraphs

(e) and (h) of rule 5(3) shall, subject to the

requirement to allocate profits to a related

company in accordance with rule 5(7), not

be applicable to the said company.

(c) Such election, made as aforesaid,

shall become effective from the first day of

the financial year of the company making the

election, preceding the financial year during

which the election has been made, and the

said election shall apply to the whole of the

profits or gains referred to in paragraph (a)

derived by the company during the said

preceding financial year and subsequent

years.".

€0.81