EUROPEAN UNION ANTI-TAX AVOIDANCE DIRECTIVES IMPLEMENTATION REGULATIONS

IMPLEMENTATION

SUBSIDIARY LEGISLATION 123.187

EUROPEAN UNION ANTI-TAX AVOIDANCE

DIRECTIVES IMPLEMENTATION REGULATIONS

1st January, 2019

LEGAL NOTICE 411 of 2018, as amended by Legal Notices 348 of

2019 and 29 of 2020.

The title of these regulations is the European Union Anti-

Tax Avoidance Directives Implementation Regulations.

(1) These regulations implement the provisions of

Directive (EU) 2016/1164 of 12 July 2016, as amended by Directive

(EU) 2017/952 of 29 May 2017, adopted by the Council of the

European Union, laying down rules against tax avoidance practices

that directly affect the functioning of the internal market.

(2)

These regulations apply to all companies as well as other

entities, trusts and similar arrangements that are subject to tax in Malta

in the same manner as companies, including entities that are not resident

in Malta but that have a permanent establishment in Malta provided that

they are subject to tax in Malta as companies. Such persons are

hereinafter referred to as "taxpayers".

(3)

Regulation 10 shall also apply to all entities that are

treated as transparent for tax purposes in terms of the Income Tax

Acts.

For the purposes of 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 of voting rights or capital

ownership of 25 per cent or more or is entitled to receive twenty-

five per cent (25%) or more of the profits of that entity;

(b)

an individual or entity which holds directly or

indirectly a participation in terms of voting rights or capital

ownership in a taxpayer of twenty-five per cent (25%) or more or

is entitled to receive twenty-five per cent (25%) or more of the

profits of the taxpayer

If an individual or entity holds directly or indirectly a

participation of 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 of regulations 9 and 10

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(i)

where the mismatch outcome arises under

paragraph (b), (c), (d), (e) or (g) of the

definition of "hybrid mismatch" or where an

adjustment is required under regulation 9(3)

or regulation 10, the definition "associated

enterprise" is modified so that the 25 per cent

(25%) requirement is replaced by a 50 per

cent (50%) requirement;

(ii)

a person who acts together with another

person in respect of the voting rights or

capital ownership of an entity shall be treated

as holding a participation in all of the voting

rights or capital ownership of that entity that

are held by the other person;

(iii)

an associated enterprise also means an entity

that is part of 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 of the taxpayer;;

"borrowing costs" means interest expenses on all forms of debt,

other costs economically equivalent to interest and expenses incurred in

connection with the raising of 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 of finance lease payments, capitalised interest

included in the balance sheet value of a related asset, or the amortisation

of 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 of finance,

guarantee fees for financing arrangements, arrangement fees and similar

costs related to the borrowing of funds;

"consolidated group for financial accounting purposes" means a

group consisting of 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 of guidelines issued under article 96(2)

of the Act;

"exceeding borrowing costs" means the amount by which the

deductible borrowing costs of a taxpayer in terms of the Act, were it not

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for the provisions of these regulations, exceed taxable interest revenues

and other economically equivalent taxable revenues that the taxpayer

receives;

"financial undertaking" means any of the following entities

(a)

a credit institution or an investment firm as defined

in point (1) of Article 4(1) of Directive 2004/39/EC of the

European Parliament and of the Council or an alternative

investment fund manager (AIFM) as defined in point (b) of

Article 4(1) of Directive 2011/61/EU of the European Parliament

and of the Council or an undertaking for collective investment in

transferable securities (UCITS) management company as defined

in point (b) of Article 2(1) of Directive 2009/65/EC of the

European Parliament and of the Council;

(b)

an insurance undertaking as defined in point (1) of

Article 13 of Directive 2009/138/EC of the European Parliament

and of the Council;

(c)

a reinsurance undertaking as defined in point (4) of

Article 13 of Directive 2009/138/EC;

(d)

an institution for occupational retirement provision

falling within the scope of Directive 2003/41/EC of the European

Parliament and of the Council;

(e)

pension institutions operating pension schemes

which are considered to be social security schemes covered by

Regulation (EC) No 883/2004 of the European Parliament and of

the Council and Regulation (EC) No 987/2009 of the European

Parliament and of the Council as well as any legal entity set up

for the purpose of investment of such schemes;

(f)

an alternative investment fund (AIF) managed by

an AIFM as defined in point (b) of Article 4(1) of Directive 2011/

61/EU or an AIF supervised under the Investment Services Act;

(g)

UCITS in the meaning of Article 1(2) of Directive

2009/65/EC;

(h)

a central counterparty as defined in point (1) of

Article 2 of Regulation (EU) No 648/2012 of the European

Parliament and of the Council;

(i)

a central securities depository as defined in point

(1) of Article 2(1) of Regulation (EU) No 909/2014 of the

European Parliament and of the Council;

"hybrid mismatch" means a situation involving a taxpayer

or, with respect to regulation 9(3), an entity, where

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(a)

a payment under a financial instrument gives

rise to a deduction without inclusion outcome

and

(i)

such payment is not included within a

reasonable period of time; and

(ii)

the mismatch outcome is attributable

to differences in the characterisation of

the instrument or the payment made

under it.

For the purposes of sub-paragraph (i), a

payment under a financial instrument

shall be treated as included in income

within a reasonable period of time

where

(A)

the payment is included by the

jurisdiction of the payee in a tax

period that commences within

twelve (12) months of the end of

the payer's tax period; or

(B)

it is reasonable to expect that the

payment will be included by the

jurisdiction of the payee in a

future tax period and the terms

of 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 of differences

in the allocation of payments made to the

hybrid entity under the laws of the

jurisdiction where the hybrid entity is

established or registered and the jurisdiction

of any person with a participation in that

hybrid entity;

(c)

a payment to an entity with one (1) or more

permanent establishments gives rise to a

deduction without inclusion and that

mismatch outcome is the result of differences

in the allocation of payments between the

head office and permanent establishment or

between two (2) or more permanent

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establishments of the same entity under the

laws of the jurisdictions where the entity

operates;

(d)

a payment gives rise to a deduction without

inclusion as a result of 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 of the fact that the

payment is disregarded under the laws of the

payee jurisdiction;

(f)

a deemed payment between the head office

and permanent establishment or between two

(2) or more permanent establishments gives

rise to a deduction without inclusion and that

mismatch is the result of the fact that the

payment is disregarded under the laws of the

payee jurisdiction; or

(g)

a double deduction outcome occurs

Provided that for the purposes of this definition

(i)

payment representing the underlying

return on a transferred financial

instrument shall not give rise to a

hybrid mismatch under paragraph (a)

where the payment is made by a

financial trader under an on-market

hybrid transfer provided the payer

jurisdiction requires the financial

trader to include as income all

amounts received in relation to the

transferred financial instrument;

(ii)

a hybrid mismatch shall only arise

under paragraphs (e), (f) or (g) to the

extent that the payer jurisdiction

allows the deduction to be set off

against an amount that is not dual-

inclusion 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 office

and

permanent

establishment,

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between two (2) or more permanent

establishments of the same entity or

under a structured arrangement

Provided further that for the purposes of this

definition and regulations 9, 10 and 11

"deduction" means the amount that is treated as deductible

from the taxable income under the laws of the payer

or investor jurisdiction. The term "deductible" shall

be construed accordingly;

"deduction without inclusion" means the deduction of a

payment or deemed payment between the head

office and permanent establishment or between two

(2) or more permanent establishments in any

jurisdiction in which that payment or deemed

payment is treated as made (payer jurisdiction)

without a corresponding inclusion for tax purposes

of 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 of any other jurisdiction;

"disregarded permanent establishment" means any

arrangement that is treated as giving rise to a

permanent establishment under the laws of the head

office jurisdiction and is not treated as giving rise to

a permanent establishment under the laws of the

other jurisdiction;

"double deduction" means a deduction of 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 of 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 of income that is

included under the laws of 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

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derivatives under the laws of either the payee or

payer jurisdictions and includes a hybrid transfer;

"financial trader" is a person or entity engaged in the business of

regularly buying and selling financial instruments on its own account

for the purposes of making a profit;

"hybrid entity" means any entity or arrangement that is regarded

as a taxable entity under the laws of one (1) jurisdiction and whose

income or expenditure is treated as income or expenditure of one (1)

or more other persons under the laws of 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 (1) of the parties to that arrangement;

"inclusion" means the amount that is taken into account in the

taxable income under the laws of 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 of

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 of business,

and not as part of 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 of 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 of the hybrid mismatch and did not share in the value of the tax

benefit resulting from the hybrid mismatch;

"tax period" means the year immediately preceding the year of

assessment referred to in articles 10 and 11 of the Act, as applicable;

"transfer of assets" means an operation whereby Malta loses the

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right to tax the transferred assets, whilst the assets remain under the

legal or economic ownership of the same taxpayer and "transferred

assets" shall be construed accordingly;

"transfer of 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 of 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.

(1)

Exceeding borrowing costs shall be deductible in

the tax period in which they are incurred only up to thirty per cent (30%)

of the taxpayer's earnings before interest, tax, depreciation and

amortisation (hereinafter referred to as "EBITDA").

For the purpose of 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 of a group, as recognised for the purposes of

Maltese tax law;

(b)

an entity in a group, as recognised for the

purposesof Maltese tax law, which does not consolidate the results

of itsmembers for tax purposes.

In such circumstances, exceeding borrowing costs and the

EBITDA may be calculated at the level of the group and comprise the

results of all its members.

(2)

The EBITDA shall be calculated by adding back to the

income subject to tax the tax-adjusted amounts for exceeding borrowing

costs as well as the tax-adjusted amounts for depreciation and

amortisation. Tax exempt income shall be excluded from the EBITDA.

(3)

Notwithstanding the provisions of sub-regulation (1), the

taxpayer may

(a)

deduct exceeding borrowing costs up to three

million euro (€3,000,000)

Provided that where under the provisions of sub-

regulation (1) a group is treated as a taxpayer, the amount of three

million euro (€3,000,000) shall be considered for the entire group;

(b)

fully deduct exceeding borrowing costs if the

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taxpayer is a standalone entity. For the purposes of this

paragraph, "a standalone entity" means a taxpayer that is not part

of a consolidated group for financial accounting purposes and has

no associated enterprise or permanent establishment.

(4)

The following exceeding borrowing costs shall be

excluded from the scope sub-regulation (1)

(a)

costs incurred on loans which were concluded

before 17 June 2016, but the exclusion shall not extend to any

subsequent modification of 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 of this regulation

Provided that –

(i)

a long-term public infrastructure project

means a project to provide, upgrade, operate and/or

maintain a large-scale asset that is considered in the

general public interest by an EU Member State; and

(ii)

any income arising from a long-term public

infrastructure project shall be excluded from the EBITDA

of the taxpayer, and any excluded exceeding borrowing

cost shall not be included in the exceeding borrowing costs

of the group vis-à-vis third parties referred to in paragraph

(b) of sub-regulation (5).

(5)

Where the taxpayer is a member of a consolidated group

for financial accounting purposes, the taxpayer may fully deduct its

exceeding borrowing costs if it can demonstrate that the ratio of its

equity over its total assets is equal to or higher than the equivalent ratio

of the group and subject to the following conditions

(a)

the ratio of the taxpayer's equity over its total assets

is considered to be equal to the equivalent ratio of the group if the

ratio of the taxpayer's equity over its total assets is lower by up to

two (2) percentage points; and

(b)

all assets and liabilities are valued using the same

method as in the 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 of guidelines issued under article 96(2) of

the Act.

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(6)

The taxpayer may carry forward, without time limitation,

exceeding borrowing costs and, for a maximum of five (5) years, unused

interest capacity, which cannot be deducted in the current tax period

under sub-regulations (1) to (5).

(7)

Financial undertakings shall be excluded from the scope of

sub-regulations (1) to (6), including where such financial undertakings

are part of a consolidated group for financial accounting purposes.

(8)

For the purpose of this regulation, the consolidated group

for financial accounting purposes consists of 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 of guidelines issued under

article 96(2) of the Act.

*

(1)

A taxpayer shall be subject to tax on capital gains

that are to be calculated at an amount equal to the market value of the

transferred assets, at the time of exit of the assets, less their value for tax

purposes, in any of the following circumstances

(a)

a taxpayer transfers assets from its head office 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 of such assets due to the

transfer;

(b)

a taxpayer transfers assets from its permanent

establishment in Malta to its head office 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 of such assets due to the transfer;

(c)

a taxpayer transfers its tax residence from Malta to

another EU Member State or to a third country, except for those

assets which remain effectively connected with a permanent

establishment in Malta;

(d)

a taxpayer transfers the business carried on by its

permanent establishment from Malta to another EU Member State

or to a third country in so far as Malta no longer has the right to

tax capital gains from the transfer of such assets due to the

transfer.

(2)

The exit tax referred to in sub-regulation (1) shall be paid

by not later than the taxpayer’s tax return date in such manner as may be

determined by the Commissioner. A taxpayer may however defer the

payment of an exit tax referred to in sub-regulation (1) by paying it in

*Applicable from 1st January, 2020.

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instalments over five (5) years, in any of the following circumstances

(a)

a taxpayer transfers assets from its head office 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 office or another permanent

establishment in another EU Member State or a third country that

is party to the EEA Agreement;

(c)

a taxpayer transfers its tax residence from Malta to

another EU Member State or to a third country that is party to the

EEA Agreement;

(d)

a taxpayer transfers the business carried on by its

permanent establishment in Malta to another EU Member State

or a third country that is party to the EEA Agreement.

The provisions of this sub-regulation relating to deferment of

payment of 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 of 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.

(3)

(a)

Where a taxpayer defers the payment in accordance

with sub-regulation (2), interest shall be charged in accordance with the

provisions of article 44(2A) of the Income Tax Management Act.

(b)

Where there is a demonstrable and actual risk of

non-recovery, the Commissioner may request taxpayers to provide a

guarantee as a condition for deferring the payment in accordance with

sub-regulation (2).

(4)

Where sub-regulation (2) applies, the deferral of 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 of the taxpayer are sold or otherwise

disposed of;

(b)

the transferred assets are subsequently transferred

to a third country;

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(c)

the taxpayer's tax residence or the business carried

on by its permanent establishment is subsequently transferred to a

third country;

(d)

the taxpayer goes bankrupt or is wound up;

(e)

the taxpayer fails to honour its obligations in

relation to the instalments and does not correct its situation over a

reasonable period of time, which shall not exceed twelve (12)

months

Provided that paragraphs (b) and (c) shall not apply

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 of tax claims,

equivalent to the mutual assistance provided for in Directive

2010/24/EU.

(5)

Where assets, tax residence or the business carried on by a

permanent establishment is transferred to Malta from another EU

Member State, the starting value of 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 of article 31 of the Income Tax

Management Act that such value does not reflect the market value. For

the purposes of the said determination, the Commissioner shall engage

an independent person that is an expert in the field.

(6)

For the purposes of sub-regulations (1) to (5), "market

value" means the amount for which an asset can be exchanged, or mutual

obligations can be settled between willing unrelated buyers and sellers in

a direct transaction.

(7)

The provisions of this regulation shall not apply in the case

of asset transfers related to the financing of securities, assets posted as

collateral or where the asset transfer takes place in order to meet

prudential capital requirements or for the purpose of liquidity

management

Provided that such assets are set to revert to Malta within a

period of twelve (12) months from the time of exit of such assets from

Malta.

(1)

For the purposes of calculating the tax liability in

according with the Income Tax Acts, there shall be ignored an

arrangement or a series of arrangements which, having been put into

place for the main purpose or one of the main purposes of obtaining a tax

advantage that defeats the object or purpose of 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.

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(2)

For the purposes of sub-regulation (1), an arrangement or

a series thereof shall be regarded as non-genuine to the extent that they

are not put into place for valid commercial reasons which reflect

economic reality.

(3)

Where arrangements or a series thereof are ignored in

accordance with sub-regulation (1), the tax liability shall be calculated

in accordance with the provisions of the Income Tax Acts.

(1)

An entity, or a permanent establishment of 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 of an entity, the taxpayer by itself, or together

with its associated enterprises holds a direct or indirect participation of

more than fifty per cent (50%) of the voting rights, or owns directly or

indirectly more than fifty per cent (50%) of capital or is entitled to

receive more than fifty per cent (50%) of the profits of 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 of this paragraph, the

permanent establishment of a controlled foreign company that is not

subject to tax or is exempt from tax in the jurisdiction of 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.

(2)

Where an entity or permanent establishment is treated as a

controlled foreign company under sub-regulation (1), there shall be

included in the tax base the non-distributed income of the entity or

permanent establishment arising from non-genuine arrangements which

have been put in place for the essential purpose of obtaining a tax

advantage.

For the purposes of 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 of, 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.

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(3)

There shall be excluded from the scope of sub-regulation

(2) an entity or permanent establishment

(a)

with accounting profits of no more than seven

hundred and fifty thousand euro (€750,000), and non-trading

income of no more than seventy-five thousand euro (€75,000); or

(b)

of which the accounting profits amount to no more

than ten per cent (10%) of its operating costs for the tax period

Provided that the operating costs may not include

the cost of goods sold outside the country where the entity is

resident, or the permanent establishment is situated, for tax

purposes and payments to associated enterprises.

For the purposes of regulation 7 -

(a)

the income to be included in the tax base of 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 of 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) of regulation 7(1);

(c)

the income shall be included in the tax period of the

taxpayer in which the tax year of the entity ends;

(d)

where the entity distributes profits to the taxpayer,

and those distributed profits are included in the taxable income of

the taxpayer, the amounts of income previously included in the

tax base pursuant to regulation 7 shall be deducted from the tax

base when calculating the amount of tax due on the distributed

profits, in order to ensure there is no double taxation;

(e)

where the taxpayer disposes of its participation in

the entity or of the business carried out by the permanent

establishment, and any part of 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 of tax due on those proceeds, in

order to ensure there is no double taxation;

(f)

there shall be allowed a credit of the tax paid by the entity

or permanent establishment against the tax liability of the taxpayer. The

credit shall be calculated in accordance with the provisions of articles 77

and 82 of the Act.

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*

(1)

To the extent that a hybrid mismatch results in a

double deduction

(a)

the deduction shall be denied if Malta is the

investor jurisdiction; and

(b)

the deduction shall be denied if Malta is the payer

jurisdiction and the deduction is not denied in the investor

jurisdiction

Provided that, any such deduction shall be eligible to be

set off against dual inclusion income whether arising in a current or

subsequent tax period.

(2)

To the extent that a hybrid mismatch results in a

deduction without inclusion

(a)

the deduction shall be denied if Malta is the payer

jurisdiction; and

(b)

the amount of 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.

(3)

No deduction shall be allowed for any payment by a

taxpayer to the extent that such payment directly or indirectly funds

deductible expenditure giving rise to a hybrid mismatch through a

transaction or series of transactions between associated enterprises or

entered into as part of a structured arrangement except to the extent

that one (1) of the jurisdictions involved in the transaction or series of

transactions has made an equivalent adjustment in respect of such

hybrid mismatch.

(4)

There shall be excluded from the scope of application

(a)

paragraph (b) of sub-regulation (2), hybrid

mismatches as defined in paragraph (b), (c), (d) or (f) of the

definition of "hybrid mismatch" in regulation 3;

(b)

paragraphs (a) and (b) of sub-regulation (2),

hybrid mismatches resulting from a payment of interest under a

financial instrument to an associated enterprise where

(i)

the financial instrument has conversion,

bail-in or write down features;

(ii)

the financial instrument has been issued

with the sole purpose of satisfying loss absorbing

*Applicable from 1st January, 2020.

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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 of a parent undertaking;

(B) at a level necessary to satisfy

applicable loss absorbing capacity requirements;

(C) not

as

part

of

a

structured

arrangement; and

(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 of this

paragraph (b) shall only apply until 31 December 2022.

(5)

To the extent that a hybrid mismatch involves income of a

disregarded permanent establishment of 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 of the permanent establishment in terms

of a double taxation treaty entered into by Malta with a third country.

(6)

To the extent that a hybrid transfer is designed to produce

a relief for tax withheld at source on a payment derived from a

transferred financial instrument to more than one (1) of the parties

involved, the benefit of such relief shall be limited in proportion to the

net taxable income regarding such payment.

(1)

As from 1 January 2022, where one (1) or more

associated non-resident entities holding in aggregate a direct or indirect

interest in fifty per cent (50%) or more of the voting rights, capital

interests or rights to a share of 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 of Malta and taxed on its

income to the extent that that income is not otherwise taxed under any

other provision of the Income Tax Acts or in any other jurisdiction.

(2)

Sub-regulation (1) shall not apply to a collective

investment vehicle. For the purposes of this regulation, "collective

IMPLEMENTATION

investment vehicle" means an investment fund or vehicle that is

widely held, holds a diversified portfolio of securities and is subject to

investor-protection regulation in the country in which it is established.

* To the extent that a deduction for payment, expenses or

losses of 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 off 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.