• Intra group transfer of allowable deductions (LN 205 of 2022)

    The legal notice provides for the intra group transfer (note 1) of specified allowable deductions, namely the annual wear and tear allowances and the initial allowance (note 2).

Intra group transfer of allowable deductions

22 July 2022

On 15th July 2022, LN 205 of 2022 - Group Deductions (Income Tax) Rules, 2022 was enacted in Parliament..

The legal notice provides for the intra group transfer (Note 1) of specified allowable deductions, namely the annual wear and tear allowances and the initial allowance (Note 2).

The legal notice provides for the surrender by a company, hereinafter referred to as "the  surrendering  company",  of such allowable deductions to a claimant  company which are allowed  in the hands of the claimant company as a deduction against its total income.

The transfer of such allowable deductions is subject to a number of conditions:

a. The surrendering of allowable deductions shall only be allowed if either the surrendering company or the claimant company is a company which has been granted a benefit under the COVID-19 Fiscal Assistance - Postponement of Payment of Certain Taxes Tax Deferral Scheme.

b. The intra group transfer is allowed to the extent that such deduction cannot be given effect to in full because there are no profits or gains chargeable for the year of assessment 2022 from the source of income in respect of which they are allowable or because the profits or gains chargeable from that source are less than the deduction.

c. Unabsorbed capital allowances carried forward from the year of assessment 2020 shall not be considered to be allowable deductions for the purposes of these rules.

d. A balancing allowance in terms of Article 24 of the Income Tax Act resulting in respect of the years of assessment 2021 and 2022 shall be treated in the same manner as  capital allowances for the purposes of these rules.

e. The total allowable deductions that may be claimed shall not exceed one million euro (€1,000,000) per group of companies and the total amounts surrendered shall be equal to the amounts so claimed.

f. The total allowable deductions that may be claimed by a claimant company shall not exceed the claimant company’s total income for the year of assessment 2022.

g. The legal notice provides an exception to the rule applicable in the case of trade losses which restricts the deductibility of FIA losses of the surrendering company against FIA income (and not MTA and IPA income) of the claimant company, and vice versa.

Note 1 – being a parent and subsidiary or two sister companies owned by a parent company, in both cases having a 50% +1 ownership, rights to votes, rights to profits available for distribution and rights to assets on winding up.

Note 2 – allowed on industrial buildings, hotels and certain car parks and office buildings.

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