Malta: Legislation Implementing Anti-Tax Avoidance Directive Came Into Effect

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Malta - Legislation implementing ATAD came into effect 
On 11 December 2018, Legal Notice 411 of 2018 was published in Government Gazette No. 20,102, implementing the Anti-tax avoidance directive. The Regulations came into force on 1 January 2019.  
 
The Regulations introduced the following anti-tax avoidance measures:
 
(i) Interest deductibility limitation rule limits the deductibility of a taxpayer's exceeding borrowing costs to 30% of the taxpayer’s EBITDA. Safe harbour: full deductibility is allowed of exceeding borrowing costs up to EUR 3 million or if a taxpayer can demonstrate that the ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group.
 
(ii) The Regulations implemented general anti-avoidance rules.
 
(iii) The CFC rule applies if the taxpayer itself, or together with its associated enterprises, holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly more than 50% of the capital or is entitled to receive more than 50% of the profits of that entity; and the actual corporate tax paid by the entity/PE is less than 50% of the tax that would have been charged to the entity or PE under the provisions of the ITA. 

Should an entity or PE be treated as a CFC, the non-distributed income of the said entity or permanent establishment arising from non-genuine arrangements which have been put into place for the essential purpose of obtaining a tax advantage are included in the tax base of the taxpayer. The income to be included in the tax base of the taxpayer is limited to the amounts generated through assets and risks which are linked to significant people functions carried out by the controlling company. 

The CFC rule does not apply in relation to an entity or PE if accounting profits of no more than EUR 750,000 and non-trading income of no more than EUR 75,000; or of which the accounting profits amount to no more than 10% of its operating costs in the tax period concerned.

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