The inland revenue department has published on its website a guidance note in anticipation of the Group Deductions (Income Tax) Rules, 2022, which should be published shortly.
This guidance note prescribes the methodology on the option for a member of a group of companies to surrender unutilized or unabsorbed capital allowances specifically incurred during basis years 2020 and 2021 to another company within the same group.
This measure is however targeted to those groups of companies which satisfy both the following criteria:
- The surrendering and the claimant companies are a group in terms of the definition in Article 16 of the Income Tax Act, which for ease of reference is two companies resident in Malta but neither of which is resident for tax purposes in any other country shall be deemed to be members of a group of companies if one is the fifty-one per cent subsidiary of the other or both are fifty-one per cent subsidiary of a third company resident in Malta;
- The surrendering or the claimant company must have been granted a benefit under the COVID-19 Fiscal Assistance - Postponement of Payment of Certain Taxes Tax Deferral Scheme
Capital allowances available as a deduction and which can possibly be surrendered to a group entity would be those which are unabsorbed during basis years 2020 and 2021, but which were not unabsorbed capital allowances brought forward from year of assessment 2020 and previous years. A balancing allowance resulting in respect of the years of assessment 2021 and 2022 can also be surrendered. Furthermore, the current restrictions linked to specific tax accounts applicable in a typical group loss relief scenario have been deactivated for the purposes of this measure.
This measure however has some limitations, as outlined below:
- The claimant company can only avail itself of the deduction if it has chargeable income available, and only up to such chargeable income. This implies there is no possibility for carry forward of any unutilised allowable deductions.
- The total allowable deductions that can be claimed is capped at EUR 1,000,000 per group of companies.
The option to make use of this measure is to be taken by filling in the appropriate section in the companies’ tax return. If your group is eligible to this one-time measure, get in touch with us and we will be able to guide you further.