Author: Mark Galea Salomone
In a landmark shift in international tax policy, the European Union has introduced a global minimum level of taxation for large multinational enterprise (MNE) groups. Businesses operating across borders should pay careful attention to how these rules apply and, in Malta’s case, why the position is more nuanced than it may first appear.
The Malta Tax & Customs Administration recently published a Guidance Note shedding further light on the status of these rules in Malta, providing much-needed clarity for businesses seeking to understand their obligations under the new framework.
The Background: A Global Agenda
The Directive (EU) 2022/2523 of 14 December 2022, adopted by the Council of the European Union, provides for a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups within the EU. The directive requires Member States to effect transposition by 31 December 2023, with the primary rule, the Income Inclusion Rule (IIR), becoming effective on or after 31 December 2023, and the secondary rule, the Undertaxed Profit Rule (UTPR), becoming effective, in principle, on or after 31 December 2024.
The rules bring within scope constituent entities located in Malta that are members of an MNE group or a large-scale domestic group which has an annual revenue of €750,000,000 or more in its ultimate parent entity’s consolidated financial statements in at least two of the four fiscal years immediately preceding the tested fiscal year.
Malta’s Elected Delay: A Permitted Derogation
Malta’s approach departs from immediate full implementation. Article 50 of the directive permits Member States in which no more than twelve ultimate parent entities of in-scope groups are located to elect not to apply the IIR and the UTPR for six consecutive fiscal years beginning from 31 December 2023. Malta formally notified the European Commission of its election for such a delayed application in September 2023.
Critically, this election does not mean Malta has opted out entirely. The election does not result in a waiver of the top-up tax liability of the group in other Member States or third countries, and Member States making the election must nevertheless transpose a minimum number of provisions of the directive so as to enable taxpayers and other states and jurisdictions to properly comply with and apply the system.
As a result, Malta’s rules transpose only those parts necessary to allow for the proper functioning of the directive. The provisions transposed include Chapter I (subject matter, scope, definitions, and location of constituent entity), Chapter VIII (Administrative Provisions), Chapter IX (Transition Rules, in particular Articles 49 and 51), and Chapter X (Final Provisions, Article 52(1)).
The delayed application will remain in place for a maximum of six consecutive fiscal years from 31 December 2023, unless Malta rescinds the election earlier or elects to introduce a Qualified Domestic Top-Up Tax (QDTT).
Filing Obligations: Practical Implications
Despite the derogation, obligations remain for Maltese entities. The regulations place certain information-gathering and filing obligations on constituent entities located in Malta that are part of an MNE group, including an obligation to file a top-up tax information return with the Commissioner for Tax and Customs.
However, the recent guidance has clarified that given Malta’s election for the delayed application of the IIR and UTPR, the top-up tax information return cannot be filed in Malta, and constituent entities located in Malta are therefore exempted from these filing obligations. Instead, ultimate parent entities of in-scope MNE groups situated in Malta must nominate a designated filing entity in another Member State or a third country, with constituent entities still required to process and transfer all necessary information to that designated filing entity to permit the compilation and filing of the top-up tax information return.
Looking Ahead
Businesses with operations in Malta should assess their group structures now, identify their designated filing entity, and ensure that the information flows required for compliance are in place. The full weight of the directive will eventually apply. The question is one of timing, not permanence.