Improved cash flow management
When opting to report under the fiscal consolidation regime, groups may settle the net tax due by the group, which would broadly represent the tax due by the group members after considering any refunds of tax due to other members of the group. Apart from bridging the time gap between the tax settlement and the refund receipt, and thus improving the group’s cash flow management, administrative burdens tied to paying tax and receiving refunds separately are also avoided.
Administrative efficiency
A fiscal unit benefits from a reduced reporting burden since the principal taxpayer is required to submit only one tax return for the whole fiscal unit. Separate tax computations should still be prepared at the level of each fiscal unit member, to cater for anti-tax avoidance provisions. Moreover, a single tax payment for each financial year is made by the principal taxpayer on behalf of the fiscal unit, notwithstanding the fact that all members of the fiscal unit are jointly and severally liable for such payments.
Need to consolidate
Although the fiscal unit is required to prepare consolidated financial statements, encompassing the results of all of the fiscal unit members, many parent companies already prepare consolidated financial statements for statutory purposes. Therefore, the group may benefit from forming part of a fiscal unit without much added financial and reporting burdens.
Widely accessible regime
The fiscal consolidation regime may be availed of by groups of all sizes and is not solely restricted to entities which are registered in Malta, although certain criteria would need to be met upon registration.
Eligibility requirements
A parent company, referred to as the principal taxpayer, may elect to form a fiscal unit with its subsidiaries. Such subsidiaries would then be treated as transparent for Maltese income tax purposes.
The following conditions should be satisfied for a successful registration:
The parent company must hold at least a 95% shareholding in each subsidiary joining the fiscal unit;
Where the principal taxpayer holds less than 100% shareholding in a subsidiary, approval from the minority shareholder/s should be obtained for the subsidiary to join the fiscal unit;
All of the fiscal unit members must have an accounting period which starts and ends on the same date;
None of the fiscal unit members may be a member of more than one fiscal unit at the same time; and
Overdue balances or outstanding filing requirements in terms of the Income Tax Act, the VAT Act and the FSS Rules must be addressed before the application is submitted.
What other factors should be considered?
Registration timing
Legislation lays out a specific time window for registering a fiscal unit, therefore an appropriate timeline should be set up to allow for all of the eligibility criteria to be addressed.
Implications of non-resident entities in the fiscal unit
The fiscal unit may have non-resident transparent subsidiaries, as well as a non-resident principal taxpayer - their attribution of income should be considered.
Treatment of tax losses carried forward and unabsorbed capital allowances
A fiscal unit member’s tax account balances and any balances of unabsorbed capital allowances, trading losses, etc… may move to the principal taxpayer, subject to the satisfaction of certain conditions.
Intra-group tax-sharing arrangements
Although not mandatory, implementing an internal tax-sharing agreement, which outlines the method for allocating tax liabilities and benefits between the fiscal unit members, ensures fair and efficient tax management within the group.
Deferred tax calculations
Consideration should be given to deferred tax accounting implications upon the transfer of unutilised trading losses and capital allowances from the subsidiaries to the principal taxpayer, including instances when a subsidiary has taxable income in subsequent years.
Special consideration given to Notional Interest Deductions (NID)
NID may still be claimed by a fiscal unit with a non-resident principal taxpayer.
Deferred tax asset considerations on unutilised NID carried forward would need to be taken into account.
Presentation and disclosure within the fiscal unit’s consolidated financial statements
Certain disclosures within the fiscal unit consolidated financial statements may be omitted if such consolidated financial statements are not required for statutory purposes but are being prepared solely for tax purposes.
New members joining the fiscal unit
Relevant adjustments and disclosure within the fiscal unit consolidated financial statements are required, especially when a subsidiary joins the fiscal unit midway through the financial year.
Fiscal unit exit strategy
Upon exit of a subsidiary from the fiscal unit, any trading losses previously transferred to the principal taxpayer will remain with the fiscal unit. Unabsorbed capital allowances move with the Company that owns the fixed assets.
How can we help?
Are you interested in simplifying your business’s tax obligations through the fiscal consolidation mechanism? Through our dedicated team we can assist you by analysing your group’s structure and fiscal position, ensuring you’re informed and prepared. If an election for fiscal consolidation is made we’ll guide you through all compliance aspects, supporting you every step of the way. To discover more about how we can support you, please reach out to our sector leaders below.
Contact us
