Recognition of the group concept in Maltese income tax : tax consolidation vs group relief

Abstract

Purpose: This study aims to evaluate the group loss relief provisions of Articles 16- 22 of the Income Tax Act and the tax consolidation provisions of LN110 of 2019. Through a comparative analysis, these provisions will be looked at closely in order to see the main benefits they can add to various group settings. Design: The research design comprises a qualitative approach, whereby semistructured interviews with tax practitioners and an individual working with the Inland Revenue department were used to collect to required data. An in-depth analysis was also done with regards to these tax laws in order to find any additional benefits and similarities between the two provisions. Findings: This comparative study showed that these two sets of provisions are defined by their differences rather than their commonalities. The greatest benefit that a group will gain by making use of the group loss relief provisions is to provide for groups making losses, these provisions give the ability to offset losses to and from another subsidiary that forms part of the group. The tax consolidation provisions, on the other hand, are more of a simplification exercise whereby a group would create a fiscal unit in order to make use of the benefits of such rules. The main benefit of tax consolidation was found to be the cashflow advantage, whereby 5% tax would be paid immediately instead of making use of the refund system. In addition, the Marks & Spencer’s case was used as a comparison for any potential change to the group loss relief provisions which are used in Malta. This element of the study made it clear that Malta’s tax laws are not in line with EU law. Conclusion: When a group is considering opting for consolidation, a cost-benefit analysis should be done to evaluate whether the added benefits of tax consolidation in comparison to the group loss relief provisions are beneficial enough for the group to take on the added costs associated with consolidation. In addition, there are some elements with regards to both provisions which are seen as limitations and such a study confirms the needs for changes in these provisions. Value: This study aims to make clear the benefits and limitations of both sets of provisions in order to aid groups of companies in the process of looking to opt for consolidation. The issue of the misalignment with EU law also creates value through this study, with a focus being placed on the potential changes which could take place with these provisions.