Legal notice LN32 of 2024 entitled 'The European Union Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups Regulations 2024', outlines the transposition of Council Directive (EU) 2022/2523, aiming to ensure a global minimum level of taxation for multinational and large-scale domestic groups within the EU. The regulations, effective from December 31, 2023, cover the applicability, definitions, filing obligations, elections, administrative penalties, and the tax treatment of deferred tax assets, liabilities, and transferred assets upon transition. It specifies the conditions under which these regulations apply, including the entities they cover and exclude, and details the obligations for reporting and the penalties for non-compliance.
The salient clauses within the legal notice include:
- Scope and Definitions: Outlines the entities and activities covered by the regulations, including specific definitions critical for understanding the obligations.
- Filing Obligations: Details the reporting requirements for multinational and large-scale domestic groups, including deadlines and the format of information to be submitted.
- Elections: Describes the conditions under which entities can make certain elections regarding the application of the regulations to their operations.
- Administrative Penalties: Specifies the penalties for non-compliance with the filing obligations, including the calculation and imposition of fines.
- Tax Treatment of Deferred Tax Assets and Liabilities: Provides guidance on the tax treatment of deferred tax assets and liabilities under the new regulations.
- Minimum Level of Taxation: The regulations are designed to ensure a global minimum tax rate of 15% for the covered entities, aiming to prevent profit shifting and tax base erosion.
The legal notice applies to:
- Constituent Entities Located in Malta: It specifically applies to constituent entities located in Malta that are part of either a multinational enterprise (MNE) group or a large-scale domestic group. These groups must have an annual revenue of seven hundred and fifty million euros (€750,000,000) or more, including the revenue of the excluded entities referred to in the regulations, in their ultimate parent entity’s consolidated financial statements in at least two of the four fiscal years immediately preceding the tested fiscal year.
- Excluded Entities: The regulations do not apply to several types of entities, including:
- Government entities, international organisations, non-profit organisations, pension funds, and investment funds that are ultimate parent entities or real estate investment vehicles that are ultimate parent entities.
- Entities where at least ninety-five percent (95%) of the value of the entity is owned by one or more of the entities mentioned above, operating exclusively or almost exclusively to hold assets or invest funds for their benefit, or carrying out activities ancillary to those performed by the entities mentioned above.
- Entities where at least eighty-five percent (85%) of the value of the entity is owned by one or more of the entities mentioned above, provided that substantially all of its income is derived from dividends, equity gains, or equity losses that are excluded from the computation of the qualifying income or loss.
These provisions ensure that the regulations target specific types of large-scale entities while excluding those that operate under different circumstances or for specific non-commercial purposes.
The legal notice includes a grandfathering clause that provides specific transitional relief. This clause allows for a reduction of the top-up tax due by an ultimate parent entity located in Malta or an intermediate parent entity located in Malta to zero for:
- The first five years of the initial phase of the international activity of the MNE group, regardless of the requirements set out in Chapter V of the European Union Global Minimum Tax Directive.
- The first five years starting from the first day of the fiscal year in which a large-scale domestic group falls within the scope of these regulations for the first time.
This provision applies under the conditions that the ultimate parent entity is located in a third-country jurisdiction for MNE groups and specifies the criteria for an MNE group to be considered in the initial phase of its international activity. Additionally, the five-year period begins from the start of the fiscal year in which the MNE group originally falls within the scope of the Directive, with a specific start date of December 31, 2023, for groups already within the scope when the Directive came into force.
About the Author
This article has been authored by Dr Franklin Cachia, Director - Tax & Regulated Industries. Contact us here or on [email protected] for more information.
