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Consolidation of Income Tax Malta - Nov 2019

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

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Income Tax Consolidation

Income Tax Consolidation was introduced in Malta by way of Legal Notice 110 of 2019, applicable for financial years commencing 2019 (Year of Assessment 2020).


THE FORMATION OF A FISCAL UNIT

The Consolidation Group (Income Tax) Rules (S.L. 123.189) provide the possibility for a group of companies (as defined) to elect to compute their chargeable income or losses on a collective basis. The term “company” in this context does not include foundations (which elected to be treated as trusts in terms of Rule 4 of the Foundations (Income Tax) Rules), securitisation vehicles or finance leasing companies.


A parent company may elect for itself and a subsidiary to form a Fiscal Unit provided that both companies have the same accounting year end and meet any two of the following criteria, whereby the parent company:


holds 95% of the voting rights;

is entitled to 95% of profits available for distribution;

is entitled to 95% of assets upon winding up.

These rules differ from the VAT Grouping Rules, in that they have a wider scope of application and are not limited to licensed industries.


Upon election, each eligible subsidiaries will form part of the same fiscal unit of the parent company and will be referred to thereafter as “transparent entities”.  The Principal Taxpayer will be the company which assumes the rights, duties and obligations under the Income Tax Act relative to entities forming part of its fiscal unit and cannot be a transparent subsidiary. No company shall form part of more than one Fiscal Unit.  


CHARGEABLE INCOME OF A FISCAL UNIT

While the nature and sources of the income remains unchanged, in calculating the chargeable income of a Fiscal Unit, the following should be considered:


Any income and gains earned by transparent entities is directly allocated to the principal taxpayer. 

All transactions between members of the same fiscal unit are ignored (apart from transfers of immovable property situated in Malta and transfers of shares in property companies).

Any balances carried forward (such as unabsorbed losses, capital allowances and tax credits) are taken over by the principal taxpayer.

Tax accounting balances other than that of the Untaxed Account are treated as balances of the principal taxpayer.

Any foreign income tax suffered by a member of the fiscal unit shall be considered as suffered by the principal taxpayer and double taxation relief may be applied in accordance with the provisions of the Income Tax Act.

It should also be noted that under these regulations, when the shareholder of a company in a fiscal unit would have been entitled to tax refunds upon distribution of dividend and is empowered to consolidate, the whole fiscal unit shall be subject to a lower tax rate which by and large results in a similar tax efficient result.  


            The most prominent anti-abuse measure introduced entails that when the tax payable by a principal taxpayer is lower than 95% of the aggregate tax that would have been payable by all individual members as standalone companies, the difference constitutes deemed “advance” to the shareholders taxable at 35%.


COMPLIANCE OBLIGATIONS

The Income Tax consolidation regime is optional. Should a fiscal unit be established, the primary taxpayer would require a consolidated audited balance sheet and profit and loss account covering all the companies forming part of the fiscal unit. The principal taxpayer is responsible to file in a single income tax return covering all members, who are in turn exempted from the need to file individual income tax returns. All members are jointly and severally liable for the payment of any tax, additional tax or interest.


A company may exit the fiscal unit in the event that it does not remain a 95% subsidiary or it no longer has the same accounting period as the principal taxpayer. To date, regulations paving the way for a voluntary exit by companies forming part of a fiscal unit have not been prescribed.

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

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The Fifth Money Laundering Directive (5AMLD) came into force on January 10, 2020. Building on the regulatory regime applied under its predecessor, 4AMLD, 5AMLD reinforces the European Union’s AML/CFT regime to address a number of emergent and ongoing issues. The impact of 5AMLD will be far-reaching. In this article, we’ll discuss its key changes and hear from industry experts about why they matter.

Although much of 5AMLD’s content updates the 4MLD, it makes a significant new legislative step in the treatment of virtual currencies. In more detail, 5AMLD introduces the following measures:

 Cryptocurrency

A legal definition of cryptocurrency which may broadly be regarded as “a digital representation of value that can be digitally transferred, stored or traded and is accepted…as a medium of exchange.”

Cryptocurrencies and cryptocurrency exchanges are considered “obliged entities”, and face the same CFT/AML regulations applied to financial institutions under 4AMLD. Practically, this involves an obligation to perform customer due diligence (CDD), and submit suspicious activity reports (SAR).

5AMLD actually goes further than 4AMLD in imposing reporting obligations by giving Financial Intelligence Units (FIU) the authority to obtain the addresses and identities of owners of virtual currency and, in so doing, to push back against the anonymity associated with the use of cryptocurrency.

5AMLD also introduces regulation for providers of cryptocurrency exchanges and wallets – which must now be registered with the competent authorities in their domestic locations, for example, Germany’s BaFin, or the UK’s Financial Conduct Authority.

The introduction of regulations paves the way for EU operators to introduce more cryptocurrency products and, crucially, to compete with Asian countries, which have already made legislative progress in integrating cryptocurrency with financial markets. 

Remigio Bonguliemi, Chief Compliance Officer of Trade.io, points out that safety is key to increasing confidence in cryptocurrency: “If you’re launching centralized products, having regulations is incredibly helpful to be able to sleep at night and know that you’re not doing anything illegal.”

Prepaid Cards

After 4AMLD cut the monthly transaction limit on anonymous prepaid cards to €250 (a measure to combat terrorist financing), 5AMLD sets an even lower limit of €150: this limit also applies to the amount that can be stored or topped-up on the cards. The 5AMLD limit means that firms will be required to carry out identity checks on customers using prepaid cards funded with more than €150. Similarly, anonymous remote or online transaction limits are reduced to €50.

Prepaid cards issued outside the EU are now prohibited unless they were issued in a territory enforcing legislation equivalent to the EU’s AML/CFT and KYC standards. Obliged entities must review the way they handle prepaid card payments and put mechanisms in place to identify (and refuse) transactions using cards from non-EU sources. This requirement may involve significant revision of existing systems and procedures.

Christopher Baines, the Head of Compliance at Pockit, said: “The directive is definitely a step in the right direction: it reduces the number of options for criminals.”

High Value Goods

5AMLD expands the scope of legislation regarding other stores of value: art traders, for example, or those acting as intermediaries, now have AML/CFT reporting obligations and will have to perform due diligence procedures on customers. The directive specifically singles out high value works of art for the first time, by applying AML checks to transactions involving art which amount to €10,000 or more.That rule applies to single transactions or multiple linked transactions.

The scope of 5AMLD is not limited to art: now, transactions involving a range of high value goods are considered high risk – including oil, arms, precious metals, and tobacco. Notably, historical, cultural and archaeological artifacts are included in the regulation – a move to specifically target funding for terrorist groups such as ISIS.

Beneficial Ownership

In 2017, 4AMLD introduced a focus on ultimate beneficial ownership (UBO) for the purposes of risk mitigation and money laundering prevention. 5AMLD builds on those steps, introducing the following measures:

UBO lists (drawn up under 4AMLD) are to be made publicly accessible within 18 months of 5AMLD’s implementation date.

Trusts (or any similar arrangement) must observe beneficial ownership regulations and, like companies, must make that information available to authorities or others demonstrating legitimate interest.

UBO national registers must be inter-connected at an EU level in order to facilitate cooperation and the exchange of information between member-state authorities.

Member states are to strengthen their UBO verification mechanisms to ensure the information they carry is accurate and reliable.

Member states must introduce separate UBO registers for bank accounts: unlike company UBO registers, these lists will not be publicly available and only accessible by authorities.

The requirement to register beneficial ownership and have that information publicly available is, according to Global Head of Business AML, at Banking Circle, Livia Benisty, “a vital first step in detecting some of the vast flows of illicit funds transmitted through the financial system, and places a handicap on the preferred instrument of money launderers globally.”

High-Risk Third Countries

Companies that do business with customers from high-risk third countries are, under 5AMLD, required to perform enhanced due diligence measures specifically focused on addressing the deficiencies in those countries’ AML protections and the money laundering risks they present. The measures require firms to:

Obtain information on customers and UBO, including establishing the purpose of proposed transactions and the source of UBO funding and wealth.

Report transaction details with high-risk third countries to senior management and obtain approval prior to establishing or continuing those business relationships.

Increase controls on specific business relationships and identify transactions that may need further scrutiny.

Politically Exposed Persons (PEPs)

5AMLD requires EU member states to compile and publicly release a functional PEP list made up of prominent politically exposed public functions. This requirement extends to accredited international organizations: the EU will also release an EU-level version of the list.

Functional PEP lists are rare and so can require explanation. The list created by the EU member states under their 5AMLD compliance obligations will feature the positions that are considered politically exposed but will not name the person fulfilling the function (which, of course, will change periodically). These lists are designed to make it easier for smaller compliance teams, or those with lower volumes of customers, to identify the PEPs that they should be screening against and monitoring for ongoing changes to risk. 

Keeping a list of people performing these functions up to date may involve significant administrative effort. As Joanna Jenkins, Chief Compliance Officer at Railsbank pointed out, since “data discrepancies could cause issues,” companies should take careful steps to ensure a sufficient level of compliance.

Announcement from MBR Malta Business Registry - 13/03/2020

5AMLD – 5th EU Anti-Money Laundering Directive: What You Need to Know

Announcement from MBR Malta Business Registry - 13/03/2020

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IMPORTANT NOTICE

Following the Coronavirus outbreak which is spreading to various parts of the globe, MBR has activated our business-continuity contingency plans to ensure continuous operations throughout this situation.

While all services, are in full operation, MBR has implemented several precautionary procedures that reflect the Agency’s focus on:

• The health and safety of our employees and clients
• The continuity of our services
• Compliance with public health authorities’ guidance in place to address the situation

In the light of the above, we would like to inform the public particularly our clients, that MBR will be putting in place remote working measures, and our offices will be closed to the public with immediate effect until further notice. However, this will not impact our services as we will continue to provide services to our clients through the following methods:

- registration of documents through online services on our website ;
- ordering of certificates or documents through email and returned by post;
- payments of penalties and fees through bank transfer

- paper format documents may be left in an envelope and delivered in a dedicated letterbox at the entrance of our premises. Processing of such documents will start 2 working days from delivery to minimise any health risks for our employees;

- documents addressed to the ICTU are to be delivered in the dedicated letterbox clearly indicating that these relate to share transfers. The share transfer documents will be processed and the necessary documentation will be forwarded to the MBR;

- meetings will be held through teleconferencing only;

Furthermore, on-site inspections are being suspended. Our telephone line will be operational normally and any queries may be forwarded by email on or by telephone on 22582300. Please refer to our website for more information regarding direct email addresses of desk officers.

The above procedures are being taken in full interest of our staff and clients. The cooperation of all involved is highly appreciated with the hope that such procedures are in place for a period of time which can be shortened with the cooperation of the Maltese residents.