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Newsletter 7
MONTH YYYY

From the editor

The summer season is now almost over. Many of you can look back at extended holiday periods during which you have been able to relax with your loved ones and friends.

Unfortunately, for those of us belonging to the accounting profession, this holiday season is hardly a time when we can emulate the rest of the population.

With the way that our fiscal laws are structured and most importantly, the Income Tax Act, the period June to September of each financial year is full of reporting deadlines.

June 30th is the deadline for the filing of the personal tax returns. Once this is over, we start looking at our corporate clients to ensure that their tax return is finalised on time by the September 30th deadline.

This year the problem became even more compounded by the fact that we have the TIFD and electronic lodgment of company tax returns to contend with.

The TIFD, for those of you who are not accountants is the TAX INDEX OF FINANCIAL DATA introduced this year by the Income Tax Department. This is a new format for the filing of company tax return data which will enable the Department to collect such data in a structured format. The purpose for the introduction of this new format is to assist in the electronic processing of such tax returns which in the past used to be accompanied by financial statements prepared in various formats by the local accountants.

Immediately after the introduction of the TIFD another change was announced in the form of ELECTRONIC LODGMENT of company tax returns. This topic is fully explored in the following articles.

Needless to say every new system requires us not only to retrain our personnel in its operation but also to equip our office with the necessary software and hardware to handle the new work load.

As if this was not enough, the new BUSINESS PROMOTION ACT which came into force in 2001 has established September 23rd 2002 as the deadline for companies to decide whether to renounce certain of the old incentives in favour of the new ones.

Our Institute had already petitioned the Malta Development Corporation to review this deadline and luckily they came to our rescue at the last minute. On 17th September we were advised by e-mail of a short extension.

Obviously, those of us who are not gamblers or tension freaks had already carried out all their homework by this date. This extension therefore can only benefit those who had left their work load to the last minute.

As you can see, our Summer has not been exactly boring. Hopefully we shall get a sunny December so we can catch up on our missed sun tan.

Regards

George Farrugia

New Enterprise Scheme

IPSE, the Institute for the Promotion of Small Enterprise has recently entered into an agreement with Malta’s two leading banks for the setting up
of the NEW ENTERPRISE LOAN GUARANTEE scheme.

Through this scheme, new enterprises can get up to 80 per cent of their loans guaranteed by IPSE.
The banks also have agreed to charge such new enterprise more favourable loan interest rates at 1.75 per cent over the Central Bank of Malta base lending rate as opposed to the normal 4 per cent.

This loan guarantee scheme will be available for the acquisition of fixed assets and additional working capital to implement a new business project or a restructuring of an existing one.

Another scheme introduced is the Standard Loan Guarantee whereby IPSE provides access to loan guarantees of up to half of any loan required to implement a business plan. In addition IPSE also offers an interest subsidy on the guaranteed loan.

Electronic Tax Returns

As from this year, the taxation system in Malta will be entering a new era. Tax returns for companies can, as from year of assessment 2002 be filed in electronic format.

Such a system has many advantages, both for the taxpaying company and the Department of Inland Revenue.

Gone will be the days of tons of paper returns that come daily through the mail at the department requiring human handling at various stages.

The system will be operated through recognized intermediaries who can be either certified public accountants or members of the Malta Institute of Taxation.

The department is making available special software to these intermediaries that will assist them in filing accurate returns. The software has in- built checks and controls that practically makes it impossible to file incorrect or incomplete returns.

Various security features are incorporated in the system and therefore the risks of abuse is minimal.

The new procedures also provide for other electronic facilities such as enquiries into the tax account of the taxpayer, requests for revision of provisional tax payment requests and enquiries into the tax return filing status.

As a firm that strongly believes in the vast potential of the electronic medium, we totally embrace the new system and congratulate the Income Tax Department and the Ministry involved in bringing us at par, and in some cases even ahead, of our international competitors.

Hopefully, once started this process can be gradually extended to provide other services which currently require laborious routines.

Group Relief Provisions

In 1994 the Maltese investing public became entitled to Group Relief. Through this relief it became possible for any loss made by one company to be set off against profits made by another provided both companies form part of the same group.

The Group Relief Provisions are contemplated in Sections 16 to 22 of the Income Tax Act, Cap.123 and as amended by XVII.1994.13. The main salient points are summarised below for ease of reference.

Two companies shall be deemed to be members of a group of companies under the following criteria:

a. Both companies are resident in Malta ONLY (for tax purposes); and
b. One of them is a subsidiary of the other or both are subsidiaries of a third company which is also resident in Malta.

A company is deemed a subsidiary of another company (its parent company) if the following conditions are satisfied;

a. The parent company owns, directly or indirectly, more than 50% of its voting rights; and
b. The parent company is beneficially entitled, directly or indirectly, to more than 50% of the subsidiary’s profits available for distribution; and
c. In the event of a winding up of the subsidiary, the parent company is beneficially entitled, directly or indirectly, to more than 50% of the subsidiary’s assets.

Where the claimant (loss maker) and surrendering companies (profit maker) draw up accounts and pay tax in different currencies; the group relief amount shall be converted to the currency used by the claimant company at the mean exchange rate, issued by the Central Bank, ruling on the last day of the accounting period to which such group relief refers.

Allowable losses by way of group relief may exceed the total income of the claimant company in the year preceding the year of assessment. In such case, the claimant company may carry forward unrelieved group relief as if they were losses of its own trade or business

A claim for a group relief need not be for the full amount available.

Such claim requires the consent of the surrendering company in order to be effective.

Such claim has to be made within twelve months from the year immediately preceding the year of assessment and to which such claim relates.