Global Minimum Level of Taxation legislation and guidance published in Malta

On 20 February 2024, Malta published its Global Minimum Level of Taxation for Multinational Enterprise and Large-Scale Domestic Groups Regulations by way of Legal Notice 32 of 2024, transposing EU Directive 2022/2523 of 14 December 2022. On 27 February 2024, Malta published its accompanying guidance.

These regulations are deemed to have come into force on 31 December 2023 and shall be applicable in respect of fiscal years beginning from 31 December 2023. The rules apply to multinational groups or large-scale domestic groups which have annual consolidated revenue of at least €750 million, in at least 2 of the preceding 4 fiscal years, but do not apply to excluded entities, being: governmental entities, international organisations, non-profit organisations, pension funds, an investment fund that is an Ultimate Parent Entity, or a Real Estate Investment Vehicle that is an Ultimate Parent Entity.

Malta elects for deferral

According to Malta’s published guidance, Malta notified the EU Commission of its election for the derogation provided for in Article 50(1) of the EU Pillar Two Directive in September 2023. The effect of such deferral is that Malta shall not apply the Income Inclusion Rule (‘IIR’) and the Under-Taxed Profits Rule (‘UTPR’) for 6 consecutive years beginning from 31 December 2023, clarified in the Maltese rules to mean ‘a maximum of’ 6 consecutive years. As for the Qualified Domestic Minimum Top-Up Tax (‘QDMTT’), the Minister of Finance previously communicated in Malta’s 2024 budget speech that Malta will not implement any component of the Pillar Two rules, including the QDMTT, in 2024, however, there has been no further communication surrounding the introduction of a QDMTT in future years, if such a rule is ever to be introduced in Malta.

As a result of Malta’s election for deferral, the transposed rules are a skeletal form of the EU Directive, limited to a transposition of the general and administrative provisions, as well as the so-called Transition Rules, being those parts, which constitute a necessary minimum standard to allow for the proper functioning of the Directive while simultaneously faithfully transposing the Directive into Maltese domestic legislation.

The guidelines further clarify that the current legislation will continue to apply insofar as Malta continues to adopt the deferral of the IIR and UTPR. The entire provisions of the Directive will be transposed into domestic legislation at the earlier of:

(a) The lapse of the maximum 6 year period;
(b) Malta rescinding such election prior to that date; or
(c) Malta electing to introduce a Qualified Domestic Top-Up Tax (QDTT).

With regards to the potential introduction of a QDTT in Malta, the guidelines state that in the circumstance that Malta does introduce such a QDTT prior to the lapse of the events under (a) and (b) above, the delayed application of the IIR and UTPR provisions would continue to apply until the occurrence of any of the two events referred to under (a) or (b) above. Furthermore, it is understood that should Malta rescind the election or introduce a QDTT, such events shall be clearly communicated in advance in order to allow for sufficient implementation and application by taxpayers.

Filing and notification obligations

Filing and notification during the delay period

A key clarification set up within the guidelines, is that whilst Malta’s option to defer the application of the IIR and UTPR is in force, the top-up tax information return cannot be filed in Malta.

Nevertheless, in order to ensure the proper functioning of the directive as explained above, ultimate parent entities of in scope MNE groups which are situated in Malta must nominate a designated filing entity in another Member State or a third country, for the latter entity to be able to file such return.

However, it is crucial to note that the obligation to file a notification with the Commissioner for Tax and Customs remains in force even during such delay period.

Filing and notification after the delay period but during the transition period

Ordinarily, the filing deadline for the top-up tax information return must be filed within 15 months after the last day of the reporting fiscal year and the notification must be filed within 12 months after the last day of the reporting fiscal year.

However, by way of transitional relief, for the transition year, i.e., the first fiscal year in which a multinational group or a large-scale domestic group falls within the scope of the EU Pillar Two Directive, in respect of that jurisdiction, both the top-up tax information return, and the notification must be filed no later than 18 months after the last day of the reporting fiscal year.

Filing and notification after the delay period and after the transition period

A constituent entity located in Malta shall file a top-up tax information return with the Commissioner in a standard template, in such manner as the Commission may determine. A designated local entity located in Malta may be appointed by the other constituent entities of the MNE group or large-scale domestic group located in Malta to file the top-up tax information return on behalf of such constituent entities located in Malta.

However, a constituent entity shall not be obliged to file a top-up tax information return with the Commissioner if such return has been filed either by the Ultimate Parent Entity or the designated filing entity, which is located in a jurisdiction that has, for the reporting fiscal year, a qualifying competent authority agreement with Malta. In either case, the Malta constituent entity must notify the Commissioner of such an outcome, in a manner and form to be prescribed by the Commissioner.

Administrative penalties

The penalty for failure to file the top-up tax information return is an immediate €200 penalty, going up to €100 for every day during which the default exists, up to a maximum total penalty of €20,000. The penalty for filing an incomplete or inaccurate top-up tax information return is an immediate €200 penalty, and €50 for every day during which the default exists, up to a maximum total penalty of €5,000. The penalty for failure to notify the Commissioner of the identity of the entity that is filing the top-up tax information return as well as the jurisdiction in which such entity is located is an immediate €200 penalty, and €50 for every day in which the default exists, up to a maximum total penalty of €5,000.