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Income Tax Act (Cap. 123) Capital Gains (Amendment) Rules, 2006 (L.N.51 Of 2006 )

INCOME TAX ACT (CAP. 123)
Capital Gains (Amendment) Rules, 2006
IN exercise of the powers conferred by articles 5 and 96 of the Income Tax Act, the Prime Minister and Minister of Finance has made the following rules>-

Title and commencement.

L.N. 102 of 1993

.

Amends rule 5 of the principal rules.

1. (1) The title of these rules is the Capital Gains (Amendment) Rules, 2006 and they shall be read and construed as one with the Capital Gains Rules, 1993, hereinafter in these rules referred to as “the principal rules”.
(2) The new paragraph (d) in rule 2(b)(ii) hereof, and the new sub-rule (15) excluding the proviso thereto in rule 2(e) hereof, shall be deemed to have come into force on the 25th November, 2003.
2. Rule 5 of the principal rules shall be amended as follows> (a) sub-rule (6) thereof shall be amended as follows>
(i) in paragraph (c) thereof, for the words “the transfer is made.” there shall be substituted the words “preceding the year in which the transfer is made<”< and
(ii) immediately after paragraph (c) there shall be added the following new paragraph>
“(d) where the issued share capital of the company includes shares whose return is limited to a fixed rate of return, the book value of such shares shall not be considered in determining the net asset value of the company.”<
(b) sub-rule (7) thereof shall be amended as follows>
(i) in paragraph (c) thereof, for the words “relevant business.” there shall be substituted the words “relevant business<”< and
(ii) immediately after paragraph (c) thereof, there shall be added the following new paragraphs>
“(d) in determining the value of the goodwill in accordance with sub-rule (6)(c) hereof, in cases where the provisions of sub-rule (6)(a) come into operation, any dividends paid to the company out of profits for the years being considered, by another company in which the company is a shareholder, are excluded from the calculation<
(e) where the value of the goodwill determined in accordance with the foregoing provisions is negative, the value that shall be taken into consideration shall be nil.”<
(c) in sub-rule (8) thereof, for the words “its relevant portion.” there shall be substituted the words “its relevant portion>” and immediately thereafter there shall be added the following proviso>
“Provided that no such deduction for inflation shall be allowed where the book value of the shares has not been replaced by their market value in accordance with proviso (a) to sub-rule (6) hereof.”<
(d) for sub-rule (10) thereof, there shall be substituted the following>
“(10) The transferor in any transfer of shares shall submit to the Commissioner a statement prepared by a certified public auditor stating whether the transfer is a transfer of a controlling interest or not and indicating the grounds on which this statement is based. Where the transfer is a transfer of a controlling interest, the auditor’s statement shall be made on the form prescribed in Schedule C to these rules including a computation of the market value of the shares as required by these rules, and shall be accompanied, where applicable, by an architect’s valuation of the market value of the immovable property taken into account in determining the value of the shares. In any other case, except as provided in sub-rule (14) hereof, the auditor’s statement shall be made on the form prescribed in Schedule D including a valuation of the shares.”<
(e) immediately after sub-rule (13) thereof, there shall be added the following new sub-rules (14) and (15)>
B 883
B 884
“(14) Where the transferor is a person to whom the provisions of articles 5(2)(e), 5(6)(e), 5(9) and 12(1)(c)(ii) of the Act apply, a valuation of shares or immovable property need not be made, and the statement referred to in sub-rule (10) hereof shall be made on the form prescribed in Schedule E.
(15) For the purposes of this rule, the term “shares” or
“shares in a company” shall mean>
(a) shares in a company which is resident in Malta in terms of article 2 of the Income Tax Act< or
(b) shares held directly or indirectly in any other company the assets of which consist wholly or principally of immovable property, provided that where such shares are held by a company whose shareholders are, either directly or indirectly, all not resident in Malta (excluding the holding by any person resident in Malta of not more than one share in the company), immovable property situated outside Malta shall be disregarded for the purpose of making the determination contemplated in this paragraph>
Provided that any shares whose return is limited to a fixed rate of return shall be excluded.”.
B 885

(Rule 5(10))

Schedule C

Notice in terms of Rule 5(10) of the Capital Gains Rules, 1993

Part 1 - Details of Transferor

State the number of shares held by transferor immediately prior to the transfer:

Part 2 - Details of Company in which shares are being transferred

State whether: (Yes or No)

a The Company holds shares directly or indirectly in other companies.

(if Yes attach details)

b The Company or any companies specified in (a) above own immovable property at the date of the share transfer.

(if Yes attach details)

c An increase or reduction in the share capital of the company took place within eighteen months prior to the date of the share transfer.

(if Yes attach details)

d Any shares have been transferred by the transferor or a related party within eighteen months prior to the date of the share transfer.

(if Yes attach details)

e The company came into existence as a result of a restructuring.

(if Yes attach details specifying the date and whether a merger, division, etc)

f Such shares are held by a company whose shareholders, directly or indirectly, are all not resident in Malta,

g The transfer is a transfer to which art 5(3)(a) of the act applies.

B 886

Part 3 - Details of share transfer

Give details of the shares transferred:

Part 4 - Transfer of a controlling interest

State whether the share transfer is a transfer of controlling interest in terms of Rule 5(2) or Rule 5(3)

(attach details of the grounds on which this statement is based)

Part 5 - Computation of the market value of the shares transferred

The market value of the shares being transferred is to be determined as follows:

Market value of shares transferred / global transfer

Sec I : Determination of the % of the market value of the company as represented by such shares

Issued share capital

Total

(A) (B) (C) (D)

Percentage of the Market Value of company

(C/A) (D/B)

a State whether there has been a change in the issued share capital of the company during the period of eighteen months preceding the transfer.

b If the answer to "a" is "yes", state whether the percentage of the shareholding or voting rights of the transferror in the capital or voting rights of the company has been decreased as a result of such change.

c If the answer to "b" is "yes" , give details of the capital stucture of the company as existing at the time immediately preceding that change.

Issued share capital

Total

(E) (F) (G) (H)

Percentage of the Market Value of company

(G/E) (H/F)

Percentage of the MV of the company to be taken into account

(higher of G/E or H/F) (Z)

B 887

Sec II : Computation of Market value of company;

a Total Net Asset Value of the company as resulting from its financial statements for the financial year preceding that in which the transfer is made:

b Market Value of shares held in another company representing at least 10% of the nominal value of the issued share capital of that other company, determined

in accordance with rule 5.

Deduct book value of shares held in the company

(as stated in the financial statements)

c Total market value of immovable property as stated in the

Architect's Valuation (as per Part 6)

less Total book value of immovable property

Adjustment to the value of immovable property:

d Value of goodwill: (as calculated in Sec IV below)

e Total adjusted market value of the compan

Sec III : Market value of shares transferred:

a Adjusted market value of the company

(Sec IIe)

b % of market value as represented by shares transferred or global transfer

(higher of C/A, D/B or Z in Sec I)

c Market value of shares transferred or global transfer

(a X b)

d Total value taken into account for the purpose of determining the chargeable gain arising from each of the relevant transactions preceding this transfer

e Market value of shares transferred

(c - d)

f Value of the consideration of shares transferred

(Part 3d)

g Value to be taken into account for the purpose of calculating any gain or loss from the share transfer

(higher of e or f)

Sec IV : Calculation of the amount representing the value of goodwill:

a Where company was in existence for the five financial years immediately preceding the year in which the transfer is made:

Year ended Profit before tax

Value of goodwill:

Year 1 Year 2 Year 3 Year 4 Year 5 Total

Note: Where the transfer is made during the company's first or second financial year the value of goodwill above shall be zero.

B 888

b Where the company has acquired its business or part thereof from another person during the company's first three financial years:

State date when business was acquired:

State consideration paid for the acquisition of the goodwill of such business:

Profits of the company excluding profits attributable to business acquired;

Year ended Profit before tax

Value of goodwill:

Year 1 Year 2 Year 3 Total

Profits attributable to business acquired from another person;

Year ended

Profit before tax

Year 1 Year 2 Year 3 Year 4 Year 5 Total

Value of goodwill attributable to business acquired A

Consideration paid for the acquisition of such goodwill B

Value of the goodwill of the business so acquired

(higher of A and B )

Total amount representing the value of goodwill:

Note: Where the assets of the company include shares in another company, and such shares represent at least ten percent of the nominal value of the issued share capital of the other company, the computations in Part 5 must be made for each such shareholding.

Part 6 - Architect's valuation

If the company owns immovable property at the date of the share transfer, attach an architect's valuation

of the market value of the immovable property taken into account in determining the value of the said shares.

I do hereby declare that the information submitted through this form is true and complete:

Auditor's signature:

Transferor's signature:

Auditor's name:

Transferor's name:

B 889

(Rule 5(10))

Schedule D

Statement to be submitted by a transferor of shares where there is no transfer of controlling interest

State the number of shares held by transferor immediately prior to the transfer:

Give details of the shares transferred:

I do hereby declare that the information submitted through this form is true and complete:

Auditor's signature:

Transferor's signature:

Auditor's name:

Transferor's name:

B 890

(Rule 5(14))

Schedule E

Notice in terms of Rule 5(10) of the Capital Gains Rules, 1993

State the number of shares held by transferor immediately prior to the transfer:

Give details of the shares transferred:

State under which of the following provisions of the Income Tax Act the share transfer is exempt: Article 5(2)(e) Article 5(9)

Article 5(6)(e) Article 12(1)(c)(ii)

I do hereby declare that the information submitted through this form is true and complete:

Auditor's signature:

Transferor's signature:

Auditor's name:

Transferor's name:

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