B 2593
L.N. 348 of 2019
INCOME TAX ACT
(CAP. 123)
European Union Anti-Tax Avoidance Directives Implementation 
(Amendment) Regulations, 2019
IN EXERCISE of the powers conf erred by articles 52B and 96 of
the Income Tax Act, hereinafter referred to as "the Act", the M inister
for Finance has made the following regulations:-
Citation and 
commencement.
S.L. 123.187.1. (1) The title of these regulations is European Union Anti-
Tax Avoidance Directives Impleme ntation (Amendment) Regulations ,
2019 and they shall be read and construed as one with the Europ ean
Union Anti-Tax Avoidance Directiv es Implementation Regulations,
hereinafter referred to as "t he principal regulations".
(2) These regulations shall come into force as follows:
(a) the provisions of regulatio ns 2, 3, 5 and 7 shall apply
with effect from 1 January 2020; and
(b) the provisions of regulation 6 shall apply with effect
from 1 January 2022.
Amends 
regulation 2 of 
the principal 
regulations.2. Regulation 2 of the principal regulations shall be amended
as follows:
(a) in sub-regulation (1) thereof, the words "Directive
(EU) 2016/1164 of 12 July 2016 adopted by the Council of the
European laying down rules against tax avoidance practices that
directly affect the functioning of the internal market", shall be
substituted by the words "Directive (EU) 2016/1164 of 12 July
2016, as amended by Directive (EU) 2017/952 of 29 May 2017,
adopted by the Council of the European Union, laying down
rules against tax avoidance practices that directly affect the
functioning of the internal market"; and
(b) immediately after sub-regulation (2) thereof, there
shall be added the fol lowing new sub-regulation:
"(3) Regulation 10 shall also apply to all entities that
are treated as transparent for tax purposes in terms of theIncome Tax Acts.".
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Amends 
regulation 3 of 
the principal regulations.3. Regulation 3 of the principal r egulations shall be amended
as follows:
(a) in the definition "associated enterprise" thereof,
immediately after the words "shall also be regarded as associat ed
enterprises;", there shall be added the following:
"For the purposes of regulations 9 and 10:
(i) where the mismatch outcome arises under
paragraph (b), (c), (d), (e) or (g) of the definition of
"hybrid mismatch" or where an adjustment is
required under regulation 9(3) or regulation 10, the
definition "associated enterprise" is modified so thatthe 25 per cent (25%) requirement is replaced by a 50
per cent (50%) requirement;
(ii) a person who acts together with another
person in respect of the voting rights or capitalownership of an entity shall be treated as holding a
participation in all of the voting rights or capitalownership of that entity that are held by the other
person;
(iii) an associated enterprise also means an
entity that is part of the same consolidated group forfinancial accounting purposes as the taxpayer, an
enterprise in which the taxpayer has a significantinfluence in the management or an enterprise that has
a significant influence in the management of the
taxpayer;";
(b) immediately after the de finition of "borrowing costs"
thereof, there shall be added the following new definition:
""consolidated group for financial accounting
purposes" means a group consisting of all entities which arefully included in consolidated financial statements drawnup in accordance with the International Financial Reporting
Standards or any other financial reporting system as may be
determined by means of guide lines issued under article
96(2) of the Act;"; and
(c) immediately after the definition "financial
undertaking" thereof, there shall be added the following newdefinitions:
""hybrid mismatch" means a situation involving a
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taxpayer or, with respect to regulation 9(3), an entity,
where:
(a) a payment under a financial instrument
gives rise to a deduction without inclusion outcomeand:
(i) such payment is not included within
a reasonable period of time; and
(ii) the mismatch outcome is
attributable to differences in thecharacterisation of the instrument or the
payment made under it.
For the purposes of sub-paragraph (i), a
payment under a financial instrument shall be treated
as included in income within a reasonable period oftime where:
(A) the payment is included by the
jurisdiction of the payee in a tax period thatcommences within twelve (12) months of the
end of the payer's tax period; or
(B) it is reasonable to expect that the
payment will be include d by the jurisdiction of
the payee in a future tax period and th e terms of
payment are those that would be expected to be
agreed between independent enterprises;
(b) a payment to a hybrid entity gives rise to a
deduction without inclusion and that mismatch
outcome is the result of differences in the allocation
of payments made to the hybrid entity under the laws
of the jurisdiction where the hybrid entity isestablished or registered and the jurisdiction of any
person with a participati on in that hybrid entity;
(c) a payment to an entity with one (1) or
more permanent establishments gives rise to adeduction without inclusion and that mismatch
outcome is the result of differences in the allocationof payments between the head office and permanent
establishment or between two (2) or more permanent
establishments of the same  entity under the laws of
the jurisdictions where the entity operates;
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(d) a payment gives rise to a deduction
without inclusion as a result of a payment to a
disregarded permanent establishment;
(e) a payment by a hybrid entity gives rise to
a deduction without inclusion and that mismatch isthe result of the fact that the payment is disregardedunder the laws of the payee jurisdiction;
(f) a deemed payment between the head
office and permanent establishment or between two
(2) or more permanent establishments gives rise to a
deduction without inclusi on and that mismatch is the
result of the fact that the payment is disregarded
under the laws of the payee jurisdiction; or
(g) a double deduction outcome occurs:
Provided that for the purposes of this
definition:
(i) payment representing the
underlying return on a transferred financialinstrument shall not give rise to a hybrid
mismatch under paragraph (a) where thepayment is made by a financial trader under an
on-market hybrid transfer provided the payer
jurisdiction requires the financial trader toinclude as income all amounts received in
relation to the transferre d financial instrument;
(ii) a hybrid mismatch shall only arise
under paragraphs (e), (f) or (g) to the extent thatthe payer jurisdiction allows the deduction to be
set off against an amount that is not dual-inclusion income;
(iii) a mismatch outcome shall not be
treated as a hybrid mismatch unless it arisesbetween associated enterprises, between a
taxpayer and an associated enterprise, between
the head office and permanent establishment,between two (2) or more permanent
establishments of the same entity or under a
structured arrangement:
Provided further that for the
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purposes of this definitio n and regulations 9, 10
and 11:
"deduction" means the amount that
is treated as deductible from the taxable
income under the laws of the payer or
investor jurisdiction. The term"deductible" shall be construed
accordingly;
"deduction without inclusion"
means the deduction of a payment or
deemed payment between the head officeand permanent establishment or between
two (2) or more permanent establishments
in any jurisdiction in which that paymentor deemed payment is treated as made
(payer jurisdiction) without a
corresponding inclusion for tax purposesof that payment or deemed payment in the
payee jurisdiction. The payee jurisdiction
is any jurisdiction where that payment ordeemed payment is received, or is treated
as being received under the laws of any
other jurisdiction;
"disregarded permanent
establishment" means any arrangementthat is treated as giving rise to apermanent establishment under the laws
of the head office jurisdiction and is not
treated as giving rise to a permanentestablishment under the laws of the other
jurisdiction;
"double deduction" means a
deduction of the same payment, expensesor losses in the jurisdiction in which the
payment has its source, the expenses areincurred or the losses are suffered (payer
jurisdiction) and in another jurisdiction
(investor jurisdiction). In the case of apayment by a hybrid entity or permanent
establishment the payer jurisdiction is the
jurisdiction where the hybrid entity or
permanent establishment is established or
situated;
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"dual inclusion income" means any
item of income that is included under the
laws of both jurisdictions where themismatch outcome has arisen;
"financial instrument" means any
instrument to the extent that it gives riseto a financing or equity return that is
taxed under the rules for taxing debt,
equity or derivatives under the laws of
either the payee or payer jurisdictions and
includes a hybrid transfer;
"financial trader" is a person or
entity engaged in the business of regularlybuying and selling financial instrumentson its own account for the purposes of
making a profit;
"hybrid entity" means any entity or
arrangement that is regarded as a taxableentity under the laws of one (1)
jurisdiction and whose income orexpenditure is treated as income or
expenditure of one (1) or more other
persons under the laws of anotherjurisdiction;
"hybrid transfer" means any
arrangement to transfer a financialinstrument where the underlying return on
the transferred financial instrument is
treated for tax purposes as derivedsimultaneously by more than one (1) of
the parties to that arrangement;
"inclusion" means the amount that is
taken into account in the taxable incomeunder the laws of the payee jurisdiction.
A payment under a financial
instrument shall not b e treated as included
to the extent that the payment qualifies for
any tax relief solely due to the way thatpayment is characterised under the laws
of the payee juris diction. The term
"included" shall be construed
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accordingly;
"mismatch outcome" means a
double deduction or a deduction without
inclusion;
"on-market hybrid transfer" means
any hybrid transfer that is entered into bya financial trader in the ordinary course of
business, and not as part of a structured
arrangement;
"person" means an individual or
entity;
"tax relief" means a tax exemption,
reduction in the tax rate or any tax creditor refund (other than a credit for taxeswithheld at source);
"structured arrangement" means an arrangement
involving a hybrid mismatch wh ere the mismatch outcome
i s  p r i c e d  i n t o  t h e  t e r m s  o f  t h e  a r r a n g e m e n t  o r  a n
arrangement that has been designed to produce a hybrid
mismatch outcome, unless the taxpayer or an associatedenterprise could not reasonably have been expected to be
aware of the hybrid mismatch a nd did not share in the value
of the tax benefit resulting from the hybrid mismatch;".
Amends 
regulation 4 of the principal 
regulations.4. Paragraph (b) of sub-regulation (5) of regulation 4 of the
principal regulations, shall be substituted by the following:
"(b) all assets and liabilities are valued using the same
method as in the consolidated f inancial statements drawn up in
accordance with the Internationa l Financial Reporting Standards
or any other financial reporting system as may be determined by
means of guidelines issued under article 96(2) of the Act.".
Adds new 
regulations 9, 10 
and 11 to the 
principal regulations.5. Immediately after regulation 8 of the principal regulations,
there shall be added the f ollowing new regulations:
"Hybrid 
mismatches.9. (1) To the extent that a hybrid mismatch
results in a double deduction:
(a) the deduction shall be denied if Malta
is the investor jurisdiction; and
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(b) the deduction shall be denied if Malta
is the payer jurisdiction and the deduction is not
denied in the invest or jurisdiction:
Provided that, any such deduction shall be
eligible to be set off against dual inclusion income
whether arising in a current or subsequent tax period.
(2) To the extent that a hybrid mismatch results
in a deduction without inclusion:
(a) the deduction shall be denied if Malta
is the payer jurisdiction; and
(b) the amount of the payment that would
otherwise give rise to a mismatch outcome shall
be included in income if Malta is the payee
jurisdiction and the deduction is not denied in the
payer jurisdiction.
(3) No deduction shall be allowed for any
payment by a taxpayer to the extent that such paymentdirectly or indirectly funds deductible expenditure
giving rise to a hybrid mismatch through a transaction
or series of transactions bet ween associated enterprises
or entered into as part of a structured arrangement
except to the extent that one (1) of the jurisdictions
involved in the transaction or series of transactions hasmade an equivalent adjustment in respect of such
hybrid mismatch.
( 4 ) T h e r e  s h a l l  b e  e x c l u d e d  f r o m  t h e  s c o p e  o f
application:
(a) paragraph (b) of sub-regulation (2),
hybrid mismatches as defined in paragraph (b),
(c), (d) or (f) of the definition of "hybridmismatch" in regulation 3;
(b) paragraphs (a) and (b) of sub-
regulation (2), hybrid mismatches resulting from
a payment of interest unde r a financial instrument
to an associated enterprise where:
(i) the financial instrument has
conversion, bail-in or write down features;
(ii) the financial instrument has been
issued with the sole purpose of satisfying
loss absorbing capacity requirements
applicable to the ba nking sector and the
financial instrument is recognised as such in
the taxpayer's loss absorbing capacity
requirements;
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(iii) the financial instrument has been
issued:
(A) in connection with
financial instrument s with conversion,
bail-in or write down features at the
level of a parent undertaking;
(B) at a level necessary to
satisfy applicable loss absorbing
capacity requirements;
(C) not as part of a structured
arrangement; and
(iv) the overall net deduction for the
consolidated group under the arrangement
does not exceed the amount that it would
have been had the taxpayer issued suchfinancial instrument directly to the market:
Provided that the provisions of
this paragraph (b) shall only apply until 31
December 2022.
(5) To the extent that a hybrid mismatch
involves income of a disregarded permanent
establishment of a taxpayer resident in Malta which is
not otherwise subject to tax in Malta, that taxpayer shall
include in its income the income that would otherwise
be attributed to the disregarded permanentestablishment. This applies unless Malta is required to
exempt the income of the permanent establishment interms of a double taxation treaty entered into by Maltawith a third country.
(6) To the extent that a hybrid transfer is
designed to produce a relief for tax withheld at source
on a payment derived from a transferred financial
instrument to more than one (1) of the parties involved,the benefit of such relief s hall be limited in proportion
to the net taxable inco me regarding such payment.
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Reverse hybrid 
mismatches.10. (1) Where one (1) or more associated non-
resident entities holding in a ggregate a direct or indirect
interest in fifty per cent ( 50%) or more of the voting
rights, capital interests or rights to a share of profit in a
hybrid entity that is incorporated or established inMalta are located in a jurisdiction or jurisdictions that
regard the hybrid entity as a taxable person, the hybrid
entity shall be regarded as a resident of Malta and taxed
on its income to the extent that that income is not
otherwise taxed under any other provision of the
Income Tax Acts or in any other jurisdiction.
(2) Sub-regulation (1) shall not apply to a
collective investment vehicle. For the purposes of this
regulation, "collective investment vehicle" means an
investment fund or vehicle that is widely held, holds adiversified portfolio of securities and is subject to
investor-protection regulati on in the country in which it
is established.
Tax residency 
mismatches.11. To the extent that a deduction for payment,
expenses or losses of a taxpayer who is resident for tax
purposes in Malta and in  another jurisdiction is
deductible from the tax base in Malta and in that otherjurisdiction, the deduction shall be denied to the extentthat the other jurisdiction allows the duplicate
deduction to be set off against income that is not dual-
inclusion income. If the oth er jurisdiction is a Member
State, the deduction shall be  denied only if the taxpayer
is not deemed to be resident in Malta according to thedouble taxation treaty betwe en Malta and the other
Member State concerned.".
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