S.L. 123.187 Art. 4Interest limitation rule.

(1) Exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to thirty per cent (30%)

of the taxpayer's earnings before interest, tax, depreciation and amortisation (hereinafter referred to as "EBITDA").

For the purpose of this regulation, and in accordance with guidelines issued by the Commissioner, the following may also be treated as a taxpayer:

(a) an entity which is permitted or required to apply the rules on behalf of a group, as recognised for the purposes of Maltese tax law;

(b) an entity in a group, as recognised for the purposesof Maltese tax law, which does not consolidate the results of itsmembers for tax purposes.

In such circumstances, exceeding borrowing costs and the EBITDA may be calculated at the level of the group and comprise the results of all its members.

(2) The EBITDA shall be calculated by adding back to the income subject to tax the tax-adjusted amounts for exceeding borrowing costs as well as the tax-adjusted amounts for depreciation and amortisation. Tax exempt income shall be excluded from the EBITDA.

(3) Notwithstanding the provisions of sub-regulation (1), the taxpayer may:

(a) deduct exceeding borrowing costs up to three million euro (€3,000,000):

Provided that where under the provisions of sub-regulation (1) a group is treated as a taxpayer, the amount of three million euro (€3,000,000) shall be considered for the entire group;

(b) fully deduct exceeding borrowing costs if the taxpayer is a standalone entity. For the purposes of this paragraph, "a standalone entity" means a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment.

(4) The following exceeding borrowing costs shall be excluded from the scope sub-regulation (1):

(a) costs incurred on loans which were concluded before 17 June 2016, but the exclusion shall not extend to any subsequent modification of such loans;

(b) costs incurred on loans used to fund a long-term public infrastructure project where the project operator, borrowing costs, assets and income are all in the European Union, where the Commissioner is satisfied that the financing arrangements for the project have special features which justify such treatment with regards to other financing arrangements subject to the provisions of this regulation:

Provided that –

(i) a long-term public infrastructure project means a project to provide, upgrade, operate and/or maintain a large-scale asset that is considered in the general public interest by an EU Member State; and

(ii) any income arising from a long-term public infrastructure project shall be excluded from the EBITDA of the taxpayer, and any excluded exceeding borrowing cost shall not be included in the exceeding borrowing costs of the group vis-à-vis third parties referred to in paragraph

(b) of sub-regulation (5).

(5) Where the taxpayer is a member of a consolidated group for financial accounting purposes, the taxpayer may fully deduct its exceeding borrowing costs if it can demonstrate that the ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group and subject to the following conditions:

(a) the ratio of the taxpayer's equity over its total assets is considered to be equal to the equivalent ratio of the group if the ratio of the taxpayer's equity over its total assets is lower by up to two (2) percentage points; and

(b) all assets and liabilities are valued using the same method as in the consolidated financial statements drawn up in accordance with the International 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. IMPLEMENTATION

(6) The taxpayer may carry forward, without time limitation, exceeding borrowing costs and, for a maximum of five (5) years, unused interest capacity, which cannot be deducted in the current tax period under sub-regulations (1) to (5).

(7) Financial undertakings shall be excluded from the scope of sub-regulations (1) to (6), including where such financial undertakings are part of a consolidated group for financial accounting purposes.

(8) For the purpose of this regulation, the consolidated group for financial accounting purposes consists of all entities which are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or any other accounting standard as determined by means of guidelines issued under article 96(2) of the Act.

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