S.L. 123.176 Art. 4Calculatinginterest on risk capital.

(1) Interest on risk capital for a year of assessment shall be calculated on the basis of the following:

Y = A x B

Where –

"Y" represents the interest on risk capital that an undertaking is entitled to claim in the relevant year of assessment;

"A" represents the reference rate;

"B" represents the risk capital of the undertaking for the accounting period ending in the year preceding the year of assessment less any risk capital directly employed in the form of securities, interest in a partnership, contributions and any other loans or debts that do not bear interest that the undertaking holds in or provides to any other person whether resident in Malta or otherwise (hereinafter in this sub-rule collectively referred to as “the invested risk capital”), to the extent that such invested risk capital is:

(a) not employed by the undertaking in producing any income in the year preceding the year of assessment in a situation where had any such income been produced it could have been exempt from tax in terms of the Act, or

(b) employed in producing income in the year preceding the year of assessment which is exempt from tax in terms of the Act.

For the purposes of this rule "risk capital" shall be computed by taking the total risk capital at the end of the particular accounting period ending in the year preceding the year of assessment

(2) Notwithstanding the other provisions of this rule:

(a) where in respect of any year preceding a year of assessment, interest resulting from the above computation exceeds ninety per cent (90%) of the undertaking’s chargeable income for the said year prior to taking into account the deduction allowable in terms of sub-rule (1) of rule 3, the amount of such excess shall not be available for deduction against the profits for the said year, but may, at the option of the undertaking, be carried forward for deduction and be added to the deduction due for the following year and deemed to be part of that deduction, or if there is no such deduction for that year, be deemed to be the deduction for that year and so on for subsequent years and any amounts carried forward as set out in this proviso shall be increased by such rate as may be prescribed by the Commissioner:

Provided that where a shareholder or partner of an undertaking that is a company is deemed, in terms of rule 5, to have received interest income pursuant to a deduction claimed by such undertaking, the shareholder or partner will be entitled to deduct any interest on risk capital which it is deemed to have incurred in terms of this rule against such deemed interest income without the limitation set out in this paragraph.

(b) where any risk capital results in a deduction being claimed by the undertaking in terms of any other provision of the Act or of any rules issued thereunder (hereinafter "the other provisions"), the undertaking shall be entitled to elect whether to claim a deduction in terms of these rules or in terms of the other provisions in respect of the amount which would qualify for deduction in terms of both these rules and the other provisions.