S.L. 123.27 Art. 5Transfer of company shares.

(1) Where a transfer of shares in a company is a transfer of a controlling interest in that company, the transfer shall be deemed, for the purpose of determining the chargeable gain, to have been made at the higher of the consideration and the market value of the shares.

(2) A transfer is a transfer of a controlling interest when any of the following criteria apply to the shares held by the transferor at any time during the period of eighteen months immediately preceding the transfer:

(a) their aggregate nominal value represents at least twenty-five percent of the nominal value of the issued share capital of the company;

(b) the aggregate voting rights attached to them represent at least twenty-five per cent of the voting rights in that company;

(c) the aggregate rights attached to them give the right to the holder to be appointed or to nominate or appoint or to withhold the nomination or appointment of a director of that company;

(d) the aggregate rights to profits available for distribution attached to them represent at least twenty-five percent of the total rights to profits available for distribution to the ordinary shareholders of the company: Provided that, notwithstanding the provisions of this subrule, where a transfer of shares in a company is a transfer referred to in article 5(9A)(d) of the Act, such transfer shall be treated as a transfer of a controlling interest in that company:

Provided further that, notwithstanding the provisions in this subrule, where a transfer of shares in a company is a deemed transfer of a proportion of a holding as referred to in article 5(13)(b)(i) of the Act, such transfer shall not be treated as a transfer of a controlling interest in a company.

(3) When two or more transfers of shares in the same company ("the relevant transactions") are made by the same or by related persons within a period of eighteen months or less, then, for the purpose of determining the chargeable gains arising from the last of those transfers, the relevant transfers shall be deemed to be one transfer ("the global transfer") made by the same person on the date of that last transfer, and if the global transfer satisfies any of the criteria listed in subrule (2), the following provisions shall apply:

(a) the last of the relevant transactions shall be deemed to be a transfer of a controlling interest;

(b) the market value of the shares transferred in the last transfer shall be deemed to be equal to the market value of the global transfer reduced by the total value that was or is to be taken into account for the purpose of determining the chargeable gain arising from each of the relevant transactions preceding the last of those transfers.

(4) For the purpose of subrule (3) -

(a) an individual is deemed to be related to another person if that other person is his spouse, his descendant in the direct line, his adoptive child, the spouse of any such descendant or adoptive child, his brother or sister, or a company of which the individual is, directly or indirectly, a shareholde;

(b) two bodies of persons are deemed to be related persons if they are companies within the same group of companies in terms of article 16 of the Act or are directly or indirectly controlled and beneficially owned as to more than fifty per cent by the same persons.

(5) The market value of shares in a company is a percentage of the market value of the company to be determined in accordance with the following formula -Y = (0.4 x A) + (0.2 x B) + (0.4 x C) where -

(a) 'Y' represents the percentage to be determined;

(b) ‘A’ is the percentage of the issued share capital represented by the nominal value of those shares;

(c) ‘B’ is the percentage of the total voting rights in the company represented by the total voting rights attached to those shares; and

(d) ‘C’ is the percentage of the profits available for distribution to the ordinary shareholders represented by the profits available for distribution to the holder of those shares: Provided that -

(i) saving proviso (ii), for the purpose of determining the market value of the shares, where the percentage determined by the above formula has decreased as a result of a change in the issued share capital of that company or a change in rights attached to such shares, made during the period of eighteen months preceding the transfer, and such change was not subject to duty under article 42B of the Duty on

Documents and Transfers Act, it shall be deemed that such change had not taken place and the market value of the shares shall be determined by reference to the market value of the company and the percentage determined by the above formula, calculated by taking into account the values of ‘A’, ‘B’ and ‘C’ as existing at the time immediately preceding that change;

(ii) the market value of shares that are listed on a stock exchange recognised under the Financial Markets Act shall be the last quoted price of those shares on that exchange before the date of the transfer;

(iii) where the transferor submits, together with Schedule C referred to in sub-rule (10), a share valuation prepared by an expert (specialist valuer) who is independent of the company, the Commissioner may at his absolute discretion accept such valuation and in such case the market value of the shares shall be such amount as determined by the expert. The share valuation shall be accompanied by the expert’s report which shall include a detailed description of the methods of valuation which have been used in determining the market value of the shares: Provided that the transferor shall only be authorised to submit a share valuation where:

(a) the capital gain differential exceeds ten per centum (10%); and

(b) the capital gain differential exceeds thirty thousand euro (€30,000). For the purpose of this proviso "capital gain differential" means the difference between the capital gain computed by applying the formula prescribed in this sub-rule and the capital gain computed on the basis of the share valuation;

(iv) Where the Commissioner requires further particulars for the purposes of enabling him to make a decision on whether to accept a share valuation submitted by an authorised transferor, the Commissioner shall, within thirty days of the receipt of the share valuation, or of the receipt of any further particulars previously required under this paragraph, by written notice, require the applicant to furnish such further particulars, and if any such notice is not complied with within thirty days, or such longer period as the Commissioner may allow, the Commissioner need not proceed further with the application;

(v) The Commissioner shall notify his decision to the transferor in writing within a reasonable time of receiving the share valuation or, if he gives a notice under sub-rule (iv), within a reasonable time after the notice has been complied with.

(6) The market value of a company is the total of the net asset value of the company as resulting from its financial statements for the financial year preceding that in which the transfer is made:

Provided that, where during the financial year in which the transfer is made, but not later than the date of the transfer, the company has transferred or acquired any immovable property or rights over an immovable property or any shares in another company representing at least ten percent of the nominal value of the issued share capital of that other company, the net asset value of the company shall be that resulting from an accounting statement prepared by a certified public accountant holding a practicing certificate in auditing, to be drawn up as at the date of the transfer. The accounting statement shall consist of a balance sheet showing the position of the company as at the date of the transfer and shall be drawn up using the same methods and the same layout as used for its financial statements for the financial year preceding that in which the transfer is made: Provided further that -

(a) 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 that other company, their book value shall be replaced by their market value determined in accordance with this rule 5, including this proviso. Sohowever that where the market value as determined in accordance with this rule is a negative figure, their market value shall be taken to be zero;

(b) where the assets of the company include immovable property, the book value of that property shall be replaced by its market value, that is to say, the price that the property would fetch if sold on the open market on the date of the transfer: provided that this paragraph shall not apply if the market value of the property is less than its book value;

(c) the net asset value shall be increased by an amount, representing the value of the goodwill, equivalent to two years’ average profits calculated by reference to the profits of the company for the five financial years immediately preceding the year in which the transfer is made;

(d) where the issued share capital of the company includes shares whose return is limited to a fixed rate of return, the net asset value shall be reduced by the book value of such shares: Provided that this paragraph shall not apply where the company has applied an amount standing to the credit of any of its reserve accounts funds, other than a capital redemption reserve and profits available for distribution in paying up to any extent the allotment of the said shares.

(7) For the purpose of subrule (6) -

(a) where the transfer is made during the company’s first financial year, its net asset value shall be the nominal value of its issued share capital as adjusted in accordance with the provisos to the said subrule;

(b) where the company has not been in existence for a sufficient period to determine the value of the goodwill in the manner stated in proviso (c) to subrule (6), the average profits shall be calculated by reference to the total profits for the years preceding that during which the transfer is made: Provided that, subject to paragraph (c), where the transfer is made during the company’s first or second financial year no value is to be attributed to the goodwill;

(c) where the company has acquired its business or part thereof from another person during the company’s first three financial years the value of the goodwill of the business so acquired shall be the higher of the consideration, if any, paid for the acquisition of the goodwill of that business and its value determined in accordance with the foregoing provisions by reference to the profits derived by that other person from the relevant business;

(d) in determining the value of the goodwill in accordance with sub-rule (6)(c), 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.

(8) Where a controlling interest includes shares in a company that directly or indirectly owns, at the time of the transfer of those shares, immovable property there shall be allowed a deduction for the increase in inflation calculated in accordance with rule 8 in respect of that immovable property or its relevant portion: 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 to sub-rule (6)(a).

(9) Where a transfer of a controlling interest is a transfer to which article 5(3)(a) of the Act applies, the deduction allowable in terms of subrule (8), where applicable, is to be deemed as satisfying the requirement for any adjustment to the value of the immovable property that may be due in terms of that article: Provided that where the transfer is not a transfer of a controlling interest, the adjustment required by the said article 5(3)(a) shall consist of an increase for inflation made in accordance with rule 8 but taking indexyd to be the index for 1991.

(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 including a computation of the market value of the shares as required by these rules, and shall be accompanied, where applicable, by a Perit’s valuation of the market value of the immovable property taken into account in determining the value of the shares, together with a site plan issued by the Land Registry, signed and stamped by a Perit. In any other case, except as provided in sub-rule (14), the auditor’s statement shall be made on the form prescribed in Schedule D including a valuation of the shares.

(11) The statement referred to in subrule (10) shall be delivered in triplicate to the Commissioner (Capital Transfer Duty Department) and the transferor shall, together with the delivery, pay to the Commissioner the provisional tax due on the transfer in accordance with article 43 of the Income Tax Management Act, and the Commissioner shall not consider that delivery or the notice of the transfer required in accordance with the Duty on Documents and Transfers Act as valid unless payment is made as aforesaid.

(12) The Commissioner shall stamp one of the copies of the certificate submitted in accordance with subrule (11) in acknowledgement of the receipt of same and return it to the person who submitted it.

(13) A Perit’s valuation delivered to the Commissioner in accordance with rule 5A and this rule ("the taxpayer’s technical valuation") constitutes proof of the market value of the property to which it refers unless a different value results from a valuation prepared by a Perit appointed by the Commissioner ("the Commissioner’s technical valuation"): Provided that -

(a) where the taxpayer’s and the Commissioner’s technical valuations are produced in any proceedings in the Administrative Review Tribunal, the Tribunal shall, unless the parties otherwise agree, appoint a third Perit to report on the value after examining the two valuations and inspecting the property, and the Tribunal shall decide the matter after taking into account the third Perit’s report and any other consideration that it may consider appropriate;

(b) where, in a final and conclusive assessment, the chargeable gain on a transfer of shares is higher than that declared by the taxpayer, the excess shall not, to the extent that it is attributable to a value of immovable property as assessed exceeding the taxpayer’s technical valuation by not more than twenty-five percent, constitute an omission for the purposes of article 56(12) of the Act.

(14) Where the transferor is a person to whom the provisions of articles 5(2)(e), 5(6)(e), 5(9), 5(14)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) 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 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; or

(c) shares in a company referred to in article 5(9A)(a) of the Act: Provided that any shares whose return is limited to a fixed rate of return shall be excluded.