S.L. 123.51 Art. 15Tax treatment on switches.

(1) For the purposes of this regulation:

''chain of consecutive switches'' means a series of consecutive switches (which for the purposes of this regulation may constitute a single switch) commencing by a switch, immediately prior to which there was not a switch, and terminating with a switch following which there was a transfer of securities which was not a switch;

''final securities'' means those securities in a sub-fund last acquired in a chain of consecutive switches;

''initial securities'' means those securities in a sub-fund the switch of which was the first switch in a chain of consecutive switches; ''prescribed switch'' means a switch of securities from a prescribed fund; ''sub-fund'' includes a class, part or other similar section of the same collective investment scheme; ''switch'' means a transaction, whereby securities in a subfund of a collective investment scheme are switched to, or transferred to, or re-invested in, or exchanged for, or otherwise transformed into, securities of:

(a) another sub-fund of the same collective investment scheme provided that:

(i) the holder of the last mentioned securities is the same person as the holder of the first mentioned securities; and

(ii) the holding in the last mentioned sub-fund follows immediately the holding in the first mentioned sub-fund; or

(b) a sub-fund of another collective investment scheme, provided that:

(i) this transaction follows directly the approval of the relevant competent authority for the closure of a sub-fund or winding up proceedings in terms of provisions of Title II of Part V of the Companies Act or amalgamation proceedings in terms of the provisions of Part VIII of the Companies Act in the case of a Malta based scheme and in no circumstance such transaction was initiated or instigated by the holder of the first mentioned securities; and

(ii) the holder of the last mentioned securities is the same person as the holder of the first mentioned securities; and

(iii) the holding in the last mentioned sub-fund follows immediately the holding in the first mentioned sub-fund; provided further that the Commissioner is satisfied that:

(1) the sub-fund of such other collective investment scheme has investment objectives which are identical to those of the first mentioned subfund; and

(2) the sub-fund of such other collective investment scheme succeeds to all the rights and obligations of the first mentioned sub-fund; and

(3) the sub-fund of such other collective investment scheme has the same investment manager and the same custodian as the first mentioned sub-fund, provided that the requirement to have the same custodian shall be waived where an investor is required to carry out a forced switch in cases where an investment manager decides to close a sub-fund of a collective investment scheme and to offer the opportunity to investors to transfer the relevant investment to a sub-fund of another collective investment scheme; and

(4) the transaction does not involve a substantial departure from the terms relating to the holding in the first mentioned sub-fund. For the purposes of this proviso, the relevant investment manager shall seek the Commissioner’s approval that all such transactions from the first mentioned sub-fund to the last mentioned sub-fund will be considered as switches for the purposes of this regulation. The Commissioner may, prior to giving such approval, request such information and documents that he may deem necessary.

(2) A switch constitutes a transfer of securities for the purposes of article 5 of the Act:

Provided that it shall be deemed that no loss or gain arises upon a switch.

(3) (a) Capital gains arising at the time of disposal of final securities shall be computed by aggregating those chargeable capital gains and allowable capital losses which would have arisen during the chain of consecutive switches and transfer of final securities had the provisions of the proviso to subregulation (2) not been enacted: Provided that in the case of a disposal of final securities held in a non-prescribed fund and where the relevant chain of consecutive switches does not include a prescribed switch, such capital gains may be calculated by deducting from the proceeds of the disposal of the relevant final securities, the cost of acquisition of the relevant initial securities.

(b) In calculating the capital gains as provided for in paragraph (a) -

(i) the conversion of foreign currencies, where required, are to be made at the rates of exchange used in the acquisition or transfer of the securities relevant to the calculation of the capital gains. Where proof is not available as to the rates of exchange used in the acquisition or transfer of the relevant securities, conversion of currencies is to be made at the rate of exchange (middle rate of the Central Bank) prevailing at the end of the calendar year in which the acquisition or transfer, as the case may be, was made: Provided that if the acquisition and transfer are made in the same calendar year, the conversion rate to be used is the rate of exchange (middle rate of the Central Bank) prevailing on the date of the acquisition and the rate of exchange (middle rate of the Central Bank) prevailing on the date of the transfer;

(ii) where the aggregation of capital gains and capital losses as provided for in paragraph (a) involves different currencies, such gains or losses may be converted into euros at the rates of exchange (middle rate of the Central Bank) prevailing on the dates of the relevant switches or disposal of final securities;

(iii) the cost of acquisition is to be calculated in the same manner provided for in regulation 9, or in such other manner which may be approved by the Commissioner.