Cap. 123 ст. 43Certain undistributed profits to be deemed to be distributed.

(1) Where the Commissioner is of the opinion that any company (other than a company incorporated or registered outside

Malta and not resident therein) has not distributed as dividends its profits or some part of its profits and that the effect of such non-

distribution is the avoidance or reduction of tax otherwise payable by the shareholders, he may order by notice in writing that such undistributed profits or part thereof shall be deemed, for the purposes of this Act, to have been distributed by way of dividend by the company in such amount, and on such date or dates, as to him appears to be reasonable, and the shareholders concerned shall be assessed thereon accordingly:

Provided that -

(a) no order shall be issued as aforesaid if the company proves that the main purpose or one of the main purposes of non-distribution was -

(i) to provide for the development or expansion of its trade or business from internal sources, whether alone or in combination with other sources; or

(ii) to repay any loan, overdraft or other capital borrowed from external sources (which are neither directly nor indirectly linked with the company’s shareholders) and used in the expansion of the company’s trade or business;

(b) no order issued under this sub-article shall have effect-

(i) where it is made in respect of any profits chargeable in the company’s hands in respect of any year of assessment prior to that beginning on 1st January, 1976, if an assessment has been raised for that year or, where no such assessment has been raised, if the order is made after 31st December, 1979;

(ii) where it is made in respect of any profits chargeable in the company’s hands in respect of any year of assessment prior to that beginning on 1st January, 1984, if it is made after 31st December, 1986; and

(iii) where it is made in respect of any profits so chargeable for any other year of assessment, if it is made after the lapse of eight years from the end of the year of assessment in which the profits to which the order relates were chargeable to tax;

(c) where, under the provisions of this sub-article any dividend would require to be treated as received by any shareholder of a company (in this proviso referred to as "the first company") and the shareholder in question is also a company (in this proviso referred to as "the second company"), that dividend shall not be chargeable to tax as income of the second company, but shall be treated as distributed by the second company by way of dividend on the date determined by the Commissioner as aforesaid, and the shareholders of the second company shall be assessed thereon accordingly; and where any shareholder of the second company is again a company, then, in relation to the sum which is to be treated as distributed to that shareholder, the preceding provisions of this proviso shall apply as though references mutatis mutandis therein to the first company were references to the second company and as though references therein to the second company were references to that shareholder, and so on until, applying the principles of this proviso, there remains no part of the undistributed profits to which the directions of the Commissioner relate which falls to be treated as distributed to a company.

(2) Where any person who has been assessed to tax, or has had his assessment revised, in accordance with the provisions of sub-article (1) fails to pay on due date the tax, or any part of the tax, attributable to his share of any undistributed profits which are treated as distributed, such tax or the part thereof shall thereupon become a debt due to Government from the company by reason of whose failure to distribute the profits the directions of the Commissioner under sub-article (1) were given, and shall be recoverable as such.

(3) Where any undistributed profits taxable by virtue of sub-article (1) are subsequently distributed, they shall not be treated as taxable income in the hands of the recipients thereof.

(4) Where any undistributed portion of the profits taxable by virtue of sub-article (1) has been deemed, by notice given under the provisions of this article, to have been distributed as dividends to the shareholders of that company, the company shall within twenty-one days of the date of service of the said notice furnish each shareholder with a certificate setting forth the amount of the dividend deemed to have been distributed to that shareholder and the amount of tax which the company would have been entitled to deduct from such dividend under the provisions of article 59 if such dividend had been paid.

(5) Nothing contained in this article shall prevent the decision of the Commissioner in the exercise of the power conferred upon him by sub-article (1) from being questioned in an appeal in accordance with the provisions of articles 35 and 37 of the Income

Tax Management Act.

(6) (a) Where an individual resident in Malta is registered for the purpose of article 48(4) or article 48(4A) of the Income Tax Management Act, or is beneficially entitled, directly or indirectly, to the profits of a person or entity which is so registered, such individual shall be deemed to have received a dividend or dividends corresponding to the amount of profits (that is, the profits net of the tax paid or payable by the company in respect of which he or the said person or entity are so registered) that he is beneficially entitled to receive directly or indirectly from such company, on the first day of the accounting period following that in which such profits were earned by the said company or on the date such profits where distributed whichever is the earlier: Provided that this paragraph shall not apply where the said profits were distributed to such individual resident in Malta registered for the purpose of article 48(4) or article 48(4A) of the Income Tax Management Act by way of dividends in the accounting period in which such profits were earned by the said company: Provided further that when an individual resident in Malta registered for the purpose of article 48(4) or article 48(4A) of the Income Tax Management Act has been deemed to have received a dividend or dividends on the first day of the accounting period following that in which such profits were earned by the said company such dividend or dividends shall for the purpose of article 41(a)(viii)(2) be deemed to have been paid on such day.

(b) An individual resident in Malta beneficially entitled, directly or indirectly, to the profits of a person or entity which has received the income referred to in article 41(a)(viii)(3), shall be deemed to have received, at the time that the said person or entity has received the said income, so much of that income as corresponds to his, direct or indirect, entitlement to receive that income by way of dividend or other means through or from any person or entity in any manner whatsoever: Provided that in the case of income referred to article 41(a)(viii)(2) the said person shall not be deemed to have received such income if and to the extent that the distributable profits resulting in such income have been deemed to be income referred to in paragraph (4) of the said article 41(a)(viii) paid to a recipient as defined in the investment income provisions.

(c) (Deleted by: VII.2022.27).

(d) (i) Notwithstanding any other provision in the Income Tax Acts, where an individual becomes beneficially entitled, directly or indirectly, to the profits of a person or entity or any such entitlement is increased in any way and such person or entity has received but not yet distributed, or is entitled to receive (at the time such individual became so entitled or had his entitlement so increased), directly or indirectly, the income referred to in article 41(a)(viii)(2) and (3), such individual shall be deemed to have received a dividend chargeable to tax under this Act at the time that he became so entitled or had his entitlement so increased as corresponds to his, direct or indirect, entitlement or increased entitlement to receive that income by way of dividend or other means through or from any person or entity in any manner whatsoever and such individual shall be obliged to declare the said dividend in his return of income: Provided that the provisions of this paragraph shall not be applicable where the Commissioner is satisfied that the events referred to in this paragraph were not the result of some arrangement or scheme the sole or main purpose of which was the avoidance of or postponement of the payment of tax.

(ii) Notwithstanding any other provision in the Income Tax Acts, where an individual not resident in Malta changes his residence and becomes resident and domiciled in Malta and at the time of the change becomes or is beneficially entitled, directly or indirectly, to the profits of a person or entity and such person or entity has received, directly or indirectly, but not yet distributed the income referred to in article 41(a)(viii)(2) and (3), such individual shall be deemed to have received a dividend chargeable to tax under this Act at the time that he becomes resident and domiciled in Malta as corresponds to his, direct or indirect, entitlement to receive that income by way of dividend or other means through or from any person or entity in any manner whatsoever and such individual shall be obliged to declare the said dividend in his return of income: Provided that the provisions of this paragraph shall not be applicable where the said individual was not at any time resident in Malta throughout the whole of the period of five years immediately preceding the date such individual changes his residence and becomes ordinarily resident and domiciled in Malta.

(iii) Notwithstanding any other provision in the Income Tax Acts, where an individual not resident in Malta, whether or not registered for the purpose of article 48(4) or article 48(4A) of the Income Tax Management Act, receives, directly or indirectly, the income referred to in article 41(a)(viii)(2) and (3), and such individual was at any time within the five year period preceding the date on which he received, directly or indirectly the said income, resident and domiciled in Malta, such income shall be chargeable to tax under this Act and the said individual shall be obliged to declare the said income in a return of income.

(iv) For the purpose of paragraphs (i) to (iii) above the reference to "recipient" in article 42(a)(viii)(2) shall mean any person or entity.

(e) Where the immediate shareholder of the company, person or entity referred to in paragraphs (a) and (b) is not an individual and is not resident in Malta, the provisions of the said paragraphs shall only be applicable when the said individual is ordinarily resident and domiciled in Malta.

(f) Where the direct or indirect beneficial entitlement referred to above is an entitlement to the profits of a public company or other entity, and where one or more individuals, ordinarily resident and domiciled in Malta, do not own or control a substantial part of such company or entity, or are not beneficially entitled to a substantial part of the profits or income of such company or entity, and the shares or other similar security in relation to such company or entity -

(i) are listed on a stock exchange recognised by the Commissioner for the purpose of this provision, and the Commissioner is satisfied that the shares or other similar security are widely held and frequently traded; or

(ii) although not listed on such a recognised stock exchange or not frequently traded, are widely held, the Commissioner may, in his absolute discretion, determine that the provisions of this sub-article are not applicable.

(g) For the purpose of this sub-article the word "entity" means a person other than an individual and shall include any trust or body of persons.