C. Costa & Associates Auditors Ltd

Dear clients and associates,

we would like to inform you of recent tax updates regarding back-to-back loan arrangements and negotiating payments of accrued taxes.

Back-to-back loan arrangements

The current regime provides for minimum acceptable net profit margins on intra-group back-to-back loan arrangements. This will apply until 30 June 2017 and any tax ruling obtained under the current regime will cease to apply on this date.

Under the new regime which is based on OECD requirements, the interest rates applied in intra-group financing should be in accordance with transfer pricing (TP) rules. The interest rates used should be supported by a TP study performed by an independent expert.

There have been talks with the Tax Department and it is rumored that they will accept a net profit margin of 2% without the need to obtain a TP study. However, we must wait for the official announcement from the Tax Department for exact details.

Negotiating payments of accrued taxes

Based on new tax legislation, a tax payer can negotiate the payment in instalments of accrued taxes (up to the year 2015, but does not include taxes arising from undeclared income). The legislation will come into effect once the Director of the Tax Department has issued a notification of commencement of the law. The new legislation is applicable to the following taxes: corporation tax, special defence contribution, capital gains, inheritance tax, immovable property tax, special contribution on salaries, stamp duties and VAT.

Under this legislation, part of the interest on late payment of accrued taxes will no longer be payable (depending on the number of instalments negotiated- for example there might be an interest saving of up to 95% for settlement by one instalment and up to 60% for the maximum instalments). The number of monthly instalments cannot exceed 54 for taxes due which are under €100.000, and 60 for taxed due which are over €100.001. The exact details of interest savings have not been released yet, although it is rumored that

A tax payer wishing to apply for payment in instalments must do so via the government’s gateway portal Ariadni.

Once the notification from the tax office for commencement of the law is received and more details of the process are disclosed we will let you know.

 

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