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The Securitisation Transactions (Deductions) Rules contain special provisions on the Maltese tax treatment of securitisation transactions and related tax deductions. Below is an overview of the Maltese tax implications of a securitisation transaction. A securitisation transaction is an arrangement whereby a securitisation vehicle acquires securitisation assets or assumes risks from an originator or grants secured loan or other secured facility to the originator. The financing of such operations is done through the issue of financial instruments. In terms of Maltese law, a securitisation vehicle may be set up as a company, a commercial partnership or a trust. Other vehicles may be employed too. A securitisation vehicle does not require an MFSA licence unless it issues financial instruments to the public on a continuous basis.
Tax treatment
A securitisation vehicle is subject to income tax in Malta on its income but qualifies for special types of deductions. in addition to deduction available in terms of the Maltese Income Tax Act (expenditure strictly incurred in the production of income), the Rules provide for the following additional deductions:
1) payments by the securitisation vehicle to the originator or assignor for the acquisition of securitisation asset or
the transfer of any risks;
2) premiums, interest or discounts connected to the financial instruments issued or funds borrowed by the securitisation vehicle for the purpose of financing the acquisition of the asset or for assuming the risk; and
3) administration expenses
Securitisation vehicles are required to account separately for each securitisation contract in order to be able to determine the chargeable income for each such contract. Where the securitisation vehicle is constituted as a limited liability company, an amount equivalent to the Optional Additional Deduction (see below) must be allocated to the 'final tax account' of the company - distributions of profits by the securitisation vehicle from such account are not subject to further tax in Malta.
Optional Additional Deduction
The securitisation vehicle may claim an additional deduction which is equal to the chargeable income remaining after deducting all allowable expenditure and the special deduction referred to above. Such optional deduction effectively reduce the income of a securitisation vehicle to nil. The exercise of the option is subject to certain conditions.
Shift in tax charge onto originator/assignor
Where the option is exercised, the amount of the additional deduction is treated as income attributable to the originator or assignor - in other words, the exercise of the option shifts the attribution of the income (and the charge to tax) from the securitisation vehicle onto the assignor/originator. The Rules provide that the income attributable to the originator/assignor is represented by the sum of the payments made by the securitisation vehicle to the originator or assignor for the acquisition of securitisation asset or the transfer of any risks and the value of the optional deduction.
The deemed income of the originator or assignor is treated as arising in Malta (and therefore subject to Maltese tax) unless the control and management of the business of the originator or assignor is exercised outside Malta.
Group relief limitation
The Rules restrict group losses surrender and relief in the case of a securitisation vehicle. This means that a securitisation vehicle may not claim or surrender losses from or to a company within the same group.
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