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Donald Vella |
Mark Galea Salomone |
On November 18 2015, Malta and the Netherlands concluded a treaty for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income in respect of Curaçao.
The double tax treaty (DTT) is to come into force on January 1 2016. The DTT is, for the most part, modelled on the OECD Model but contains provisions to cater for certain domestic tax laws of both contracting states. This article summarises the main points of the DTT and highlights the instances where the contracting states have deviated from the OECD Model.
The DTT is applicable to income tax in the case of Malta; and income tax, wage tax, profit tax and dividend tax in the case of Curaçao, as well as any identical or substantially similar taxes that may be imposed subsequent to the signature of the DTT. Malta's Income Tax Act charges to tax in Malta various receipts of an income and capital nature, despite the absence of a comprehensive domestic law meaning of tax.
The tax treaty residence concept sees no deviations from Article 4 of the OECD Model Convention. Neither have there been any deviations from the OECD Model in the articles treating income from immovable property; associated enterprises; royalties; income from employment; government service; students; other income; non-discrimination; mutual agreement procedure; exchange of information; and assistance in the collection of taxes.
An addition to the permanent establishment article has been made in respect of insurance enterprises. Except in regard to re-insurance, such enterprises are deemed to have a permanent establishment in the other contracting state if such enterprise collects premiums in the territory of that other state, provided that the profits related to those premiums are not liable to tax in the first mentioned state.
With respect to dividends, the DTT states that dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed in that other state. However, it allows dividends to also be taxed in the contracting state of which the company is a resident. Where the dividends are paid by a company which is a resident of Curaçao to a resident of Malta who is the beneficial owner, the tax charged in Curaçao is not to exceed (i) 0% of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends; or 5 % of the gross amount of the dividends in all other cases. Where the dividends are paid by a company which is a resident of Malta to a resident of Curaçao who is the beneficial owner, Malta tax on the gross amount of the dividends is not to exceed that which is chargeable on the profits out of which the dividends are paid.
The interest article states that interest arising in a contracting state and paid to a resident of the other contracting state shall be taxable only in that other state. The article also reflects developments with respect to Directive 2003/48/EC on taxation of savings income in the form of interest payments, allowing the application of any agreement between Curaçao and the EU pursuant to the aforementioned Directive.
In the case of Malta, double taxation will be eliminated by the credit method, while, in the case of Curaçao, double taxation will be eliminated by the exemption method. With respect to the mutual agreement procedure, arbitration has been included, following the trend of the recently concluded DTTs with Moldova, Lichtenstein and Switzerland.
It is pertinent to highlight a notable article included in the protocol to the DTT, clarifying the residence of a trust. It is understood that in case of a trust, if a trustee is resident in a contracting state and none of the trustees is resident in the other contracting state, the trust is considered to be a resident of the first-mentioned contracting state. If trustees are resident in both contracting states, then the trust is considered to be a resident in the contracting state where the decisions concerning the administration of the trust are taken. In case such decisions are taken in both or in neither of the contracting states, then the competent authorities of Malta and Curaçao are to settle the residence of the trust by mutual agreement.
The DTT is the 70th DTT to come into force between Malta and a counterparty jurisdiction. The conclusion of this DTT further signals Malta's firm commitment towards extending its tax treaty network to keep attracting foreign direct investment into Malta and to further ensure that persons are not subjected to double taxation in cross-border situations involving Malta and another state.
Donald Vella (donald.vella@camilleripreziosi.com) and Mark Galea Salomone (mark.galeasalomone@camilleripreziosi.com), Valletta
Camilleri Preziosi
Tel: +356 21238989
Website: www.camilleripreziosi.com
