Malta - UK IFSP. Conrad Cassar Torregiani Leader International Tax Deloitte. John Ellul Sullivan Manager KPMG

Transcription

1 Malta - UK Conrad Cassar Torregiani Leader International Tax Deloitte John Ellul Sullivan Manager KPMG Malta United Kingdom Double Tax Treaty 15 March

2 Fact and Figures Malta United Kingdom Double Tax Treaty 2

3 Facts and Figures Capital London Currency Pound Sterling (GBP) Exchange Rates: 1 GBP = 1.2 EUR 1 GBP = 1.57 USD Time Zone GMT Visa Not required Malta United Kingdom Double Tax Treaty 3

4 Facts and Figures Population 62,262,000 (2010 Estimate) London 7,556,900 Area 243, 610 sq km Europe 9 th largest Global 79 th largest Population density 255.6/sq km Malta United Kingdom Double Tax Treaty 4

5 Facts and Figures GDP - $2.5 Trillion 6 th largest economy in the world 3 rd largest in Europe GDP average annual growth 1.8% ( ) GDP per capita - $39,459 Unemployment 8.4% Malta United Kingdom Double Tax Treaty 5

6 Facts and Figures Budget Revenues = USD1.015 Trillion Expenditure = USD Trillion Deficit = -8.8% GDP Composition by Sector Services = 77.7% of the economy Industry = 21.6% of the economy Agriculture = 0.7% of the economy Malta United Kingdom Double Tax Treaty 6

7 Facts and Figures Automotive sector GBP 52 Billion in 2011 Aerospace Industry GBP 20 Billion in 2011 Pharmaceutical 3 rd highest share of global pharma R&D expenditure. Oil & Gas th largest in the world (1.7%) Tourism 2004 = 27,000,000 persons (6th destination in the world) Malta United Kingdom Double Tax Treaty 7

8 Facts and Figures Tax Laws Tax rate 26% WHT Rates: Dividends: 0% Interest: 20% Royalties: 20% Tax Treaties: 116 Malta United Kingdom Double Tax Treaty 8

9 Tax Treaty Overview Malta United Kingdom Double Tax Treaty 9

10 Treaty Overview Tax Treaty Signed: 12/05/1994 Entered into force: 27/03/1995 (LN 105 of 1995) Consists of 30 Articles and an Exchange of Notes. Based on the 1992 OECD MC Replaced the previous agreement (29/11/74) Malta United Kingdom Double Tax Treaty 10

11 Treaty Overview Treaty Entitlement Residence Standard OECD definition liable to tax therein by reason of domicile, residence, place of management or other criteria of a similar nature Tie-breaker clause: Individuals Standard OECD Other persons Place of effective management Malta United Kingdom Double Tax Treaty 11

12 Treaty Overview Limitations on benefits The treaty does not apply to: Any person engaged in the production of petroleum in Malta Any income derived by a person liable to tax on a remittance basis unless the income is actually taxed in the other CS in relation to the UK does not include a partnership Persons entitled to any special tax benefits as identified in an Exchange of notes or any substantially similar law subsequently enacted Malta United Kingdom Double Tax Treaty 12

13 Treaty Overview Special tax benefits Persons entitled to benefits under the MFSC Act unless they have opted not to benefit thereunder Persons exempt from tax in terms of the MSA on profits derived from the operation of ships in international traffic Persons entitled to special tax benefits in respect of distributions by a trust subject to the provisions of the TA Malta United Kingdom Double Tax Treaty 13

14 Treaty Overview Elimination of Double Taxation UK Credit Country Dividends Credit extends to relief for underlying tax where shareholder controls at least 10% of the voting power Tax sparing provision (Expired!!) Malta Credit Country Dividends Credit does not extend to relief for underlying tax Malta United Kingdom Double Tax Treaty 14

15 Active Income Malta United Kingdom Double Tax Treaty 15

16 Permanent Establishment PE article largely based on OECD Model, with 3 exclusions: Installation or structure: for exploration of natural resources Construction PE: building site / construction / assembly / installation project / supervisory activities in connection therewith Continues for more than 6 months Independent Agent Malta United Kingdom Double Tax Treaty 16

17 Permanent Establishment Dependent Agent provision, similar to OECD however: If activities are carried out wholly or almost wholly for the enterprise; AND Conditions between them (in their commercial or financial relations) do not reflect an independent relationship then it is not an agent of independent status Malta United Kingdom Double Tax Treaty 17

18 Permanent Establishment PE exclusions: Use of facilities for purpose of storage, display or delivery of goods or merchandise Maintenance of stock of goods or merchandise solely for purpose of storage, display or delivery Maintenance of stock of goods or merchandise solely for purpose of processing of another enterprise Maintenance of fixed place of business solely for purpose of purchasing goods or merchandise or of collecting information Maintenance of fixed place of business solely for purpose of carrying on any activity or a preparatory or auxiliary character Maintenance of fixed place of business solely for combination of such activities provided of a preparatory or auxiliary character Malta United Kingdom Double Tax Treaty 18

19 Permanent Establishment Agency PE : Person has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise. Malta United Kingdom Double Tax Treaty 19

20 Business Profits Business Profits article largely based on OECD Model Taxable only in the residence state unless business is carried out through a PE in the Source State The separate entity and arm s length principles apply No profits will be attributable to the PE by reason of the mere purchase by the PE of goods and merchandise for the enterprise No PE required: business of insurance Malta United Kingdom Double Tax Treaty 20

21 Shipping and Air Transport Operation of ships or aircrafts in international traffic: exclusive taxation of State of Residence Such profits include: Income from rental on a bareboat basis of ships or aircrafts Profits from use, maintenance or rental of containers (including trailers and ancillary equipment used for transporting containers), use for transport of goods or merchandise Where rental or use, maintenance or rental is incidental to operation of ships or aircrafts in international traffic Malta United Kingdom Double Tax Treaty 21

22 Shipping and Air Transport Applies to aircraft leasing companies? Lessor Lessee Where rental or use, maintenance or rental is incidental to [lessor s] operation of ships or aircrafts in international traffic Malta United Kingdom Double Tax Treaty 22

23 Independent Personal Services Based on UN Model Residence State has exclusive taxing rights over professional services or other independent activities, unless: Fixed base regularly available in other State income attributable to fixed base is taxable > 183 days in any 12 month period commencing or ending in the fiscal year concerned income derived from activities in the other State are taxable Malta United Kingdom Double Tax Treaty 23

24 Dependent Personal Services Follows OECD Model Residence State always has taxing rights Exclusive taxing rights in residence State, unless employment is physically carried out in other State. Other State may tax if: Physically present for >183 days in any 12-month period commencing or ending in the fiscal year concerned; Remuneration is paid by, or on behalf, of an employer which is resident in the other State Remuneration is borne by a PE or fixed based which employer has in the other State Malta United Kingdom Double Tax Treaty 24

25 Other active income Directors fees and similar payments: In capacity as a member of a Board of Directors, Or other comparable body however described (?) may be taxed in residence State of company Artistes and sportsmen: source State may tax no matter length of stay Malta United Kingdom Double Tax Treaty 25

26 Passive Income Malta United Kingdom Double Tax Treaty 26

27 Immovable Property Malta United Kingdom Double Tax Treaty 27

28 Article 6 Immovable Property Shared jurisdiction to tax Primary unlimited jurisdiction to tax allocated to country of source Secondary jurisdiction to tax allocated to the country of residence subject to obligation to grant an ordinary credit for the foreign tax paid Malta United Kingdom Double Tax Treaty 28

29 Article 6 Immovable Property Immovable Property Direct cross reference to definition under the law of situs; Including: Property accessory to immovable property Livestock and equipment used in agriculture and forestry; Rights to which the provisions of general law respecting immovable property or landed property apply; Usufruct of immovable property; Rights to variable or fixed payments as consideration for working, or the right to work or to explore for mineral deposits, sources and other natural resources Malta United Kingdom Double Tax Treaty 29

30 Article 6 Immovable Property Immovable Property Direct cross reference to definition under the law of situs; Excluding: Ships; Boats; Aircraft. Malta United Kingdom Double Tax Treaty 30

31 Dividends Malta United Kingdom Double Tax Treaty 31

32 Article 10 Dividends When dividends are distributed by a company resident in Malta: Shared jurisdiction to tax Primary limited jurisdiction to tax allocated to Malta (tax shall not exceed that chargeable on the underlying profits) Secondary jurisdiction to tax allocated to the UK (subject to obligation to grant an ordinary credit for the Malta tax paid where at least 10% of voting rights are held) Malta United Kingdom Double Tax Treaty 32

33 Article 10 Dividends When dividends are distributed by a company resident in the UK: Exclusive jurisdiction to tax allocated to Malta Includes a legacy provision applicable historical to extend refunds of ACT where the shareholder is an individual resident in Malta. Malta United Kingdom Double Tax Treaty 33

34 Article 10 - Dividends Dividends income from shares, or other rights, not being debt claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation laws of the State which the company making the distribution is a resident and also includes any other item which, under the laws of the Contracting State of which the Company paying the dividend is a resident, is treated as a dividend or distribution of a company. Malta United Kingdom Double Tax Treaty 34

35 Article 10 - Dividends Contains a standard OECD MC based PE proviso Contains a standard OECD MC based prohibition against the extra-territorial taxation of dividends Malta United Kingdom Double Tax Treaty 35

36 Article 10 - Dividends All the UK DTAs provide for a 0% WHT on dividends. Malta United Kingdom Double Tax Treaty 36

37 Interest Malta United Kingdom Double Tax Treaty 37

38 Article 11 - Interest Shared jurisdiction to tax Primary limited jurisdiction to tax allocated to country of source (10%) Secondary jurisdiction to tax allocated to the country of residence subject to obligation to grant an ordinary credit for the foreign tax paid Malta United Kingdom Double Tax Treaty 38

39 Article 11 - Interest Interest income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor s profits, and in particular, income from government securities and income from bonds or debentures. Excluded: any item which is treated as a dividend in terms of Art. 10 Malta United Kingdom Double Tax Treaty 39

40 Article 11 - Interest Contains a standard OECD MC based PE proviso Contains a standard OECD MC based anti-abuse rule for related party lending Contains a standard OECD MC based source rule Residence of payor PE state if interest expense is borne by the PE Specific Anti-Abuse rule Malta United Kingdom Double Tax Treaty 40

41 Article 11 - Interest Mandatory Exemption in the Source country where: the interest is derived and beneficially owned by the Government of the other CS or a local authority thereof or any agency or instrumentality of that Government or local authority. the interest is paid in respect of a loan made, guaranteed or insured, or any other debt claim or credit guaranteed or insured by an institution beneficially owned by the Government or any agency or instrumentality of that Government. Malta United Kingdom Double Tax Treaty 41

42 Article 11 - Interest Comparative Table Malta 0/10 Country Interest Barbados 15 Belgium 0/15 Cyprus 0/10 Hong Kong 0 Hungary 0 Country Interest Ireland O Luxembourg 0 Netherlands 0 Switzerland 0 US 0 Malta United Kingdom Double Tax Treaty 42

43 Royalties Malta United Kingdom Double Tax Treaty 43

44 Article 12 - Royalties Shared jurisdiction to tax Primary limited jurisdiction to tax allocated to country of source 10% (provided recipient is subject to tax) Secondary jurisdiction to tax allocated to the country of residence subject to obligation to grant an ordinary credit for the foreign tax paid Malta United Kingdom Double Tax Treaty 44

45 Article 12 - Royalties Royalty payments or credits made as consideration for: the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right; the supply of scientific, technical, industrial or commercial knowledge or information (know-how); the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of the above property; total or partial forbearance in respect of the use or supply of the above property Malta United Kingdom Double Tax Treaty 45

46 Article 12 - Royalties Contains a standard OECD MC based PE proviso Source rule Residence of payor PE state if royalty is borne by the PE Contains a standard OECD MC based anti-abuse rule for related party dealings Specific Anti-Abuse rule Malta United Kingdom Double Tax Treaty 46

47 Article 12 - Royalties Comparative Table Malta 10 Country Interest Barbados 0/4.5 Belgium 0 Cyprus 0/5 Hong Kong 3 Hungary 0 Country Interest Ireland O Luxembourg 5 Netherlands 0 Switzerland 0 US 0 Malta United Kingdom Double Tax Treaty 47

48 Capital Gains Malta United Kingdom Double Tax Treaty 48

49 Article 14 Capital Gains General Rule Gains on the disposal of assets is taxable only in the country of residence of the alienator provided it is subject to tax therein. Exceptions: Immovable Property Assets of a PE Ships or Aircraft used in international traffic Qualifying holdings Property companies (non-listed) Property partnerships / Property Trusts Malta United Kingdom Double Tax Treaty 49

50 Article 14 Capital Gains Immovable Property Taxpayer Gains on disposal Immovable Property Shared jurisdiction to tax (unlimited) Malta United Kingdom Double Tax Treaty 50

51 Article 14 Capital Gains Assets of a PE Taxpayer Gains on disposal PE Assets Shared jurisdiction to tax (unlimited) Malta United Kingdom Double Tax Treaty 51

52 Article 14 Capital Gains Ships or aircraft used in international traffic Taxpayer Gains on disposal Ships/aircraft + ancillary moveable property Exclusive jurisdiction to tax to place of effective management of the enterprise Malta United Kingdom Double Tax Treaty 52

53 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust Shared jurisdiction to tax (unlimited) Immovable Property Malta United Kingdom Double Tax Treaty 53

54 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Immovable Property Malta United Kingdom Double Tax Treaty 54

55 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Immovable Property Malta United Kingdom Double Tax Treaty 55

56 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Company / Partnership / Trust / Estate Immovable Property Malta United Kingdom Double Tax Treaty 56

57 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Company / Partnership / Trust / Estate Immovable Property Malta United Kingdom Double Tax Treaty 57

58 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Company / Partnership / Trust / Estate Immovable Property Malta United Kingdom Double Tax Treaty 58

59 Article 14 Capital Gains Qualifying Holdings Property Holdings (>50% Test) Taxpayer Gains on disposal Company / Partnership / Trust / Estate Shared jurisdiction to tax (unlimited) Company / Partnership / Trust / Estate Immovable Property Malta United Kingdom Double Tax Treaty 59

60 Pensions Malta United Kingdom Double Tax Treaty 60

61 Article 18 Pensions Exclusive jurisdiction to tax allocated to Country of residence Covers: Pensions (other than pensions paid for past Government service to a person who is not both a resident and a national of the other CS); Other similar remuneration payable in consideration of past employment; Any annuity paid a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make payments in return for adequate and full consideration in money or money s worth Malta United Kingdom Double Tax Treaty 61

62 Other Income Malta United Kingdom Double Tax Treaty 62

63 Article 21 Other Income Exclusive jurisdiction to tax to country of residence provided that it is subject to tax in that State (does not cover amounts paid out of trust or the estate of deceased persons in the course of administration). Standard OECD based PE proviso Specific anti-abuse rule Malta United Kingdom Double Tax Treaty 63

64 Anti-Abuse Malta United Kingdom Double Tax Treaty 64

65 Anti-Abuse Anti-abuse present throughout the Treaty Article 23 Article 11 and Article 12 Article 13 Article 21 Malta United Kingdom Double Tax Treaty 65

66 Article 23 Remittance Clause No surprise here: Our non-dom rule is similar to the UK s so quite obvious to include Similar anti-abuse found in a number of Malta s treaties but exact wording as this is only found in Malta s treaties with Denmark, Estonia, Latvia, Lithuania, Turkey and US Malta United Kingdom Double Tax Treaty 66

67 Article 23 Remittance Clause Where in terms of the Convention the UK is restricted from taxing, and in Malta a person is taxable in respect of that income only by reference to the amount which is remitted to or received Malta and not by reference to the full amount thereof, then the UK will only be restricted from taxing so much of the income as is taxed in the other Malta Malta United Kingdom Double Tax Treaty 67

68 Article 11 and Article 12 Broad anti-abuse when can you safely say it doesn t apply? The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment are paid to take advantage of this Article by means of that creation or assignment Malta United Kingdom Double Tax Treaty 68

69 Article 13 Two forms of anti-abuse: Subject-to-tax clause Tag-along clause Malta United Kingdom Double Tax Treaty 69

70 Article 13 Subject-to-tax clause Income or gains from the alienation of any property other than that referred to in paragraphs (1), (2), (3) and (4) of this Article shall be taxable only in the Contracting State of which the alienator is a resident provided that such income or gains are subject to tax in that Contracting State. Malta United Kingdom Double Tax Treaty 70

71 Article 13 Tag along of Residence The provisions of paragraph (5) of this Article shall not affect the right of a Contracting State (UK) to levy according to its law a tax on income or capital gains from the alienation of any property derived by an individual who is a resident of the other Contracting State (Malta) and has been a resident of the firstmentioned Contracting State (UK) at any time during the five years immediately preceding the alienation of the property. Malta United Kingdom Double Tax Treaty 71

72 Article 21 Two forms of anti-abuse: General one similar to anti-avoidance in Articles 11 and 12 Subject-to-tax clause Items of income of a resident of a Contracting State, wherever arising, which are not dealt with in the foregoing Articles of this Convention, other than income paid out of trusts or the estates of deceased persons in the course of administration, and which are subject to tax in that State shall be taxable only in that State. Malta United Kingdom Double Tax Treaty 72

73 Corporate Residence issues Malta United Kingdom Double Tax Treaty 73

74 Dual Resident companies In terms of UK Law, a company is resident in the UK if its place of central management and control is in the UK Article 4(3): Where by reason of the provisions of paragraph (1) of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident solely of the Contracting State in which its place of effective management is situated. Malta United Kingdom Double Tax Treaty 74

75 Laerstate BV Facts of the case 7 December 1992: Laerstate BV buys shares in Lonhro plc Sole shareholder of Laerstate is Mr Bock, who sits on the Board of Directors of the company together with a business partner Mr Trapman 1994: Mr Bock becomes a UK Resident Acts of management of Laerstate take place in various countries: NL and Germany Malta United Kingdom Double Tax Treaty 75

76 Laerstate BV Facts of the case Mr Trapman s involvement in Laerstate is minimal Board meetings were rare but activities of Laerstate were frequent In 1996, Mr Bock starts negotiating the sale of shares in Lonhro plc and eventual sale HMRC contended that gains from sale are taxable in UK as Laerstate is UK resident Malta United Kingdom Double Tax Treaty 76

77 Central Management and Control Philip Baker: Acts of central management and control = board resolutions leading to sale & signing of contract of sale HMRC argued that decisions were not taken by Board of Directors, but by Mr Bock (100% shareholder and dominant director) Malta United Kingdom Double Tax Treaty 77

78 Court decision Central Management & Control is not necessarily where board meets but question of fact If a company is managed by Board Meetings: central management and control is where board meets If a company is not so managed: central management and control depends on who is managing the company and from where Mr Bock s decisions related to policy, strategic and management matters and decision making on company business Mr Trapman acted on Mr Bock s instructions without considering facts Malta United Kingdom Double Tax Treaty 78

79 Court decision Both Central Management and Control and Place of Effective Management were in the UK as Mr Bock s decisions related to policy, company strategy and management matters. Malta United Kingdom Double Tax Treaty 79

80 Thank You Malta United Kingdom Double Tax Treaty 80