Entry into force of the double taxation agreement with Guernsey

A new treaty with Guernsey, which was signed on the 12th March 2012 entered into force on the 10th March 2013 by means of Legal Notice 117 of 2013. The treaty follows the standard OECD Model Convention with some departures.

Article 7(4) of the treaty dealing with business profits permits the use of a ‘customary method’ when apportioning profits between the head office and a branch as long as it follows the arm’s length principle.

The allocation of taxing rights in Article 10 (dividends) and Article 11 (interest) is different to that found in the OECD Model Convention. In the OECD MC, the taxing rights are shared between the source state and the residence state with the former given a limited right to tax while the residence state is given a residual right to tax with a correlative obligation to avoid double taxation by eliminating double taxation. On the other hand, the treaty with Guernsey allocates an exclusive right to tax to the residence state of the beneficial owner, thus eliminating the need to eliminate double taxation by the residence state.

For more information please contact the firm’s tax partner Stephen Balzan on sbalzan@emd.com.mt