U.S. Senate approves Double Tax Treaty with Malta

The US Senate has approved Malta’s double taxation agreement with the United States, a critical step in deepening Malta’s relationship with the USA. The ratification of the treaty will now be affirmed through the exchange of diplomatic notes.

“A Tax Treaty is a signal of the excellent relations between the two countries and their tax and legislative authorities. It is a necessary step in attracting further investment from the USA and facilitating Maltese trade and investment into the world’s largest and most valuable market,” finance minister Tonio Fenech said.

Although the United States uses the U.S. model rather than the Organisation for Economic Cooperation and Development (OECD) Model as the basis for negotiating treaties with other countries, the U.S. Model technical explanation maintains that the development of the 2006 U.S. Model took into account the OECD Model and intentionally espoused several OECD Model provisions. This means that in effect, the Maltese and U.S. governments established a tax treaty very much on the lines of the internationally recognised OECD model tax convention which provides a solid basis for development and growth in the relationship of both countries.

The treaty contains a robust Limitation on Benefits clause, the purpose of which is to prevent the application of the benefits pertinent to the agreement to treaty shopping structures. This means that such benefits will apply solely to ‘qualified persons’. In the U.S. Model, a qualified person includes an individual, a publicly-traded corporation and subsidiaries that meet certain trading and ownership requirements as well as certain tax-exempt organisation, pension funds, trusts, estates, partnerships and other companies.

This treaty undoubtedly creates opportunities for relatively all industry sectors of Malta and provides for equitable and good economic policy through the avoidance of double taxation. Given Malta’s position as a major European financial services provider, this treaty is expected to further boost the financial services sector, increase investment opportunities and create a base for non-European counterparts.