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© 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International.

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Presentation on theme: "© 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International."— Presentation transcript:

1 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 0 USA-Malta Double Tax Treaty Dr Juanita Brockdorff Tax Partner 16 February 2011

2 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 1 Relieve DT. 1. By regulating taxation business income (1) US Business Income Taxation Federal Income Tax: CIT; Alternative Minimum Tax; Branch Profits Tax State Tax Local Tax Rates (CIT and CGT) Federal CIT 35% >USD 18 mil. < USD 18 mil graduated rates 15% + Non-residents ECI, effectively connected income, with US trade or business at above rates Branch Profits remitted to head office tax at 30%

3 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 2 Relieve DT. 1. By regulating taxation business income (2) Treaty covers federal taxes; excludes local, state, social security and unemployment taxes Treaty protection for business income, including professional/personal services: PE threshold Physical PE: fixed place of business through which business of enterprise is wholly or partially carried out Project PE: OECD 12-month threshold (oil rig/ship) Agency PE: dependant with mandate to bind principal and habitually does so Net basis of taxation (similar to election for net taxation available for immovable property income where PE not necessary for situs tax)

4 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 3 Relief DT: 2. Reduce WHT (1) On US Source Portfolio Income WHT 30% Dividends, Interest, Royalties, Rents which not ECI Malta: higher than general. Why? vs Treaty Shopping 15% Dividends. WHT usually 15%; but 10% Japan, Russia, Mexico 5% Intercompany Dividends for 10% shareholders. Typical, but EU trend parent-sub 0% France, Germany, NL, UK etc. for 80% voting stock 5% Branch Profits WHT Dividend equivalent, for neutrality with Subs. Italy % Dividends paid by US RIC (Registered Investment Companies)/ US REIT (Real Estate Investment Trusts). Prevents treaty circumvention by using, so higher WHT exception for RICS and REITS Italy; Protocol France 2010; in some treaties domestic rate WHT 0% Dividend payments to pension funds.

5 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 4 Relieve DT: 2. Reduce WHT (2) Interest 10% 0% common: Czech Rep., Denmark, Ireland, UK Anti-avoidance: 15% Contingent interest, conditional on: profits, cash flow or income of the debtor or a related person, not being portfolio interest Excess inclusion from residual interest in Real Estate Mortgage Investment Conduits (REMICs) Both Contingent and REMICS = Hungary 2010 and NZ 2008 Protocol 10% Branch level interest (excess of interest deduction over attributable)

6 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 5 Relieve DT: 2. Reduce WHT (2) Royalties 10% 0% common: Cyprus, Greece, Hungary, Switzerland US general sourcing rule for royalties: based on geographic use (not residence of payor: exceptions Mexico and Chile 2010) However, includes gains from sale of IP where gain contingent on use or disposition of (like Chile)

7 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 6 Relieve DT: 3. By allocating exclusive taxing rights CG: Residence country exclusive entitlement to tax gains on alienation of property Special rules on certain transfers: ■Immovable property (property-rich clause: US real property interest; MT assets principally immovable) ■Business property of a PE Pensions: Only residence state State pensions, or social security benefits pension only source state Annuities / Alimony: Residence state has exclusive taxing rights

8 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 7 Relieve DT: 4. Credit Method Credit for foreign taxes US, Without Treaty: Ordinary FTC, and Indirect FTC (underlying tax credit) US Co deemed paid credit 10% voting Malta Co US Treaty: Same as domestic Remittance Provision

9 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 8 Relieve DT: 5. By matching TP Adjustments TP adjustments Without Treaty: TP adjustment IRS (Internal Revenue Service) related party transactions (transfer of goods, services, intangibles) not at arm’s length thus shift income between jurisdictions No obligation of corresponding adjustment With Treaty: Article 9 TP correlative adjustment of results of related party within jurisdiction

10 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 9 Domestic anti-avoidance legislation Remains same = Domestic anti-avoidance CFC (Sub-part F) Income Thin Cap/Earning Stripping Rules

11 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 10 Exchange Information Extend Exchange Information: typically includes bank information Why? vs tax evasion Malta: extensive, but in line with US treaty policy Article 10A ITMA, Article 26 OECD MC Extends: ■To taxes and persons beyond scope DTA ■To fiduciary/nominee/agency/ownership interests/bank secrecy ■State’s Domestic Interest defence cannot be invoked ■Joint investigations (on site interviews and examinations) Protected by confidentiality obligations, trade secrets, not at variance with laws/administrative practice, public policy

12 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 11 LOB (1) Strengthening Limitation on Benefits (LOB) revision/addition, based on 2006 US Model Vs Treaty Shopping via entity owned by individuals who not resident in Malta (or USA) to access treaty without substantial business/activity in CS Malta: Stricter than 2006 US Treaty Model. Why? Harder to Treaty-Shop Subsidiary of Public Company Test refers to 75% sub of publicly-traded co, not 50% Base Erosion Test <25% of company’s gross income paid or accrued to non- Residents (usually 50%) (Share) Ownership Test applicable to non-publicly-traded companies is 75% (usually 50%) Triangular Rule. LOB applies to 3 rd country PE: treaty denied where profits of PE subject to combined tax effective rate <60% CIT of 1 st state (new Hungary 2010, Chile, and NZ Protocol 2008)

13 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 12 LOB (2) Typical LOB to determine treaty access: 1.Individual 2.Public authority 3.Public purpose tax exempt entity 4.Pension fund owned by residents 5.Publicly- traded company (primarily quoted and traded on recognised stock exchange) 6.Subsidiary of above 7.Base Erosion & Ownership Test 8.Active Trade or Business Test 9.Derivative Benefits Test (EU – 95% vote and value owned by < 7 persons that are equivalent beneficiaries) 10. Competent Authority Relief Malta’s LOB: 1.Individual 2.Public authority 3.Public purpose tax exempt entity 4.Pension fund owned by resident beneficiaries 75% 5.Publicly-traded company AND Base Erosion Test 6.Subsidiary of above 7.Base Erosion & Ownership Test 8.Active Trade or Business Test and Base Erosion Test 9.Derivative Benefits Test and Base Erosion Test 10.Competent Authority Relief

14 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 13 Bottom-line Treaty: MT – was only remaining EU MS without Status – shedding tax haven/offshore Certainty – coordinates and improves relief double taxation Aims: Attract High-value added manufacturing Services, especially Financial Services ICT Facilitate mutual cross-border trade and investment.

15 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 14 Thank you Dr Juanita Brockdorff Tax Partner Tel Fax

16 © 2011 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. 15 © 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).


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