Australia-Malta Double Tax Agreement

Justine Bielik | 31 Jul 2013

Financial Services Tax

On 9th May 1984 Malta and Australia concluded the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. This treaty is one of the oldest Malta double tax agreements and forms a part of long-lasting relations in economic, political and social areas. The Australia-Malta double tax agreement is in force by L.N. 41 of 1985.

Australia-Malta Double Tax Agreement Definitions

Bilateral double tax treaties regulate tax matters between the parties and, as a result, furnish economic co-operation and exchange. The Agreement provides for some definitions, like a “resident”, a “permanent establishment” or definitions of certain income for treaty purposes. Although many of them (e.g. the definition of dividends) have different wording from the OECD’s Model, the general idea remains.

In case of a “resident”, for Australians the provision refers to domestic tax law of Australia as an entry point for classifying a person or an entity as a resident. Furthermore, a permanent establishment in the Australia-Malta treaty was extended by introducing “an agricultural, pastoral or forestry property” into its catalogue. Although it also does not recognize so-called “service PE”, it provides for a concept of a permanent establishment constituted as a result of or equipment usage and supervisory services regarding such equipment or a construction site. It is also worth noticing that the construction permanent establishment (a building site or an installation) is created in a shorter, 183-days time than the general OECD’s rule of 12 months. The Agreement keeps, abandoned by the OECD Model, provision on independent personal services, which completes the system of taxation of individuals.

Taxation of Particular Types of Income

Majority of provisions of the Australia-Malta double tax treaty allocate taxing rights to both countries. Dividends and interest carry 15% withholding tax, while royalties – 10%. The Agreement includes the leasing of industrial, commercial, or scientific equipment into the term “royalties”, although the OECD suggested that income generated on such transactions is not of a “royalty” nature and therefore should fall under business income. Nevertheless, many Maltese double tax treaties still apply the old approach (e.g. with Syria, Poland and Belgium).

Very limited scope of the Capital Gains provision differentiates the alienation of shares of the company in which assets consist principally of immovable property located in the other state (a property company); sale of such shares may be taxed in both in Malta and in Australia.

Exchange of Information & Anti-avoidance Measures

The exchange of information in tax matters is dealt with by the Agreement and, moreover, enhanced by the fact that in 2012 Australia ratified the OECD’s amended Agreement on Mutual Administrative Assistance in Tax Matters.  Despite the latest trends and developments in the field of tracking tax evasion and tax avoidance, the Australia-Malta convention does not contain limitation of benefits clause, even of a general character. However, it limits its benefits in case of non-remitted income – namely, any relief granted by the treaty provisions applies to the amount remitted or received in the other state.

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