India-Malta Double Taxation Agreement

Justine Bielik | 14 Jun 2013

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On 8th April, Maltese Foreign Minister George Vella and Indian External Affairs Minister Preneet Kaur signed renegotiated Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, “which will continue reinforcing the investment framework as well as commercial exchanges” as official statement says. Once signed and in force, the new tax treaty will supersede the existing Malta-India Double Tax Treaty signed and ratified in 1995 (L.N. 46 of 1995). The new agreement is now waiting for ratification.

1. Definitions

The objective of double tax agreements is to structure the relation between two countries regarding taxation, and, in consequence, to facilitate economic co-operation and exchange. The new treaty implements the definition of a resident which is more in line with the wording of the OECD Model. It also extends the definition of a permanent establishment, which now includes also sales outlets, farms (and similar) and a so-called “service PE”, which arises when furnishing of services in the other state continues for a period or periods aggregating more than 90 days within any 12-month period. The agreement introduced a complex formula for allocation of profits to a permanent establishment, especially in case of deductions. It also keeps, abandoned by the OECD Model, the provision on independent personal services, which completes the system of taxation of individuals.

2. Taxation of particular types of income

Majority of provisions allocate taxing rights to both countries. In case of dividends Indian withholding tax rate is 10% but in case of Malta is limited by tax chargeable on underlying profits. Interest, royalties and fees for technical services carry 10% withholding tax. Potential double taxation will be avoided by the credit method.

3. Exchange of information and anti-avoidance measures

Moreover, the Agreement regulates an exchange of information, which importance is strengthen by the fact that India has not concluded with Malta any bilateral Agreement on Tax Information Exchange, based on the OECD model (TIEA); however, in 2012 both countries joined OECD’s Convention on Mutual Assistance in Tax Matters and in India the Convention is already in force.    

Following the latest trends and developments in the field of tracking tax evasion and tax avoidance, it contains limitation of benefits clause, however of a general character.

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