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Malta explains its positions on the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS

The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) was signed by around 70 countries, including Malta on 7 June 2017.

The MLI is designed to implement swiftly the tax treaty-related measures arising from the G20/OECD base erosion and profit shifting (BEPS) project.

“Minimum standard” changes to the functioning of existing bilateral tax treaties in the areas of treaty abuse, mutual agreement procedures (MAPs) and treaty preambles will be implemented through the MLI.

Furthermore, depending on the reservations and notifications made by each country party to the MLI, optional changes to modify tax treaties in respect of permanent establishments (PEs), transparent entities, residency tiebreakers, double tax relief, minimum shareholding periods, capital gains derived from immovable property and a jurisdiction’s right to tax its own residents will be facilitated.

Malta has made partial or full reservations against a number of the articles of the MLI.

Reservations and Notifications taken by Malta

Malta mentioned 71 tax treaties as agreements it wishes to be covered by the MLI and opted to apply:

  • The “Minimum Standard”, which includes provisions dealing with covered tax agreements, MAPs and the prevention of treaty abuse – Malta has opted to use the principle purpose test (PPT) approach;
  • Provisions relating to capital gains from alienation of shares or interests of entities deriving their value principally from immovable property; and
  • Provisions dealing with mandatory binding arbitration, subject to certain reservations.

The Reservations and Notifications will be confirmed upon deposit of the instrument of ratification subject to Articles 28(6) and 29(3) of the Convention.

Implications

The MLI does not function in the same way as an amending protocol to an existing bilateral treaty – it does not directly change the underlying text of a bilateral treaty, but will be applied alongside the existing treaty, modifying its application.

The extent to which the MLI modifies an existing tax treaty depends on the MLI positions of the parties to the treaty and the corresponding application of the mechanical provisions of the MLI.

Even though Malta has made a number of reservations, the introduction of a PPT and other changes will still result in certain amendments to Malta’s tax treaties.

Should you require further information on the above, please contact Nicky Gouder or Luana Scicluna.