Income derived from immovable property and its disposal : international taxation and double taxation relief considerations

Abstract

The taxation of immovable property and income derived therefrom may provide for a significant portion of the revenue earned by a country. Throughout the years, this consistent stream of income for states has resulted in a strong economic connection being developed between immovable property and the state wherein it is situated. Consequently, cross-border taxing rights over income from immovable property are typically source based and founded on the lex situs rule as are most other issues related to immovable property in private international law. This thesis examines the extent and appropriateness of the allocation of taxing rights over income from immovable property, taking into consideration the contemporary preference for residence based taxation of non-trading income, and the minimum threshold of a permanent establishment for source based taxation of trading income. The manner in which double taxation relief is provided after taxing rights are allocated is also considered. After initially discussing the concept of 'immovable property', the thesis moves on to the provisions relating to immovable property of the OECD Model Convention on Income and on Capital, and examines the manner in which taxing rights are allocated between the source and residence states together with relevant opinions of various acclaimed commentators. The major Maltese law provisions for the taxation of income from immovable property and its disposal are also examined, bringing to the fore the strict approach on the taxation of income from immovable property in Malta, when compared with other types of income, particularly when derived by nonresidents. Finally fictitious case scenarios are presented in order to highlight the practical application of some of the concepts discussed with reference to some Maltese Law provisions.