Article 5 of the OECD model : the concept of permanent establishment with special reference to Malta's double tax treaties

Abstract

Purpose: This dissertation evaluates the significance of Article 5 Permanent Establishment of the OECD Model Convention, with particular reference to Malta's Double Tax Treaties. In particular, it views the similarities and differences of the Model Convention as transposed in Malta's Double Tax Treaties. Design: The variations were evaluated through an extensive analysis of each and every Malta Double Tax Treaty with Article 5 of the OECD Model Convention. Semi-structured interviews were also conducted with the International Tax Unit and the Big Four accountancy firms in order to substantiate the differences found by the analysis. Findings: A large number of Malta's Double Tax Treaties have been drawn up using the OECD Model Convention as a template, with some adopting also clauses from the UN Model. Presently, Article 5 in Malta's model is a reproduction of that in the OECD. The OECD Model Convention is an international model and thus, the reliance on such model, facilitates growth of international trade and investment. Conclusions: Article 5 is of vital importance since it eliminates the occurrence of double taxation, that is, income with connections in more than one jurisdiction is taxed only once. Due to Malta's small size, there is the need for a wide-area network of Double Tax Treaties since more business opportunities are opened up. Double Tax Treaties are negotiated and thus one can expect an element of variations between one and another. However, these negotiating differences do not affect business per se since the existence of a PE must be determined on a case-by-case basis. Value: This research is motivated by the need to understand the implications of Malta's Double Tax Treaties with respect to the concept of Permanent Establishment so to establish the jurisdiction to tax. With the accession to the European Union, Maltese enterprises are growing and widening their investment abroad and thus it is important to maintain a wide range of Treaties with sufficient concepts and provisions so that such enterprises do not suffer.