International tax considerations relevant for companies enjoying fiscal benefits under the BPA

Abstract

The BPA is intended to promote foreign direct investment into Malta through the granting of both fiscal as well as non-fiscal benefits. However the issue arises as to whether such benefits are actually derived, whether entirely or not, by the non-resident investor. This issue is dealt with by examining various Bilateral Treaties concluded between Malta and other contracting States, as well as certain systems implemented in the country of residence in order to relieve Juridical double taxation on the repatriation of profits from a resident BPA Company sourced in Malta to the investor's country of residence. Through this, one is able to assess which countries have, in their treaty with Malta, directly (through tax sparing provisions) or indirectly (through the exemption method of relief) recognised the legitimacy of such incentive schemes and have taken steps or otherwise ensured the effective functioning of any incentive scheme enacted in Malta. This dissertation essentially divides the main considerations into three areas: o Repatriation of profits from a qualified BPA Company through the payment of a dividend to a shareholder (whether a Company or an individual recipient), o Repatriation of profits in the form of branch profits where the investment has occurred locally through the establishment in Malta of a branch of a foreign enterprise, thus constituting a Permanent Establishment, o Transfer pricing relevant when tax planning for group companies in a cross-border context, when one of the Companies concerned is a BPA Company and subject to a lower tax rate under its jurisdiction, as well as any 'limits' imposed on the actual profits recognised as being attributable to such BPA Company. On examining the various Bilateral Treaties concluded with Malta and the systems implemented in the country of residence regarding the treatment of repatriation of dividends, as well as the treatment of branch profit remittances, it was found that there indeed exist circumstances where part, or even all of the fiscal incentives are not enjoyed, or may be lost, by the foreign investor.