FFF-Legal

In today’s global business environment, exchange of information provisions have become essential and indispensable clauses in a double taxation agreement. This necessity was lately reflected in amendments to double taxation agreements between Malta and three countries-  France, Italy and Germany. The main purpose of the amendments was to align the exchange of information provisions with the 2010 OECD Model Treaty. The relevant amendments to the exchange of information provisions in Article 27 of the Malta-France Double Taxation Agreement were contained in a Protocol which came into force on 1^st June 2010. The amendments to Article 25 of the Malta-Italy Double Taxation Agreement governing the exchange of information were done by means of a Protocol which came into force on 24^th November 2010. Similar amendments were also made to Article 26 of the Malta-Germany Double Taxation Agreement by means of a Protocol which came into force on 19^th May 2011.

Essentially, the amendments to the exchange of information clause result in an extension in the scope of the provisions concerning information exchange. The general rule states that a Contracting State may request the other Contracting State to use its information gathering measures to obtain the requested information, even though the requested State may not need such information for tax purposes. Although this obligation is subject to limitations, the requested state cannot decline to supply information to the requesting State solely because it has no domestic interest in such information. An important extension of the current provisions in Malta's DTAs concerns information held by banks and other financial institutions, trustees, nominees or persons acting in an agency or fiduciary capacity.

The widening of the scope of the exchange of information and transparency provisions in the DTAs are supplemented by amendments to Maltese domestic tax provisions, particularly amendments to Article 10A of the Income Tax Management Act by means of Legal Notice 295 of 2011. The amendments vest the Commissioner of Inland Revenue with added powers to obtain information from licensed persons operating in Malta. Licensed persons include banks and other financial institutions, insurance companies, nominees and trustees, lawyers, notaries and other independent legal professionals, accountants, auditors and tax advisors. As a result, the amendments to Article 10A eliminate the previous limitations imposed by the Income Tax Management Act in relation to trustees and other licensed persons.

The amendments represent potential significant inroads into rules on confidentiality - the manner and extent to which the Commissioner will be requesting information (which is by nature sensitive and crucial) from members of a liberal profession such as tax advisors, lawyers and trustees is yet to be gauged. Although the revised provisions makes an exception with respect to trade, business, industrial or commercial secrets, information which is the subject of attorney-client privilege and information the disclosure of which would be contrary to public policy, it will be interesting to see these exceptions being successfully invoked in practice.

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