December 15th saw the Maltese Commissioner for Revenue issue guidance under Article 96(2) of the Income Tax Act, with reference to the use of Mutual Agreement Procedures (MAP). MAP refers to a specialist procedure which allows the Competent Authority (in this case, the Malta Competent Authority) to interact with counterparts in Contracting States/Parties, with the purpose of resolving international tax disputes.
In Maltese law, a MAP is provided for under the provisions of a MAP article in-
- A Double Taxation Agreement;
- The Convention of 23rd July 1990 for the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/463/EEC)- the EU Arbitration Convention.
When referring to a MAP under the EU Arbitration it is important to note that Malta applies the Recommendations which are found in the Revised Code of Conduct for effective implementation of the convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (2009/C 322/01). Should any conflict between the Guidelines and the said Code of Conduct, the provisions of the latter will apply.
Conventions are between the governments of two (or more) states or jurisdictions and are referred to as the Contracting States or Contracting Parties. The term “Competent Authority” is used to identify a person, position, or body to whom issues can be addressed to in a Contracting State. The Malta Competent Authority is the Director General, Legal and International of the International Tax Unit at the Malta Financial Services Authority, Mr Aldo Farrugia. The MAP guidelines empower the Competent Authority to reach a resolution on MAP cases and the Authority may enter into MAP negotiations as well as exchange taxpayer and other information under the provisions of the applicable Convention, law, regulations and procedure.
A MAP works by authorising the Competent Authorities involved in a dispute (it can be more than one in multiple jurisdictions) to communicate with each other directly as well as through joint commissions in order to resolve matters that are brought before them. A MAP can be provided for subjects listed below:
- Transfer pricing adjustments;
- Attribution of profits of a permanent establishment;
- Dual residence of individuals;
- Withholding tax levied beyond what is permitted by the applicable Convention;
- Whether conditions for an application of a treaty anti-abuse provision has been met, or whether the application of a domestic law anti-abuse provision is conflicting with other provisions of a treaty;
- Any other instances where a person considers that taxation is not in line with the applicable Convention.
In order to request MAP, a taxpayer must first raise it as a formal issue by requesting assistance from the relevant Contracting State/Party dependent on the applicable Convention. In the case of multiple requests, separate MAP requests must be submitted for each taxpayer and/or under each Convention as necessary. Taxpayers are strongly encouraged to ensure that all requests are presented within a specific time frame which can vary depending on the Convention in place as well as ensuring that all the required documentation is in order and submitted at the same time.
Once the MAP request has been received, the Malta Competent Authority will determine its viability and whether it is possible to resolve the case without involving another Competent Authority. As a general rule, the Malta Competent Authority recognises the MAP as a dispute resolution process as an additional process available to a taxpayer under Maltese domestic law, and that the MAP can only be considered upon the taxpayer having exhausted or rescinded its domestic objection, review and appeal rights.
The Malta Competent Authority has stated that it endeavours to conduct the MAP process as quickly as possible, and come to a resolution within twenty-four (24) months from the date of the acceptance of the MAP request.