[Senate Treaty Document 111-1]
[From the U.S. Government Publishing Office]



111th Congress 
 1st Session                     SENATE                     Treaty Doc.
                                                                  111-1
_______________________________________________________________________

                                     

 
                       TAX CONVENTION WITH MALTA

                               __________

                                MESSAGE

                                  from

                     THEPRESIDENTOFTHEUNITEDSTATES

                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
 THE GOVERNMENT OF MALTA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED ON 
                      AUGUST 8, 2008, AT VALLETTA




 January 15, 2009.--Treaty was read the first time, and together with 
the accompanying papers, referred to the Committee on Foreign Relations 
          and ordered to be printed for the use of the Senate


                         LETTER OF TRANSMITTAL

                              ----------                              

                                 The White House, January 15, 2009.
To the Senate of the United States:
    I transmit herewith, for Senate advice and consent to 
ratification, the Convention Between the Government of the 
United States of America and the Government of Malta for the 
Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion With Respect to Taxes on Income, signed on August 8, 
2008, at Valletta (the ``proposed Convention''). I also 
transmit for the information of the Senate the report of the 
Department of State, which includes an Overview of the proposed 
Convention.
    The proposed Convention provides for reduced withholding 
rates on cross-border payments of dividends, interest, 
royalties, and other income. The proposed Convention contains a 
restrictive provision designed to prevent ``treaty shopping,'' 
which is the inappropriate use of a tax treaty by third-country 
residents. The proposed Convention also provides for the 
exchange of information between the competent authorities to 
facilitate the administration of each country's tax laws.
    I recommend that the Senate give early and favorable 
consideration to the proposed Convention and give its advice 
and consent to ratification.
                                                    George W. Bush.
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                   Washington, DC, January 2, 2009.
The President,
The White House.
    The President: I have the honor to submit to you the 
Convention Between the Government of the United States of 
America and the Government of Malta for the Avoidance of Double 
Taxation and the Prevention of Fiscal Evasion with Respect to 
Taxes on Income, signed on August 8, 2008, at Valletta (the 
``proposed Convention''). I recommend that the proposed 
Convention be transmitted to the Senate for its advice and 
consent to ratification.
    The proposed Convention provides for reduced withholding 
rates on cross-border dividend payments, and the elimination of 
withholding on cross-border dividend payments to pension funds. 
It provides for withholding at a 10 percent rate on interest, 
royalties, and other income.
    The proposed Convention contains a comprehensive provision 
designed to prevent ``treaty shopping,'' which is the 
inappropriate use of a tax treaty by third-country residents. 
The treaty shopping protections in the proposed Convention are 
more restrictive than those in any other U.S. tax treaty to 
address certain unique features of Malta's tax system. The 
proposed Treaty also provides for the exchange of information 
between the competent authorities to facilitate the 
administration of each country's tax laws. United States 
concerns with respect to the inappropriate use of the tax 
treaty by third-country residents and inadequate information 
exchange by Malta prompted the United States to terminate the 
previous 1980 U.S.-Malta tax treaty, effective January 1, 1997. 
The new proposed Convention satisfactorily addresses both 
concerns. An Overview of key provisions of the proposed 
Convention is enclosed with this report.
    The proposed Convention was negotiated in recognition of 
the importance of the United States' economic relations with 
Malta. The Department of the Treasury and the Department of 
State cooperated in the negotiation of the proposed Convention, 
and the Department of the Treasury joins the Department of 
State in recommending that the proposed Convention be 
transmitted to the Senate as soon as possible for its advice 
and consent to ratification.
    Respectfully submitted,
                                                  Condoleezza Rice.
    Enclosures: As stated.

    Key Provisions of the Proposed U.S.-Malta Income Tax Convention

    The attached income tax convention with Malta (the proposed 
Treaty) generally follows the 2006 U.S. Model Income Tax 
Convention (the U.S. Model). Due to certain unique features of 
Malta's tax system, however, some deviation from the U.S. Model 
was necessary.
    There is no income tax treaty currently in force between 
the United States and Malta. The previous U.S.-Malta tax treaty 
was terminated by the United States in 1996 due to changes to 
Maltese tax law that allowed Maltese-resident companies wholly 
owned by persons not resident in Malta to be wholly exempt from 
Maltese tax on U.S.-source income, creating a strong incentive 
for ``treaty shopping,'' which is the inappropriate use of a 
treaty by third-country residents. A secondary area of concern 
for the United States was that Malta was unable to obtain and 
exchange tax information held by financial institutions. 
Negotiation of the proposed Treaty with Malta focused heavily 
on addressing both of those concerns.
    The proposed Treaty includes comprehensive treaty shopping 
protections. It is important to note that Malta's domestic tax 
law has changed considerably since termination of the previous 
treaty in 1996. However additional treaty shopping protections 
were necessary since Maltese law does not impose withholding 
taxes on cross-border payments, and provides for a low 
effective tax rate on income earned by foreign-owned 
corporations. These features increase the incentive for third-
country investors to invest through Malta to access benefits of 
Malta's tax treaties. As a result, the anti-treaty-shopping 
provision in the proposed Treaty is significantly more 
restrictive than the equivalent provision in the U.S. Model.
    The proposed Treaty also provides for the exchange between 
the tax authorities of each country of information relevant to 
carrying out the provisions of the agreement or the domestic 
tax laws of either country. The proposed Treaty allows the 
United States to obtain information (including information from 
financial institutions) from Malta whether or not Malta needs 
the information for its own tax purposes. In response to U.S. 
requests during the negotiation process, Malta changed its 
domestic law to allow the exchange of bank information.
    The withholding tax rates on dividends are consistent with 
those contained in the U.S. Model. The proposed Treaty provides 
for a withholding rate of 15 percent on cross-border portfolio 
dividend payments, and five percent on dividends when the 
beneficial owner of the dividend is a company that directly 
owns at least 10 percent of the stock of the company paying the 
dividend. The proposed Treaty provides for an exemption from 
withholding on dividends paid by a company resident in one of 
the countries to a pension fund that is resident in the other 
country.
    Although the U.S. Model eliminates source-country 
withholding tax on most payments of interest, royalties, or 
other income, exemption from withholding was not appropriate in 
this case in light of Malta's unique tax system. The proposed 
Treaty therefore provides for withholding at a rate of 10 
percent on interest, royalties, and other income.
    The proposed Treaty will enter into force on the date of 
the exchange of instruments of ratification. It will have 
effect with respect to taxes withheld at source for amounts 
paid or credited on or after the first day of the second month 
next following the date on which the proposed Treaty enters 
into force, and with respect to other taxes for taxable years 
beginning on or after the first day of January next following 
the date upon which the proposed Treaty enters into force.


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