Double taxation pact paves way for more US investment

The government entered into the long-awaited double taxation agreement with the US yesterday, in a move that is expected to pave the way for more investment from the other side of the Atlantic.

The agreement, which will make sure that investors do not pay income tax twice in the jurisdictions earmarked in the deal, has been sought for years and actually topped the agenda during the meeting which Prime Minister Lawrence Gonzi had with US President George W. Bush back in 2005.

Speaking just before the signing, in fact, Dr Gonzi highlighted this fact and said that the visa waiver agreement - another important issue raised during that meeting - is at an advanced stage both at a bilateral and at an EU level.

He stressed that yesterday's agreement was a milestone, a statement which was reflected in the grand ceremony prepared for the signing at Castille.

But beyond the formalities, the deal is expected to pave the way for more investment from the US. Besides the obvious benefit of avoiding double taxation, the agreement lifts Malta's status as a "clean jurisdiction" with the US Inland Revenue Department (IRD), in turn increasing the peace of mind for North-American investors wanting to venture into Malta.

"The more trusted a country is to the (US) IRD, the less likely for a company investing there to be investigated on suspicion of tax fraud," a government source told The Times.

In this connection, in fact, the agreement also furthers cooperation on information sharing in a way that facilitates tax fraud investigations. Some multinationals, the same source added, will only invest in a country with which the US has such agreements not because of the tax benefit as such but to avoid hassles with the IRD.

The importance of the deal was stressed in the comments of both the Finance Minister Tonio Fenech and the US Ambassador to Malta, Molly Bordanaro.

The US was a bit of a black spot given that Malta already has some 50 tax agreements in place. Effectively, the deal will not only involve Malta and the US but also Canada and Mexico, which together form part of the North American Free Trade Agreement (Nafta). It will also include Maltese doing business in the EU and Maltese migrants in Australia, the latter on Malta's request on the basis of the large migrant diaspora there.

The inclusion of the migrant diasporas is a significant first in such agreements for the US - something which was particularly stressed by Mr Fenech.

Australia already has a double taxation agreement with the US, but the deal signed yesterday allows a company owned by a Maltese-Australian, that has an investment here, for instance, to branch out to the US or any other country affected by the agreement, and benefit from the same tax arrangement.