‘History’ to blame for delay in Malta-US double taxation deal

The last step in the long and winding journey leading to a double taxation agreement by Malta and the US was taken yesterday when Finance Minister Tonio Fenech and US Ambassador Douglas Kmiec signed the document.

The agreement is intended to eliminate barriers to cross border trade and investment while preventing offshore tax evasion. It is designed to ensure that US and Maltese citizens are taxed only once on their profits and income and to limit withholding payments on dividends, royalties and other unearned income.

It will finally come into force on January 1, more than five years after talks between the two governments had started.

In August 2008, then US Ambassador Molly Bordonaro and Mr Fenech had signed an agreement which had then to be ratified by the US Senate. A year later, Prof. Kmiec had said he expected the agreement to be ratified in the autumn of 2009 and a couple of months later Foreign Minister Tonio Borg said the agreement should be signed by the end of that year. It was finally ratified by the Senate and President Barack Obama put his signature to it on November 2.

When asked why it took so long, Prof. Kmiec’s first answer was: “History. George Washington, I believe it was, referred to the design of the American Constitution as one that was not designed for speed but instead was designed for very careful deliberation.”

He said that even though the process had taken longer than he and the minister would have liked, it was well considered and had led to a good treaty. It had provisions to prevent “treaty shopping”, where people set up shell corporations either in the US or Malta for tax avoidance purposes.

Ultimately, the lengthy process was to “the advantage of the long-term stability and workability of the agreement,” according to Prof. Kmiec, who did however acknowledge that the Senate’s deliberation was what had taken longest. “And, of course, as in many cases of legislative bodies, they had more than one thing to do”.

Mr Fenech quipped: “Possibly a bit more than our Parliament.”

Speaking before the signing, Mr Fenech said it was now time for the good relationship between the US and Malta to be stepped up and become more proactive. This was a sign of the US’s recognition of Malta’s efforts and achievements in the financial sector.

The last similar agreement between the two countries, brokered in 1980, had been terminated in 1997. Mr Fenech said it had been a long road to convince the US government of Malta’s financial stability and accountability to come to the present agreement.

Prof. Kmiec said the treaty would bring down barriers between the two countries, adding that “my President hopes this will increase US exports to Malta”.