A taxing experience

Rachel Galea spent one year specialising in International Tax Law in Leiden, the Netherlands. She recounts her experience.

After completing my Law studies at the University of Malta, I decided to further my studies and chose to specialise in International Tax Law at the International Tax Centre. Forming part of Leiden University, the International Tax Centre offers an Advanced Masters in International Tax Law – a comprehensive course covering all issues dealing with International Tax Law.

You arrive in Leiden alone and leave with so many new friends.

Moving to Leiden, the Netherlands, for a year was not only a beneficial educational experience but also a life experience, as besides attending lectures, studying, sitting for exams, and writing a paper, I was also exposed to new customs and different cultures.

After I arrived in Leiden, I busied myself with settling down in my new accommodation – unlike most of my fellow students, this was my first experience living alone. Being such a small country, moving out once you start university is not the norm in Malta, yet living on my own in Leiden encouraged me to become more independent.

After four months in student accommodation I moved into an apartment with Paola – a classmate and a friend. When considering that roughly 40 students coming from several different countries are attending class almost every day, it is impressive how people just click, get along and build a friendship – you arrive in Leiden alone and leave with so many new friends.

Education was the main purpose for coming to Leiden and my aim was to leave Leiden with a Masters in International Tax Law. Speaking as a graduate of Leiden University, the course was everything I expected it to be. Yet it was also challenging.

Attending a new university meant getting used to a new system and the workings of a new faculty. One of the most unique attributes of Leiden University is that the Masters in International Tax Law is headed by the International Tax Centre, an institution forming part of Leiden University yet housed in its own historical building. This means that there is a kind of mini-university with its own lecture hall, seminar rooms, library, co-ordinator, staff, and all other features which you would find in any university. Students who choose to follow this Masters have a building specifically dedicated to their course – all lectures are held in the same class in this building, which means no timetable with various venues for different lectures is needed.

Most of my classes were held in the morning, finishing at 1:00 pm – this allowed me to dedicate my afternoons to studying and preparing for the following day’s lectures. As students of the International Tax Centre we received what are called ‘readers’ prior to a class – these contained outlines, articles and case studies which had to be read and worked-out prior to the following day’s lectures.

Every day we were privileged to be taught by different professors and lecturers, all of whom are specialised in their own specific International Tax Law field. Some of the lecturers are judges in the courts of different countries while others are partners and practitioners in tax firms or well renowned professors and authors.

Being taught by lecturers of this calibre meant that the exposure to the issues which arise in practice was vast – as students we were not only exposed to the theoretical facets of International Tax Law but more importantly to its application to actual cases. All lecturers prepared specific presentations for each class – we were encouraged to participate rather than act as passive listeners.

The course itself was divided into separate modules. Each module dealt with specific spheres of International Tax Law, thus ensuring that students become familiar with all the issues which could arise in practice when faced with an international tax law case.

The course started in late August with a module on the Fundamentals of International Tax Law – this introduced students to some basic concepts of International Tax Law, which is very important for students who, like me, had no previous background in the area.

The next module was Tax Treaties – this is not only a very important module but also the longest module in the course. Treaty Law is crucial in international tax because it represents the tax arrangements made between countries which entitle residents to treaty benefits.

The successive module dealt with Transfer Pricing, followed by a module on EU Tax Law – this was also very beneficial seeing as Malta is an EU Member State. Short modules on Trusts and Inheritance Tax and Customs Law were followed by modules on Value Added Tax and US International Law.

The module on Value Added Tax is important because although all the other modules deal with direct tax issues, knowledge of indirect tax is also required in order to have a comprehensive understanding of all International Tax Law issues. US International Tax Law was especially useful for me, in view of the recently concluded tax treaty between Malta and the US. The last module tied-up all modules together and was one of the most practical modules as it dealt with International Tax Planning.

Next on the agenda was preparing my paper. My research dealt with a tax treaty issue relating to residency and how a person is held to be a resident for tax treaty purposes in order to claim treaty benefits under the application of a treaty. My research paper was entitled “The Meaning of ‘Liable to Tax’ and the OECD Reports: Interaction and Ambiguous Interpretation”. My main focus was the treatment of different entities such as investment entities, under tax treaties, and presented an analysis as to whether certain investment entities which are subject to beneficial tax treatment – such as a tax exemption because the entity meets certain conditions – can still be held to be entities which are liable to tax and hence deemed as residents for the purposes of claiming treaty benefits.

The investment entities which were the subject of my analysis were collective investment vehicles, real estate investment trusts and sovereign wealth funds. These investment entities – apart from being subject to a tax exemption if they distributed a stated percentage of their income as per the domestic law of the State wherein they are resident – also have different tax treatment under domestic law. This means that some States view entities as transparent – hence, they do not recognise a flow of income to the entity but see a direct flow of income to the persons behind the entity, whether they are the investors or the beneficial owners of the income.

Another issue of debate is whether treaty benefits can be granted to the recipient of the income when such person is not the beneficial owner of the income – this however did not fall within the scope of my research.

Other countries view these entities as opaque, meaning that no flow-through of income is seen – rather, the entity is seen as a person in its own right receiving income. In order to be the subject of treaty benefits, a person must qualify as a resident under the provision of the OECD Model Convention. My research analysed to what extent a transparent entity can be deemed a resident and be granted entitlement to treaty benefits.

In 1999 the OECD released a ‘Partnership Report’, dealing with the tax treatment of partnership and flows of income received by a transparent partnership and an opaque partnership. The OECD also released reports on collective investment vehicles in 2010, on real estate investment trusts in 2007, and a report on sovereign wealth fund in 2009. The research carried out in my paper analysed the extent to which the rules laid down in the partnership can be applied, in tax treaty scenarios, to the analysed investment entities.

Rachel Galea read for her Advanced Masters in International Tax Law following the award of a STEPS scholarship, which is part-financed by the European Union – European Social Fund (ESF) under Operational Programme II – Cohesion Policy 2007-2013, ‘Empowering People for More Jobs and a Better Quality of Life’.