Supreme Court issues ruling on Malta tax treaty fund transfer clause

Supreme Court issues ruling on Malta tax treaty fund transfer clause

Supreme Council: Does the Swiss shareholder who is a resident of a Dutch BV, but is already incorporated in Malta, owe that BV interest? In this case, the interest is taxed in the Netherlands, unless the interest is received in Malta or transferred to Malta.

The Dutch BV was headquartered in Malta, and the sole shareholder was living in Switzerland. Under Maltese law, BV was taxable on income earned outside Malta only to the extent that such income was transferred to or received in Malta. The shareholder owed €53,485 in interest to the BV for 2013. The interest was not transferred or received in Malta. The inspector calculated the interest as part of the BV profit. According to Hof Arnhem-Leeuwarden (ECLI: NL: GHARL: 2020: 9560, NTFR 2021/258), the inspector rightly calculated the interest as part of the company’s profit. Dutch BV.

Supreme Court ruling

BV appealed the cassation against the aforementioned ruling by the Court of Appeal, but it was unsuccessful. The Supreme Court clarifies that interest from a source located in a country other than the Netherlands or Malta is also included in the taxable profit in the Netherlands. Except to the extent that they are transferred to or received in Malta. Accordingly, the Court of Appeal rightly ruled that the Netherlands is eligible to levy a tax on the interest, unless the interest is transferred to Malta or received there.

Capital gains are also income

The Supreme Court further notes that the term “income” used in Article 2 (5) of the Tax Treaty between the Netherlands and Malta is not defined in the treaty. In this case, the term “income” should be interpreted in accordance with the provisions of Wet Vpb 1969 on the determination of earnings of resident taxpayers. Therefore, for the purposes of Article 2 (5) of the Tax Treaty in the cases referred to above, capital gains are income within the meaning of this provision.

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See also: Supreme Court July 1, 2022, ECLI: NL: HR: 2022:973, 20/01414

The Netherlands and Malta Tax Treaty: Article. 2 paragraph 5

Source: Supreme Court July 1, 2022, ECLI: NL: HR: 2022:974, 20/03826

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