Supreme Court interprets remittance provision in Netherlands-Malta tax treaty | Deloitte Netherlands

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Supreme Court interprets remittance provision in Netherlands-Malta tax treaty

Under the remittance provision of the Malta Agreement, the Netherlands has the power to levy tax on Swiss interest still due that has not been remitted to or received in Malta.

14 July 2022

The tax treaty between the Netherlands and Malta includes a so-called remittance provision, which implies that the Netherlands need only grant tax relief to the extent that the income concerned is actually remitted to or received in Malta as the country of residence. Recently, the Supreme Court ruled on the application and scope of this remittance provision.

Swiss interest still due

X BV, the interested party, is an entity incorporated under Dutch law whose effective management has been located in Malta since 2013. X BV’s sole shareholder is a natural person residing in Switzerland. Under Maltese national law, X BV is liable to tax on its income earned outside Malta only to the extent that such income is remitted to or received in Malta. The remittance provision in the tax treaty between the Netherlands and Malta (‘the Treaty’) stipulates that the Netherlands only needs to grant tax relief insofar as the income concerned has been remitted to or received in Malta (art. 2(5) of the Treaty).

In 2013, the shareholder owed EUR 53,484 in interest on a debt to X BV. However, as this interest was still due, it was not remitted to or received in Malta. The Dutch Tax Inspector considered X BV to have unlimited tax liability in the Netherlands and, as such, considered the interest to be part of X BV’s taxable profit. The Court ruled that also under the Treaty the Netherlands may tax the interest owed by the shareholder and found in favour of the Tax Inspector, after which X BV appealed in cassation.

Application of the remittance provision

As X BV’s actual management is situated in Malta, X BV is considered to be resident in Malta for treaty purposes, under the business profits article the Treaty allocates the exclusive power to tax interest income to Malta. At issue for the Supreme Court was whether the remittance provision in the Treaty has the effect of allowing the Netherlands to tax interest that has not (or not yet) been remitted to or received in Malta, despite Malta's exclusive power to tax.

The Supreme Court answered this question in the affirmative and ruled that business profits include all the benefits of an enterprise and, hence, the scope of the remittance provision is not limited to business profits originating in one of the Contracting States. Therefore, the Court correctly held that the Netherlands has the power to tax the Swiss interest still due, insofar as it has not been remitted to or received in Malta.

Finally, the Supreme Court notes that since the Treaty does not include a definition of ‘income’ as referred to in the remittance provision, it must be interpreted in a manner consistent with the Corporate Income Tax Act 1969. Hence, the scope of the remittance provision includes capital gains. The Supreme Court declares X BV’s appeal in cassation to be unfounded.


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

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