31 tal-1986

L.N. 31 of 19116

INCO.'tl E TAX ACT, l'U8

(ACT NO. !.IV at' l!US)

Double Taxation R~lid. (fues OD I"'-'<.Knf:) (Rtpulllk ofltaly)

Ordff. I986

IN c Kc rcise of the powc~ CQn fc rrcd by S«lion 68A of the Income

Tax Act. 1<)48, Ihe Deputy " rime Minister and Minister of Finance and

Customs has made the following orde r :-

I. Th is Order may be ci ted as the Double Tuation Relief (Taxes

on Income) ( Republic of Italy) O rder. 1986.

It is he reby da:lared -

Dan l-ordni jiSla' jissejjah I-Ordni ta' 1-1986dwar Hels;en minn Ti,,,i" _

Taua Doppja (Taxxi fuq I-'"conte) (Repubblika la']· ltalja).

Oicghcd jigi hawn hekk dikjarat-

(a) Ihal the armngeme nts specified in the Agreement SCI ou t

in the Schedule to Ihi s Order have been made with tile Government

of the Republic of It aly with a view 10 affording relief from double

Illll:alio n in Telalion 10 the following (axes imposed by the lawsof the

Republic o f Italy

(i) the personal income tU (finrposlll suI rediJitQ delle

fltrsone [uiche);

( ii) the corporale income lax (/'impo$ta sui reddiro delle

persone giuridiche);

even if they are collected by withholding ta~es at the source (herd n·

afle r referred to as " lc alian 111)['");

that il is e~pedient tha t lOOse arrangements should have

(b)

effect.

SC H EDU L E

AGREEMENT

BE1WEEN

THE GOVERNMENT OF THE REPU BLIC OF MALTA

AND

THE GOVERNM El'-T OF T HE REPUBLIC OF ITALY

FOR THE AVOIDAN CE OF DOUBLE TAXATION

WITH RE SPECT TO T AXES ON INCOME

AND THE PREVENTION OF 1-1 SCAL EVASION

The Government of the Republicof Malta and the GO'o'cmment oftbe Republicof

Italy, desiring to conclude an Agrecmem for the Avoidance of Double Ta.o:;&tion with

respect to Ta.o:;cs on Income and the Prevention of Fisca[ Evasion, have agreed as

follows

•

CHAPTER I

Scope at the Agreement

ARl lCLE 1

Persorwl Scope

This Agreement shall apply 10 persons who are resid ents of ooc or boIh of the

Contracting States.

ARTICLE 2

Taxes Covert(}

(1) This Agreement shall apply to taxes on income imposed on behalf of each

Contracting Slale or its political or administrntive subdivisions or local authorities,

irrespective of the manner in which they are levied.

(2) There shall be regarded as lUes on income all taxes imposed on lotal income,

or on elements of income, including taxes on gains from the alienation of movable or

immovable propeny. taxes on the tOlal amounts of wages and salaries paid by ent er-

prises, 85 well as taxes on capilal appreciation.

(3)

The existing taxes to which this Agreement shall apply are

(a) in thecaseofl! aly

the personal income lax (I'imposw sui reddilO delle persone {lSiche);

(i)

the corporate income tax (I'impos/Q sui uddilO dtllt ptrson~ giuri-

(ii)

dich~);

even if they are co llected by withho lding taxes a t the source

(hereinafter refeTfed to as " 1 talian tax");

(b)

in the case of Malt a

the income ta x and sunllll , including p repaymenlS of tax whethe r made by deduc-

tion at source or otherwise,

(he reinafter referred 10 as " Malta tax").

(4) This Agreemen l shall apply also to any identical o r substantially similar taxes

which are imposed after the dale o f signature of this Agreement in addition 10, or in place

of, the existing taxes. The compe tent au thorities o f the Contracting States shall notify to

eacb other a ny significant changes which have been made in their respective taxation

laws.

(5) Whe re the Agreement provides that income arising in a Contracting State

shall be relie ved from laX in that State, either in full or in part, and. under the law in

force in the ot her Contracting State, such income is subject to tax by reference to the

amount theroofwhich is remitted toor rece ived in that o lher State and not by refe rence

to the full amount thereof, then the re lief to be allowed in the first mentione d State shall

apply only 10 SO much of the income as is remitted to or received in the other Slate.

B

CHAPTER n

Definitions

ARTICLE 3

General Dejinilions

In Ihis Agree ment, unless the context otherwise req uires

(,) the te rm " Italy" means the Republic of Italy;

(b) the te rm " Malta" means the Republicaf Malta;

(c) th e ICntlS"a Conlra,ting Stale" and "the other Co ntract ing Stale" mean

italy a nd Malta illi the context requires;

(d) the term "person" comp rises an individual, a com pany and any o the r

body of persons;

(e) th e te rm "company" means any body corporate o r any en tity which is

trea ted as a body corpo rate for lax purposes;

(l) the te rms "enterpriseofa ContractingStatc" and "cnterpriseof the othcr

Co ntracting State" mean, respecti vely, an enterprise carried o n by a resident of a

Cont ract ing Slate and an e nterprise carried on by a resident of the other Con tract·

ing State;

(g)

the term " national " means

(i) in respect of haly, any individual possessing the nationality of Italy.

and any legal person , partnersh ip and association deriving its status as such

fro m the law in force in Ilaly

(ii) in re spec t of Malta. any citizen of Ma lla as provided for in Chaple r

III of thc Co nstitution of Mal ta and in the Malt ese Citizenship Act. 1965. and

an y kgal person. partnership or association deriving its status a~such from the

law in force in Malta

(h) the term "international tra ffic" mcans any transport by a shi p or aircraft

ope rated by an cn tcrpri sc which has its place of effective management in a Con·

tracting State. c xcept when the ship or aircraft is operated solely between places in

the other Contracting State;

(i) the term "competent authority" means

(i ) in the case of Italy. the Min istry of Finance;

(ii) in the case of Malta. the Minister respo nsible for finance or his

authorised representa ti ve.

(1) In the applicatio n of this Agreement by a Contracting State. any term nOt

otherwise defi ned shall , unless the context otherwise requires. have the meaning which

it has unde r the laws of that Con tracting State relating to the taxes which are the subject

of Ih is Agreement.

A RTIC LE "'

Fi!;caf Domicil,.

(I) For the purposcoft hisAgrcement. the term "resident of a CantraclingState"

means any person who, unde r the lawofthat State. is liable to taxation therein by reason

of his domicile. reside nce. place of management or any othe r criterion of a similar

na ture. The term does not include any person woo is liable to tax in that Contracti ng

Statc in respect o nl}' of inrolllC from sources si tuated in that State.

(2) Wh e re by reason of the provisions of paragraph ( I) an individual is 11 residen t

of both Con tracting Sta tes, the n his status shall be dc tennined as follows

(a) He sha ll be deemed 10 De a resident of the Contracting State in which he

has a pe nn ane nt home available 10 him , If he has 3 pe rmanCIIl home a vailable to

him in IXlIh Contracting States. he shall be deemed to be a reside nt of the

Contracting Slale with which his pc J);() nal and economic relations arc closest

(centre of vital inlereSls)

(b) If the CootractingStBte in which he has hisccnt reoC"i tal in lereslscannol

be de term ined , o r if he has no permanent home available to him in either Contract-

ing Slale, he shall be deemed 10 be a residenl of the Con trac;ting5 tatc in which he

has an habitual abode;

(c) I f he has an habi tual abode in both Contracting States or in neit her of

them, he shall be dee med 10 be a residen t of the Contracting State of which he is a

national

(d) If he is a nationa l of both Contracting Statcs or of ne!i the r of them. the

com peten t au thorities of the Cont racting States shall se tt le the question by mutual

agreeme nt.

(3) Whe! re by reasons of the prcvisions of paragrdph (I) a pcfliOn othe r Ihan an

individ ual is a resi dent of both Contracting States. thcn il shall be deemed to be a

resident of the Conl ractingState in " 'hich its place of(! ffe!ctive man age ment is siluated.

ART IC LE 5

Pen llQlZem Esmblishmen/

( I) For the purposes of Ihis Agreement the term "perm anent eStabJishmcm "

m(! anS a fixed place of business in which th e busi ness of the ente rprise is wholly or partly

carried on .

(2)

The tem " pcmane! nt establishme nt" shall include espcciall y

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

(0 a mine. q uarry or other place of extract ion of natural resources;

(g) a building si te or construction or assembly project wh ich exist5 for more

than twelve months;

(h) the furnishing of services, includi ng cons ultancy services, by an enter-

prise through employees or other pefliOnnel, where activities or this natu re con-

ti nue (for the sa me or a connected project) wi thin the country fo r a pe riod or

periods aggregat ing more than rv.·elve mont hs within any [Wo-year period.

(3) The term "pcrmanent establishment" shall not be dee!med to include

(a) the use of facilitics solely for the purpose of slorage, displayordeli\'eryof

goods or merchandise belonging to the en terprise;

(b) the mai nte nance of a stock of goods or merchandise belongi ng 10 the

enterprise solely for the pu rpose of storage!. display or <k:l ivery;

(c) the mai ntenance of a stock of goods or merchand ise belonging 10 the

e nterprise solely for the purpose of processi ng by lmother enterprise;

B

(d) the maintenance of a fixed place of business solely for the purpose of

purchasing goods or merchandise, or for collecting inform~lion for the ente rprise;

(e) the maintenancc of a fixed place of busincss solely for the purpose of

advertising, fo r the supply of informalion, for scientific research or for similar

activities which have a preparatory or auxiliary cha r~cte r for the enterprise.

(4) A person acting in a Contracting Sta te on behalf of an enterprise of the OIher

Contracting State - other than an agent of a n independent status to whom paragraph

(5) a pplies - shall be deemed to be a pennanent establishment in the fiP.lt -mentioned

State if he has. and habitually exercises in that State. an authority 10 conclude contracts

in the name of the enterprise, unless his activit ies are limited to the purchase of goods or

merchandise for the enterprise.

(5) An e nterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries o n business in

that olher State through a bro ker. general commission agent or any other agent of an

indepen dent status. where such persons lire acting in the ordinary course of Iheir

busmess.

(6) The fact that a company which is a resident of a Contracting Stale controls or

is controlled by a company which is a resident of the other Contracting State, or which

carries on business in that other State (whether through a pennancnt establishment or

otherwise) shall not of itself make either company a permanent establishment of the

other.

C HAPTER III

Taxation of Income

ARTICLE 6

Income from Immovable Property

(I) Income from immovable property may be taxed in the Contracting State in

which such property is situated.

(2) The tenn "immovable property" sh all be defined in accordance wilh the law

of the Contracting Slate in which the propeny in question is situated . The tenn shall in

any ca~e include property accessory to immovable property. rights to which the pro-

visions of general law respecting immovable property apply _ The term shall also include

usufruct of immovable property and rights to variable or fixed payments as conside-

ration for the work ing of. or the right to work. mineral deposits , sources and other

natural resources: ships, boats and aircraft shall not be regarded as immovable pro·

perty.

(3) The provisions of paragraph (I) sh~ll apply to income derived from the direct

use, lelting, or use in any other form of immovable property.

(4 ) The provisions of paragraphs (I) and (3) shall also apply to the income from

immovable property of an enterprise and to income from immovable property used for

the perform:mce of professional services.

B

ARTI CLE 7

Business Profits

( I) The profits of an cmc rprise of a Contracting Slale shall be taxable only in tha t

Sta te un less the en terp rise carries on business in the other Con tracting State through a

pennanenl establishment situated therein. If the enterprise carries on business as

aforesaid, the pro fi ts of the enterprise may be taxed in the o the r State but only so much

of the m as is attributable to that permanent establishment.

(2) Subject to the provisions of pHagraph (3). where an enterprise of 3 Con"

tmeting Slate ca rries on business in the other Contracting State through a pennanent

establishme nt si tu ated the rei n. there sha ll in each Contracting State be attributed to

tha t permane nt establishmenllhc profits I, .. hich it might be expected to ma ke ifit were a

distinct and separate en terprise engaged in the same or similar activities unde r the same

or similar condi tions an d dealing wholly indepe ndently wit h the e nterprise of wh ich it is

a pe nna nent establishme nt.

(3) In the detenn ination of the profits of a pennanent establishment, therc shall

be allowed as deductions expenses which are incurred for the purposes of the pe nn ane m

establishment including exccutive and general adm inistrative expe nses so in curred,

w he ther in the State in which the pcrmarICn t establishmen t is situated o r elsewhcre.

(4) In so far as it has been customary in a Contracting State to detenn ine the profits

to be attributed to a permanent establishment on the basis of an apportionme nt of the

tota l profi ts of the entc rprise to its various parts, not hi ng in paragraph (2) shall preclude

that Contracting State from detenni ning the profits to be taxed by such an appor-

tionmen t 35 may be cuStoma!)'. The met hod of apportionmen t adopted shall. however.

be such tha t the result shall be in accordance wit h the pri nciples embodied in this

Article.

(5) No profi ts sha ll be attributed to a permanent establishmcnt by reason of the

mere purchase by that pe rmanent establishment of goods or me rchandise for the

ente rpri se.

(6) For the purpose of the preced ing paragraphs. the profits to be a ttri buted to

the permanent cstablishmcnt shall be dctcnnincd by the !;3me method year by year

unless there is good and sufficie nt reason to the OOIltrary.

(7) Where profits iod ude itemsof income which arcdealt wi th se pa rate ly in other

A rt ides of this Agreement, then the provisions ofthOS<.' Articles shall not be affected by

the provisions of t his Art icle.

ART IC L E 8

Shipping and A ir Transport

( 1) Profi ts from the opera tion of ships or aircraft in interna tiona l traffic shall be

taxable only in the Contracting State in which the place of effective maoage mem of the

ente rprise is situ ated.

(2) If the plaee of effective management of a shipping en terprise is aboard a ship

or boa t , then it shall be deemed to be situated in the Co nt rac ting State in which the

ho me harbour of the ship o r boat is si tuat ed. or. if there is no such home harbou r. in the

Contracting Sta te of which the ope rato r of the ship or boat is a residem.

B

19 1

(3) The provisions of paragraph (I) shall also apply to profits derived from the

panicipation in a pool. a joint business or in an international operaling agency.

ARTICLE 9

Associated Enurpma

Where-

(a) an enterprise of a Contracting State partici pates directly or indirectly in

the management. con trol or capilal of an en terprise ofthe otherConlracting Slate;

(b) the same persons participatc directly or indirectly in Ihe management.

can n ol or capital of an enterprise of a Con tracting State and an en terprise of the

other Contracting State,

and in eithe r case cond itions are made or imposed be tween the IWO enterprises in their

commercial o r financial relations which differ from those which would be made between

independent enterprises, Ihen any profits which would, but for those condi tions, ha\'e

accrued to one of the enterprises. bu t, by reason of those conditions. have not so

accrued. may be included in the profits of lhat enterprise and taxed acoordingly.

ARTICLE 10

DMdtflds

(I) Di vi dends paid by a company which is a resident of a Contracting State to a

resident of the othe r Contracting State may be taxed in that other State.

(2) However, such dividcnds may be tax ed in the Cont racti ng State of which the

company paying the dividends is a resident. and according to the law of that State, but

(a) where the dividends are paid by a com pany reside nt of Italy to a resident

o f Malta who islhe beneficial owner thereof. the (!alian tllll so charged shall not

exceed 15 pe r cent ofl he gross amoun t of the dividends;

(b) where the dividends are paid by a company resident of Malta to a

resident o f Italy who is the beneficial owner the reof

(1) Mal ta tax shall oot exceed that chargeable on the company paying

th e dividends in respect of the profits 50 distributed;

(ii) notwithstandi ng the provisions of sub-paragraph (i). Malta tax shall

not exceed 15 per cent of the gross amount of the dividends if such dividends

arc paid outof gainsor profits earned in any year in respect of which the company

is in receipt of tax benefits undcr the provisions regulating aids 10 industries in

Malta, and the shareholder submits returns and accounts to the taxat ion

authorities of Malta in respect of his income liable to Maim tax for the relative

yea r of assessment

The competent authori ties of the Con tracting States shall by mu tual

agreement settle lhe mode of applica tion of this limi tation .

Th is paragraph shall not affect the taxation of the company in respect of

the profits OUI of which the dividends are paid.

(3) The tenn "dividends" as used in this Article means income from sha res.

"jouissance" shares or " jouissance" rights. mining shares. founders' shares or other

rights. not bei ng debl .. daims, pMlicipating in profi ts, as well as income from other

corporate rights wh ich is subjected to the same taxation treatment as income from

shares by the tax ation lawofthe State of which the company making the distributi on isa

resident.

(4) The provisions of paragraphs (1) and (2) shall not apply If the recipient of the

di vide nds. being a res ide nt o f a Con tract ing Slate, carries o n busi ness in the ot her

Contracting State of wh ic h the company paying the dividends is a resident , through a

permanent establishme nt si tuat ed therein, or perform s in that ot her State professional

services from a fixed bllliC si tuated therein and the hold ing in respect of which th e

dividends are paid is effectively connected wit h such permanent establishment or rlJ(ed

base. In such a case the dividends arc taxable in th at other Con tracting State accord ing

to its own law.

Where a com pany wh ich is a resident of a Cont racting State deri~'es profits or

(5)

inoomc from the ot her Contracting Slale. that other State ma y no t imiX'SC any tax on

the divide nds paid by the company. except insofar as such dividends are paid to a

resident of that o the r State or insofar as the holding in respect of .... hich the dividends are

paid is effective ly connected with a permane nt estab lishment or a fixed base situated in

that other State . or subject the company's undistributed profits to a tax on undistrihuted

profits, even if the dividends paid or Ih-; undistributed profits consist wholly or parlly of

profits or income arising in such other State.

ARTICLE II

ImcrU I

( I ) Interest ariSing in a Contracting Slate and paid to a resident o f the other

Contract ing State may be taxed in that ot her State.

(2) Howeve r. such interes t may be taxed in th e Contracting State in wh ich it

arises. and according to the law of that Slale. but if the recipient is the beneficial ow ner

of the interest. the tax so charged shall not exceed 10 pe r cen t of the gross amoun t of the

interest. llIe competent authorities of Ihe Contracting States shall by mutual agreement

se u le the mode of application of this limitation .

(3) Notwi th standing the provisions of parngnlp h (2) interest arising in a Con-

tracting State shall be exempt from tax in that Stale if

(a) the payer of the interest is the Government of that Contracting State or a

local au thorit y thereof: 01"

(b) the interest is pai d to the Government of the other Con tracting State or

local au thority the reof or any agency or instrumentality (includ ing a fin ancia l

instit ution) wholl y owned by th at oth er Contract ing State or local authority there-

o f:or

(c) the in terest is paid to any other agency or instrumen tality (including a

financial institution) in rel ation 10 loa ns made under an agreemen t concluded

between the Governments of th e Contractin g Sl3tes.

(4) The tenn "inte rest" as used in this Article means income from Government

securi ties, bonds or debcntures. whethe r or DOt secured by mongage and wltether or DOt

carrying a righ lto participate in profits. and debl:-claimsof every kind as well as all other

income assimilated 10 income from money lent by the taxation law of the State in wh ich

the income arises.

B

(5) The provisions of paragraphs (I) and (2) s h~1I not apply if the recipient of the

intcrest. being a resident of a Contracting StH te, ca rries on business in the other

Cont ract ing Statc in which the inte rest arises, through a permanent establishment

silU3Ied therei n. o r perfollllS in th3t othc r State professional serviCC5 from a fixe d base

situated the rein and the dcbl:-claims in respect of "'hi ch the interest is paid is effectively

mnnected with sueh pe rm anent eSla blishment o r filled base. In suc h a case. the inte rest

is tal(able in th at other Con tract ing State accord ing to its own law.

(6) Interes t shall be deemed to arise in a Cont racti ng State when the paye r is that

State itself. a political or administra tive subd ivision. a local authori ty or a resident of

th at Stale . Whe re. however. the person payi ng the interest . .... het he r he is 11. resident of a

Con tracting State or not. has in a Contracting State a permanent eslablishment in

co nnecti on wi th which the indebtedness on which the interest is paid was incurred. and

such interes t is borne by such perma nent esta blish ment, then such in terest shall be

dee med to arise in the Contracting State in which the perma nent establish me nt is

si tu ated.

(7) Whe re. owi ng 10 a special relationship bet" 'een th e p3yer and the reci pient o r

between both of them and some other person. the amoun t of the interest paid. having

rega rd to the deb t claim for .... hich it is paid. uceeds the amou nt which would have been

agreed upon by the payer and the recipient in the abse nce of such re lationship. the

pro\;sionsof this Article shall apply only 10 the las t me nt ioned amou nt . In that case . the

excess part of the payments shall rem ain tallable according to the law of each Conuact-

ing State. due regard being had to the othcr provisions of this Agreement.

ARTICLE 12

Royallies

( I) Royalties arising in a Contracting Suue :Ind paid 10 a resident of the o th er

Contracting State shall be tallable only in th at o ther State if such residen t is the

be ne ficial owne r of the royalties and the roya lties ~"Onsist of payments of any kind

recei \'ed as consideration for the use of. or the righ t 10 use. any copyright of literary.

anist ic or scie ntific wo rk . cinematographic films or tapes for tel evision or broadcasting.

(2) Royalties arising in a Contracting State and paid 10 a resident of the othe r

Contracting State may be taJI:ed in that other Cont racting State if the royalties consist of

payments of any kind received as a mnsidcm tion for the use of. or the right to use. an y

patent. trade mark. design. model . plan . SL'Cret formula or process. industrial. com-

mercial or scie ntific equip ment. or information conce rning industrial. comme rcial or

scien tifi c experi ence. Howel'er. suc h royalties ma y also be taJI:ed in the Cont racting

State in which they arise. and acrording to the la"' o fth at State . but if the recipien t is the

beneficial ow ncr of the royalties. the tal( so charged shall not Cl(ccro 10 pe r cent of th e

gross amount o f such royal ties.

(3) The provisions of paragraphs (I) and (2) shall not apply if the recipient of the

roya ltics. being a re sident of a Contracting SI ~lte. ca rries on business in the other

Contm cti ng Stat e in which the ro)'alties arise. through a permanent establishmen t

Sit uated therein. o r performs in that other State professional s.;rvices from a filled base

sit uated therein. and the right or property in respect of which the royalties arc paid is

crfecti"eiy connected with such pennancnt es tablishment of fixed base. In such a case

the roya lt ies :tre taxable in that other Cont racting State according to its own law.

(4) Royalties shall be deemed to arise in a Contract ing State when the payer is

thm Swte itself. a political or admin istrative su bdivision. a local authori ty or a residen t

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\ ..

of that Slate. Where , ho .... eve r, the person fJ3ying the royalties, whether he is a residen t

of a Contracting State or not. has in a Contracting Stale a pennanen t establishment in

connection with which the liability to pay the royal ties was incurred. and such royal ties

are borne by such pennanen! establishmen t . then such foyall icsshall be deemed 10 arise

in the Contracting Stale in which the permanen t establishment is situate d.

(5) Where. owing to a special relationship be tween the payer and the recipie nt or

betl'r-ecn both of them and some other person , the amoun t of the royalt ies paid. having

rega rd to the use, right or in fo rm ation for which they are paid, exceeds the amount

which would have been agreed upon by the payer and the recipien t in the absence of

such relationship. the provisions of this Article shall apply only to the last-memioned

amount . In that case. the exa:ss part of the payments shall re main taxable according to

the law of each Contrllcling State. due rega rd being had 10 th e olher provisions of this

Agreement.

AR11CLE 13

CapiJal Gains

( I) Gains from the alienation of immovable prope rty, as defined in pa ragraph (2)

o f Aflicle 6, may be taxed in th e Contracti ng State in which such property is situ ~ted .

(2 ) Gains from Ihe alienation of movab le property forming part of the business

property of a pennanent establishment which an enterprise of a Contracting State has in

th e other Co ntracting Slate or of movab le propert y pertaining to a fixed base available

to a resident of a Contracting State in the other Comracting State for the purpose of

performing professional services, including such gains from the alienation of such a

permanent establishmen t (alone or toge ther with the whole en terprise) or of such a

fixed base, may be taxed in the other State. HO""ever, gains from the alienation of ships

o r aircraft operated in interna tional traffic, as well as gains from the alienation of

movable property pertaining to the operation of such ships or ai rcraft . shall be taxable

only in the Contracting State in which the plate of effective management of the

ent erprise is situalCd.

(3) Ga ins from the alienation of any properly ot her than those mentioned in

pa ragraphs ( I) and (2 ) shall be taxable only in the Contracting State of wh ich the

alie nator is a resident .

A RTI CLE 14

1l1defH!nthm Personal Sen'ius

(I) [ncome derived by a resident of a Contracting State in respect of professional

se rvices o r o ther independen t activities of a similar characte r shall be taxable only in t hllt

State. However . such income may be taxed in Ihe ()(ncr Contracting State m the

fo llowing circum stances

(a) if he has a fixed base regularl y available to him in the ot her Contracting

Stale for the purpose of performing his activiti es (in which case only so much of the

income as is attrib utable to tha t fixed base may be taxed in that other Contracting

State) : or

(b) if hi s stay in the ol her Contracting State is fo r a period or periods

amou nting to or exceeding in the aggrega te 183 day1 during any calendar year.

(2) Thc tcrm "professional services" includes. especially. indepe nde nt scientific.

literary. artistic. educat io nal or te~c hing activities as well as the indepe ndent aeti\'ities

of physicians, lawyers. engineers. architec ts . demists and accountants.

ARTICLE 15

IRpendem f'ef3onDl Services

( I) Subject to the provisions of Articles 16. 18. 19 an d 20. salanes. wages and

othcr simila r remunerat ion derived by a resident of a ContrllCting State in respect of an

employmen t shall be taxable only in th at State unless the em ployment is exe rcised in the

o ther Contracting State. If the employment is w exercised. such remuneration as is

dcn \'ed thercfrom may be IlUIc<i in that oth er State.

(2) Notwithstanding the prov isions of paragrol ph (1). rcmuncratioo derived by a

rcsiden t of a Contracting Stale in resped of an employmen t exercised in the ot her

Con trading State shall be taxable only in the first-mcn tioned Statc if

(a ) the recipicnt is prese nt in the ot her State for a period or periods not

exceeding in the aggregate 183 days in the calcndar year concerned ; and

(b) the rem uneration is paid by. or on behalf of. an employer who is not a

rcsident of thc othe r State; alJd

(c) the remunera tion is oot borne by a pennanent cstablishmen t or a fixed

base which the employer has in the other State .

(3) Notwit hstanding the preceding provisions of this Article . remuneration in

rcspcd of an employment exercised aooard a shipor ai rcraft in internationallraffic may

be taxed in the Cont racting State in which the place of effective ma nagement of the

enterprise issi tuatoo .

ARTICLE ]6

DireClUrs' Fees

Directors' fees and similar payments deriveu by a resident of a Contra cting State in

his capacit)' as a member of the boa rd of directors or other si milar organ of a company

which is a reside nt of the othe r Contracting Stale may be: taxed in that other State.

ARTI CLE J7

ArlislI (lfJd A/ltielts

(I) Notwithstand ing the provisions of Articles 14 and 15. inco me derived by

ente rtainers. such as the:ltfC . motioll picture. T'oIdio or telcvision artislS. and musicians.

and hy at hletes. frOllltheir pt:rsonal activities as such may be laxed in the Contracting

Sw te in \\.'h ieh these adi\'ities arc exercised .

(~)

Where income ill respect of pt'n.onal acti\<ities as such of an enlcrtainer or

athletc accr ues not tu th ut en tcnain er or :Illllcte himsel f but to anot her person, that

inCODle: ma)' . no t wi l h~ t3 ndi l1g the: provisions or Articlcs 7. 14 ~nd 15. be taxed in the

Contracting SWh.' ill wll kh the acth ities uf Ihe Cn1crwi ncr ur athlete arc exe rcised.

'96

ART ICLE 18

Pensions umi A IIIwilies

(I) Subject 10 the provisions of p;lT3graph (2) of Arlicle 19. pensions .md other

sim ilar remune ration. and annuit ies. paid to a resident of a Con tracti ng Stalc shall be

taxable o nly in Ihat Sla te.

(2)

As used in this Article

(a)

the tcrm "pcnsions and other similar rem uneration" means periodic

payment s made aft er reti rement in considcT:ni oll of !XIS1 em ploy ment. or by way of

compensa tion fo r injuries received in connection wi l h past em ploymen t;

(b) the term "annuity" means a slated sum paid periodically du ring life. o r

during" specified or ascertai nable period of time. under an obligation 10 make the

payme nts in return for adequate and full oonsideTlllion in money or money's

worth.

ART IC LE 19

GOl'cmmenl Sen'ice

(I) (a) Remuner;lIion. other than a pension, paid by a Contracting State or a

political or an administrative subdivision or a local au thority thereof to any indi-

vidual in respect of services rendered to tha t State or su bdivision or local authority

the reof shall be taxable only in that State.

(b) However. such remuneration shall be taxabh: only in the other Con-

tracting State if the scl"\·iccs are rendered in Iha t State and the recipient is a resident

of thal Ot he r ContraCling Stale who

(i) is a nation al of that State: or

(ii) did not become a residen t of Ihat Stale solely for the purpose of

perfonning the services.

(2) (a) Any pension paid by.orout of fund~crea ted b)'. a Con tracting State or a

poli tical or an adm inistra tive subdivision or a local autho rity thereof to any indi -

vidual in respect of services rendered 10 the Stat e or subdivision or local authority

thereof shall be laxable onl y in that State.

(b ) However. such pension shall be taxable only in the Olher Co ntra cting

State if the recipie nt i~ a nationa l of and 3 resident of th3t State.

The pro visions of Articles 15. 16 and 18 sha ll ap pl y 10 remuneration or

(3)

pensions in respect of services rendered in connection with any trade or business carried

on by onc of the Contracting States or a political or an administrati\'c subd i\'ision or a

local aut hority th ereuf.

(-I) The provi~ions of par.lgr.lph (I) (a) shall likewise appl ) ut resIX'Ct of rem u-

neration paid, under a deve lopmen t a~~istance programm e of a 0)1IIra(."ting Slalc. a

poli tical or adminbtr;.tive )ubd i vi~iun or a local authorit y thereuf.l)ul of funds exdu-

sil'ely supplied by that State. those subd i\i~jun~ or Ioc-.d aUlhuritic~ thereof. to a

~pccia l i sl or volun tce r >oCt"()I1ded to the Olher CU n!raCl utg State with the wn:.Cnl uf I hal

ot her Slate.

B

ARTICLE 20

T rocirf'rs, Swdl'nl$ and Trllilll'f'$

(I) A professor o r teacher who makes 3 temporary vi5i t lO a Com ract ing State for

a pe riod nOI exceed ing twO )'ears for the purpose of teaching or conducting research at 3

uni,'ersity, colle8c, school or otOe r educational institution . and who is. or immediately

befofc such \'isit was. a resident of the o the r Con tracting State shall be cxempt from tax

in the first-mcn tioned Contracting Statc in respect of remun era tion for such teaching or

research.

(2) Payments which a st udem or trainee who is o r was formerly a rt.'siden! of a

Contraeling State and who is present in the other Co ntracli ng State solely for Ihe

purpose of his education or training receives for tile pu rpose of his mainte nance.

ed uca tion or traini ng sha ll be exempt from tax in Iha t o tOerCon tl'actingSt3te, provided

that s uch paymen ts are made to him from ou tside that other Cont racting Statc.

(3) Remuneration which a trainee who is or was fomerly a residen t of a Con-

trac ting State derives from an employment which he exercises in the othe r Contracting

Slate for the purpose of practical train ing for a period of time wh ich is reasonably

required to conclude his training shall not be taxed in that other State.

(~)

Re mune ration which a sludent who is or was formerly a resident of a Con-

tracting State derives from a part time employmcnt which he exereiSCli in the other

Contracting State for a period of tim e which is reasonabl y req uired to conclude his

studies s hall not be taxed in that Other State.

A RTI CLE lI

Other "rcome

(I) Items of income of a resident of a Contracting Stale. wherever arising, not

dealt with in the foregoi ng Articles of this AgreementshaU be taxable only in tha t State.

(2) Th e provisio ns of paragraph ( I) shall not apply if the recipient of the income,

being a resident of a Contracting Slate, carries on businCSl; in the othe r Con tract ing

State through a permanent establishment situated thcrein. or pe rfo rms in that o the r

State professional services from a fixed base si tua ted therei n, and the right o r property

in respect of which the income is paid is effectively co nnected with suc h permanent

establishment or fixed base, In such a case the items of income are taxable in that o ther

Contracting State acco rding to its own law.

C HAPTER IV

Method for t:limi nal ion of Dou ble Taxation

ART IC LE ll

Elim ination of Double '{Malion

ll ) Do uble taxa tion sha ll be eliminated in accorda nce with the following para-

g raphs of this Article.

B

'"

If a resident of Italy owns items of income which are taxable in Malta, Italy in

(2)

dctennining its income taxes specified in Article 2 o rlh is Agreement, may include in the

basis upon which such taxes are imposed the said items of income. unless specifl(

provisions of this Agreement otherw ise provide .

In such a case, Italy shall deduct from the taxes SO calcula ted the Malta tax on

im.:ome, but in an amount not exceeding that proportion of thc_aforesaid ha lia n lax

which such items of income bear to the entire income.

On the contrary no dcdution will be granted if the items o f inoomc are subjected in

Italy to a final withholding tax by request of the recipient of the said income in

accordance with Italian law.

(3) Subject 10 the provisions of the law of Malta regarding the allowance of a

credit against Mal ta lax in respect of foreign tU, where , in accordance wi th the

provisions of this Agreement, there is induded in a Malta assessment income from

sources within h aly, the Italian tax on such income ~all be allowed as a credit against

the relat ive Malta tax payable the reon.

(4) Fo r the purposes of paragraphs (2) and (3) of this Anide. where tu on

dividends, in terest or royalties arising in a Con tracting Stalc is e:tcmptcd or reduced for

a limited pe riod of time in accordance with the laws of th at Slate, any such tax which has

been e:tempted or red uced shall be deemed to have been paid in an amount not

exceeding

(a)

IS percent of the gross amount ofl he dividends referred 10 in Artide 10

10 pe r cent of the gross amount of the in terest referred to in Article 11

(b)

.od

10 per cent of the gross amount of the royal ties referred to in Artide 12.

(c)

CHAPTER V

ARTICLE 23

Non·discrimination

( I) The nationals of a Contracting State. whether or not they are residenlSof one

of the Cont racti ng States. shall not be subjected in the other Cont racting State to any

taxatio n, or any requirement connected th erewith, which is other or more burdensome

than the taxation and connected requireme nts to which nationals of that othe r Slate in

the sa me circumstances are or may ~ subjected.

(2) The ta:tt ion on a pennanen t establishme nt which an en terprise of a Con-

tracti ng State has in the other Con tracti n.R Stale shall not be less favourably levieo in

tha t o ther State than the taxat ion levied on ente rprises of that othcr State carrying on

the same activities.

This provision shall oot be construed as obliging a Contracting State to gran t to

residents of the other Contracting Slate any personal allowances. reliefs and reductions

for taxation purposes on accoun t of cl\il status or fam ily rcsponsibilities or any other

personal circumstances which it grants to its own residents.

B '99

(3) Except where the provisions of Article 9, paragraph (7) of Article 11 . or

paragraph (5) o f An kle 12 apply. interest . royalties and other disburse ments paid by an

e nterprise of a Con tracting State to a reside nt of the Olher ContnlC1ing State shall , for

Ihe purpose of detennining the Iba ble profits of such e nte rprise, be deduct ible uoder

Ihe same conditions as if they had been paid \0 a resident of tile first ment ioned State.

(4)

Enterprises of a Contracting State. the capital of which is wholly or panl)'

o wned or cont rolled, di rectly or indirectly , by onc or morc residen ts of th e othe r

Contract ing StlltC. shall not be subjected in Ihe first-men tioned Contracting State to any

(axalion or any requirement connected .herewith which is other or more burdensome

than the taxa lion and connected requirements 10 which mller similar enterprises of that

first-mentioned State are or may be subjected ,

(5)

In thi s Article the term "taxation" mea ns taxes of every kin d and description .

ARTICLE 24

Mllwal Agrument PrtXl'dllrl'

(1 ) Where a resident of a Contracting State ~'Onsiders that the actions of one or

both of the Contracting States res ult or will result for him in taxation not in accordance

with this Agreeme nt . he may. n(){withsta nding the remedies provided by the national

ia",'S of those States. presen t hi s case 10 the competent aUlhority of the Con tracting State

of which he isa resident or. ifhisease comes under paragraph (1) of Article 23. 10 Ihal of

the Contracting Slate of which he is a national. This case mus t be presented within three

years from th e (irSI notification of the act ion giving rise 10 laxation not in accordance

with the Agreemen t.

(2) The competenl authorit y shall endeavour . if the objection appears to il to be

justified and if it is not itse lf able foa rriveat an appropriate solution. to resolve the C'.t.SC

by mut ual agreement with the com petent authorit y of the other Contracting State . ... ith

a view to the avoidance of taxati on not in accordance with the Agreement. Any

agreement reached shall be implemented notwi thstanding any time limits in the na·

tional laW5 of the Contracting Stat es.

(3) The competent authorities of the Contracting States shall endeavour to

resolve by mutua l agreemen t any difficulties or doubts arising as to the interpretation or

application of the Agreement. They may also COfISUIt together for the elimination of

double taxatiOn in cases not provided for in the Agree men t.

(4) The ro mpetent authorities of the Cont racting States may commun icate with

each othcr directly for the purpose of reaching an agreement in the sense of the

preceding paragraphs.

A RT1 C LE2S

Exchangl' of info mlurion

( I) The competent authorities of the Coo tract ing Stales shall exchange such

information as is necessary for the carrying out of this Agreement or of the domestic

laws of the Contracting States conce rning tax es cove red by th is Agreement insofar as

the taxatinn thereunder i~ nm conrrMY to this Agrce ment. as wen as to preven t fi scal

evasion. The exc hange of information is not restricted by Article I. Any information

received by a Contracting Slate shall be treated as secret in the same manner as

informa tion obtained under the domeslK.: laws o f that Slale and s hall be disclosed only

to pe rsons o r 3mhoritics (includi ng courts and administrative bodies) invol\'cd in the

assessment or collection of. the enforceme nt or prosecution in respect of. or the

dete rmination of appeals in rdation to , the ( 3)[es which are the subject of the Agree-

ment. Such per:;ons or authorities shall use the information only for such purposes.

These persons or authorities may disclose the information in public court proceedings o r

in judicial decisions.

(2) In no case shall the proYisi0ll5 of pamgraph ( I) be const rued so 3S 10 impose

on one of the Cont racting States the obligation

(a)

10 cany out administrative measures at variance with the laws and admi-

nistrative practice of that or of the other Con tra cting State;

(b) 10 supply pan ic ulars which arc not obtainable under the laws or in the

normal course of the administration of that or of the other Contracting State

(cl to supply informat ion which would disclose any tradc. business. indus-

trial . commercial or professional seeret or trade process. or information. the

disclosure of which would be con trary to public policy (ordre public).

ARTICLE 26

Diplomatic and CDllSu/ar Officw!s

NOIhing in this Agreement shall affecl the fiscal privileges of diplomatic or consular

officials under th e gene ral rules of internat ional law or under Ihe provisions of special

agreements.

ARTICLE 27

Refunds

( I ) Taxes withhe ld at source in a Con tract ing State will be refunded at the requeSt

o(the tupayeror of the Contracting State of which he isa resident . if the right locollecl

the said taxes is regulated by the provil;ions of this Agreement.

(2) Claims for refund are to be filed wi thin the lime limits prescribed by the lawof

the Contracting State obliged to make repayment and are to be accompanied by an

official ce rtificate from the competent authori liesof the other Slate of which claimant is

a resident. This shall ceniry that the condit ions which give rise 10 entitlement 10 refund

have been fulfilled.

(3) The competent authorities of the Contracting States shall by mutual agree-

ment settle the mooe of application of this Anicle. in aocor-dance with the provisions of

Article 24 of this Agreement.

CHAPTER VI

FInal Provisions

ARTICLE28

£nlry into Force

(I) This Agreement shall be ratifred and the instruments of ratification shall be

exchanged at Rome a~ soon as possible.

(2) The Agreement shall e mer into force afte r Ihe e xchange of instruments of

ral ifi(.:ati o n , and its provisions shall have effect

(a)

in hal y_ as res pects income assessable fo r any taxable period co mmenc-

ing on or after the first day of January. 1976;

(b) in Malta. in respect of \aJe cs .... h ich are icvied for any year o f assessment

begi nning wilh the yea r of assessme nt which brings to e harge the income o f 1976.

(3) Any claim for refund or credit a rising in aca) rd ancc with thi s Agreement in

respect of any tax payahle by a res ident of a Contracti ng State referring to Ihe taxable

periods corn mencingon or after the 1st January 1976 and untiltheemry into force orlhi s

Agree me nt s hall be lodged with in three years from the dale of entry into force of this

Agreemen t o r from Ihe date whe n the lax is charged , whi chever is the later. Nothing

herein COfltained shall reduce any longe r time limit ava ilable to such resident for th is

p urpose under the law of the Com mCling State o f whkh he is a residen t.

ARTICLE 29

Tem,irwtiOfl

This Agreement sh all remain in force inde finitdy bUI ei the r of the Con tracting

Sta tes may. on o r before the thirtie th day o f June in any cale ndar year beginning after

the expiration of a pe riod o f five years from the date of ilS e nlry in to fOfet'. give to the

other Contracting Slate. through diplom atic channels. wrinen notice o f te nn ination

an d. in such event. the Agreement s hall cease 10 be effcct;\'e

(a ) in Ita ly. a s respects income asseSs<l ble fo r any taxable pe riod commenc-

ing on o r after the first day of January in th e calendar year next following that in

wh ich notice of te rm ination is gi ven

(b) in Malta, in respect of taxes which a re levied for an )' yeM of assessment

on income d e rived during any period oom menci ngon the first day o f January in the

yea r ne xt following that in which notice o f te rm ination is gil·cn . or in s ubsequent

years.

IN WITNESS WHEREO F the undersigned. duly authorised Ih erel o, have signed

thi s Agreement.

DONE at Valle tt a Ihis 16th day of J uly, 1981 in duplicate. in the l!alian and English

languages, bot h te xIS be ing equally authcntic.

For the Go,'ernment of

For the GOI'crnment of

the Re public of It aly

th e Republic o f Malta

Mau rizio Ba u agli n;

Robert Sl ivala,

Secre ta ry, Ministry o f Fin311CC.

A mhassado r of Italy.

Customs and People's

F inanci a l Investments.

PROTOCO L

A t th e signing of the A!!TCement concluded toda y hoctween the Republic o f Mall a

and the Republic of Italy for the avoida nce of doubl e taxa tion and the preve ntion of

fiscal evasio n with respect to taxes on income. the undersig.ned have agree d upon th t

fo llowing addi tional proviSions whieh shall form an integral part of the Agreem en t.

With refe re nce to Article 3. in the event of agreement being reached between

Malta a nd Italy regula ting their respective right s over the continental shelf and

all ied matters. the Contracting States will enter into negotiations in orde r 10

amend the defini tions of h aly and Malla taking acoount of the agreement so

reached .

With reference 10 Ankle S, an offshore drilling site is included in the expression

"a mine. quarry or other place of extraction of natural resources" in paragraph

(2) (t) thereof.

With reference to pa ragraph (3) of Article 7. the expression "expenses which arc

incurred for the purposes o f the permanent establishment" means expenses

directly connected with the activity of the permanent establishment.

(a)

Wi th refere nce to Article 8. ""here profits derived from the operation of a

sh ip in intemational traffic by an enterp rise whose place o f effective man-

agement is si tua ted in Malla are exempt from tax under the provisions of

section 86 of the Merchant Sh ipping Act. 1973. or under any identical or

sim ilar provisions. such profits may be taxed in It aly unless it is proved to

the satisfaction o f the competent authoril ies of Italy Ihat IIQI more Ih an

~'enty per cent of the ca pital o f the company owning the relative ship is

owned . directly or indi rectly. by persons not residents of Malta.

(b)

With further reference to Anicle 8. an en terprise of a Contracting Slate

d e riving profits from the ope ration o f ships o r ai rcraft in international

n affic sha ll nOI be subjeet 10 any local income tax imposed in the OIher

Contracting State.

With reference to pa ragraph ( I) of Anicle 24. the expression "lIQlwilhstanding

the remedies provided by the nat iona l laws" means Ihal the mutual agreeme nt

procedure is not alternative to the national contestation proceedings which

should. in any case. be ini ti ated within the time limits of the nationa l Jaw.

V I The provisions of paragrap h (3) of Art icle 27 shall not prevent the compelent

au thorities of the ConlractingStale$ from ado pting. by mutu al agreement . olher

procedures for the reduction of taxation in accordance with Ihi s Agree me nt.

Notwi ths tanding the provisions of paragraph (2) of Anicle 28. the provisions of

Article 8shall be applicable as respects income de rived during any taxable period

commenci ng on or afte r the 151 January. 1969.

DONE at VaIJetta this 16th day of July. 1981 in du plicate. in the Italian and English

la nguages, bOlh lexts being equally authentic.

For the Gove rnm en t of

For the G overnment of

the Republic of Malta

lhe Republic of Ilaly

RoberlStivala

Maurizio 8attaglini

Secretary, Ministryof Finance.

Ambassador of Ilaly.

Cus to ms and People's

Financial Investme nts.

EXCHANGE OF LETfERS

16July. I98\

Excellency .

I have the honour to refer 10 Art icle 12 or llle Agreement be tween the Government

of Malta a nd the G overnme nt o f Italy for the avoidance of double taxation with Tespec1

10 tax es on income and the preve ntion of fisca l e vasion signed today at ValJella, and 10

propose on behalf of the Governmen t of the Rep ublic of Ita ly_ Ihallhc IWO Govern -

men ts shall agree that. if the G overnment of Malla concludes an Agreemen t with any

o the r OEeD coun try limi ting the ralc of lax on royalties referred 10 in paragraph (2) of

the said Anicle 10 a ra le less tha n Icn per cent orlhe gross amount of the royal ties. the

\wo G overn ments shall consult each ot her with a view 10 modifying the said Anie!e in

order 10 e xtend the same treatme nt o n a reci procal basis. The Governme nt of Malta

shall inform the Government or Italy about any new Agr«ment with OEe D countries

which has a rate of less than ten per cent on such royalties as soo n as possible.

I have furthermo re the honour to propose that the present Note and You r Excel-

lency's reply confirming the acce pta nce by the Gove rnmen t of Ma lta of the above

pro posal shall be rega rded as constill.lIing an agree ment betwee n the two Gove rnm en ts

conce rn ing paragraph (2) of Art icle 12 of the said Agree ment.

1 avail myself of th i5 opporfunilY 10 extend 10 Your Excelle ncy the assurancc of my

highest consideration.

Mau ri.:io Banagl ini.

Ambassador of th e

Republic o f Ital y.

Mr Robe rt Stivala.

Secretary.

M inistry of Financc. Customs and

People's Financial lnvestmc nt s.

Vallcua .

EXCHANGE OF LETfERS

16July. I98\

Excellency .

I have the honour to refer 10 Art icle 12 or llle Agreement be tween the Government

of Malta a nd the G overnme nt o f Italy for the avoidance of double taxation with Tespec1

10 tax es on income and the preve ntion of fisca l e vasion signed today at ValJella, and 10

propose on behalf of the Governmen t of the Rep ublic of Ita ly_ Ihallhc IWO Govern -

men ts shall agree that. if the G overnment of Malla concludes an Agreemen t with any

o the r OEeD coun try limi ting the ralc of lax on royalties referred 10 in paragraph (2) of

the said Anicle 10 a ra le less tha n Icn per cent orlhe gross amount of the royal ties. the

\wo G overn ments shall consult each ot her with a view 10 modifying the said Anie!e in

order 10 e xtend the same treatme nt o n a reci procal basis. The Governme nt of Malta

shall inform the Government of Italy about any new Agr«ment with OEe D countries

which has a rate of less than ten per cent on such royalties as soo n as possible.

I have furthermo re the honour to propose that the present Note and You r Excel-

lency's reply confirming the acce pta nce by the Gove rnmen t of Ma lta of the above

pro posal shall be rega rded as constill.lIing an agree ment betwee n the two Gove rnm en ts

conce rn ing paragraph (2) of Art icle 12 of the said Agree ment.

1 avail myself of th i5 opportu nity to extend to Your Excelle ncy the assurancc of my

highest consideration.

Mau ri.:io Banagl ini.

Ambassador of th e

Republic o f Ital y.

Mr Robe rt Stivala.

Secretary.

M inistry of Financc. Customs and

People's Financial lnvestmc nt s.

Vallcua .

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