| 21/11/2008 |
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| Board of Special Commissioners - Cases |
| Case No. 18/69 |
Decided: 5 July, 1972 |
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Determination of a form of association - "Permanent establishment" - the point at which commission or brokerage falls due
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Appellant, an English firm, decided to join forces with a Maltese one and combine their resources with a view to carrying on the business of selling immovable property in Malta to Englishmen. They drew up a memorandum providing that it was not to be construed as constituting any form of partnership between the parties and that it was meant solely to regulate their collaboration in business and association. It also included a provision for an amendment or the termination of the agreement in the event of a change in Income Tax laws affecting unduly the tax position of any of the parties.
Appellant claimed to be exempt from tax according to the Double Taxation Relief Agreement between the U.K. and Malta in view of the fact that there were two English partners, both non-residents, neither of whom had a permanent establishment in Malta within the meaning of the Agreement. Even had it been so, relief was to be given for the U.K. tax payable which was in excess of that payable in Malta, meaning that no tax was due in Malta.
The Board observed that, in so far as these pleas were concerned, the crux of the matter was whether the association falls within the definition of a "body of persons" engaged in a profit sharing undertaking, in which case it would be clear that the provisions of Section 49 (1)(A) apply and any partner would be liable to tax on the share of the profits he is entitled to. After examining the terms of the agreement and the fact that nowhere in such memorandum was reference made to the parties as principal and agent - indeed expenses and profits were equally shared - the Board held that the association was definitely a joint undertaking to earn profits and share them. The reservations in the memorandum presented no obstacles as the juridical nature of an act is not determined by what the contracting parties decide what it should not be called. It is not for them to dictate what anything should be construed to mean. Appellant firm, as a body of persons, was party to the joint venture, entitled to a share of the profit and, therefore, taxable as a "person" which includes a body of persons.
The Double Taxation Relief Agreement provides that the industrial or commercial profits of a U.K. enterprise shall not be subject to Malta tax unless the enterprise is engaged in trade or business in Malta through a permanent establishment situated therein, in which case tax may be imposed on those profits but only to the extent as are attributable to that permanent establishment. A place of management, a branch and an office are included in the Agreement's definition of permanent establishment. The Board held that as both parties to the undertaking had an equal control over the venture, their respective offices in London and Malta shared the distinction of being places of management and offices. The association, therefore, could never benefit from an exemption under the Agreement..
Appellant pleaded further that the profits did not arise in Malta but were payments by clients for services rendered in the U.K. The memorandum of agreement, however, clearly specified that the profits consisted of commissions earned on the sale of immovable property in Malta. According to law the commission or brokerage fee falls due when the sale is completed and this usually necessitates the signing of a preliminary agreement followed by the indispensable public deed. The publication of a public deed can only be validly made in Malta, so the sale was effectively effected in Malta, irrespective of where payments were actually made.
An appeal was entered before the Court from this decision (see case no. 93).
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