| 17/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 2/68 |
Decided: 26 January, 1973 |
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Chargeability of profits earned by foreign supplier in terms of a contract entered into in Malta - article 5 now article 4, Income Tax Act
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Appellant had submitted a quotation to supply goods and services to a Maltese entity. Appellant company received the letter of acceptance in Italy in which they were informed that "a formal contract document will be prepared and a draft thereof will be forwarded to you in due course for your examination prior to its execution in Malta". A deed was eventually signed in Malta. This deed included the provision that it "be, and be deemed to be, a Maltese contract and shall accordingly be governed by and construed as a Maltese contract and shall be interpreted in accordance with the Law of Malta."
While appellant pleaded that the contract became operative and the deal thus sealed in Italy on receipt of the letter of acceptance, Revenue held that the contract proper is governed by Maltese law and, in any case, the deal was actually sealed when it was formally accepted on the actual signing of the deed in Malta.
In terms of the proviso to article 5 of the Income Tax Act "in the case of income arising outside Malta to a person who is not ordinarily resident in Malta or not domiciled in Malta, the tax shall be payable on the amount received in Malta." The appeal devolved on the point of law as to whether income earned by the non-resident and non-domiciled supplier arose in or outside Malta. In their submissions both parties quoted English case law based on the perennial question of 'trading within and trading with" a country. One must, however, give due consideration to the fact that, though based on the English model, the local Income Tax Act differs substantially and is far more restrictive. Indeed, the proviso to article 5 quoted above, restricting exemptions, does not form part of English legislation. If it is proved that the contract was entered into and executed in Malta, even though payments were effected overseas, there is no doubt that the trading was carried out in Malta and any profits made arose locally.
The Board held that it could not accept appellant's contention once the letter of acceptance itself was conditional upon the signing of the contract. This condition had definitely been accepted because a representative had been sent over to Malta to sign the contract. In executing the contract the foreign firm set up storage facilities in Malta and made a number of consignments of goods over a relatively long period. Undoubtedly the firm was trading in Malta, its profits were arising in Malta and, therefore, they did not qualify for the exemption provided for in the proviso to article 5.
An appeal was entered before the Court from this decision.
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