Dear Sir:
Re: Canada-Malta Income Tax Agreement 1986 (the "Agreement")
This is in reply to your letter to the Canadian Embassy in Rome dated November 23, 1990, whereby you inquired concerning the application of paragraph (4) of Article 28 of the above-noted Agreement in respect of an offshore company registered under the Malta International Business Activities Act, 1988 that has waived in part the benefits of that Act by electing to pay tax at a rate higher than applicable to it under that Act but below the standard rate for companies owned by residents of Malta.
Unfortunately, we are unable to provide a definitive, binding opinion to you in response to your inquiry. In order to do so, we would require more information, including an explanation as to why a company would elect to pay Maltese tax at a higher rate than it is legally obliged to pay. We enclose herewith a copy of a publication issued by this Department (Information Circular No. 70-6R2 dated September 28, 1990) which sets forth the procedures for obtaining a binding ruling concerning the interpretation and application of the income tax laws of Canada (including the Agreements for the avoidance of double taxation to which Canada is a party).
We can however advise that we are generally inclined to the view that the amount of tax imposed on the income of a company is the amount of tax that the company is legally obligated to pay and that such amount is not increased by a voluntary election by the company to waive an exemption or benefit and pay more tax.
We also point out that generally only a resident of a Contracting State is entitled to the benefits of the Agreement. In any particular case we would carefully consider whether an offshore company of the kind referred to in your letter is a resident of Malta for purposes of the Agreement.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. The Canadian High Commission to Malta Via G.B. De Rossi 27 00161 Roma Italia