The limitation on benefits article in the U.S. : Malta double tax treaty

Abstract

Double Tax Treaties (DTTs) are contractual agreements between two States whereby the residents of those States benefit primarily from the relief of income being subject to tax twice. The problem, however, is that third party non-residents, that is, anyone who is not a resident of one of the Contracting States, abuse treaties and try to find ways of obtaining benefits by establishing a form of residence in one of the Contracting States. The U.S. has occasionally assimilated this occurrence as having a 'Treaty with the world'- because essentially, everyone is free to set up residence and claim benefits. So what methods are used so that these benefits are limited to the residents of the Contracting States? In the 1970s initial discussions resulted in the eventual inclusion of the first Limitation On Benefits (LOB) article in the 1981 U.S. Model Treaty. The U.S. has been a big advocator of the article since and subsequently went on to include it in both its existing and subsequent Treaties. Having said this, there are other forms of anti-abuse law found in both domestic law and treaties, some of which are tackled in this work. Double Tax Treaties (DTTs) are contractual agreements between two States whereby the residents of those States benefit primarily from the relief of income being subject to tax twice. The problem, however, is that third party non-residents, that is, anyone who is not a resident of one of the Contracting States, abuse treaties and try to find ways of obtaining benefits by establishing a form of residence in one of the Contracting States. The U.S. has occasionally assimilated this occurrence as having a 'Treaty with the world'- because essentially, everyone is free to set up residence and claim benefits. So what methods are used so that these benefits are limited to the residents of the Contracting States? In the 1970s initial discussions resulted in the eventual inclusion of the first Limitation On Benefits (LOB) article in the 1981 U.S. Model Treaty. The U.S. has been a big advocator of the article since and subsequently went on to include it in both its existing and subsequent Treaties. Having said this, there are other forms of anti-abuse law found in both domestic law and treaties, some of which are tackled in this work.