Malta: The Court Of Appeal Of 's-Hertogenbosch On The Determination Of The Place Of Residence Of A Company And The Allocation Of Levying Rights Under A DTA

Case numbers: BKDH-21/01014 up to and including BKDH-21/01020, ECLI:NL:GHSHE:2023:2393

On July 3, 2023 on the website of the Dutch Courts an interesting judgment of the Court of Appeal of 's-Hertogenbosch on the (double) residency of a BV (a limited liability company) that was incorporated under Dutch law but that moved its administrative seat in Malta (the 'Taxpayer'), was published. The Court comes to the conclusion that in the underlying case the place of effective management of the Taxpayer is located within the Netherlands.

This article summarises the Court of Appeal's judgement BKDH-21/01014 up to and including BKDH-21/01020, ECLI:NL:GHSHE:2023:2393.

FACTS

The Dutch tax authorities and the Taxpayer are arguing whether the Netherlands is allowed levy (corporate) income tax over the Taxpayer's sole shareholder ('X') taxable incomes for the years 2011 through 2014 and to levy dividend withholding tax over the dividend distributions the Taxpayer made in favor of X during the years from 2011 through 2014.

The Dutch tax authorities are of the opinion that based on the tiebreaker rule as laid down in Article 4, Paragraph 4 of the Agreement between the Kingdom of the Netherlands and Malta for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the 'Dutch-Maltese DTA'), the Taxpayer is deemed to be a resident of the Netherlands and that therefore the levying rights are allocated to the Netherlands.

Until 2010 X has been resident of the Netherlands and as of 2010 X has been a resident of Switzerland. X owned a house in Switzerland. Furthermore, X has a work/storage space with sanitary facilities in the Netherlands as well as an apartment in the Netherlands that is occupied by his mother. As of May 2011, X has access to a house in Portugal. X travels between these locations and once a year he attends the shareholders meeting of the Taxpayer in Malta.

Furthermore, the assets of the Taxpayer consist of loans, a securities portfolio and bank balances. The latter assets are partly invested with 2 Swiss banks. The agreements with these banks were made before the administrative seat of the Taxpayer was moved to Malta. The banks have a mandate on the basis of which they can invest liquid assets without the intervention of the Taxpayer.

The Taxpayer does not have a bank account in Malta. The income it realized is therefore not 'remitted to Malta' (transferred or received).

In the amended Taxpayer's articles of association, it is arranged that board of directors always contains at least as many Maltese residents as non-Maltese residents. Furthermore, it is arranged that always a Maltese resident is appointed as president of the board of directors. It amongst others has been established that the board meetings are held in Malta and the accounts are kept in Malta.

The Taxpayer has filed an 'Income Tax Return and Self Assessment' declaration in Malta for the years in question and has requested and received an exemption for the years 2011 and 2012 because of 'Foreign income not remitted to Malta'. In the Maltese tax return for the year 2013, the Taxpayer stated its entire income in the so-called 'Untaxed Account'. The Taxpayer's Maltese taxable profit therefore amounted to nil in all of the underlying years.

In the years 2011, 2012, 2013 and 2014 the Taxpayer made dividend distributions to X. The dividend payments have been settled with the current account receivable from X. The Taxpayer has not filed a dividend tax return for any of these dividend payments.

The Taxpayer's primary position is that based on that same tiebreaker rule it is deemed to be a resident of Malta and that the Netherlands therefore has no right to either tax the profits of the Taxpayer, nor the dividend distributions made by it. In the alternative, the Taxpayer is of the opinion that based on the Dutch-Swiss DTA it is a resident of Switzerland as a result of which the Netherlands has no right to either tax the profits of the Taxpayer nor the dividend distributions it made.

Summary

Since the Court came to the conclusion that based on the provision of Article 4, Paragraph 1 of the Dutch-Maltese DTA the Taxpayer is a dual resident (both a resident of the Netherlands and of Malta) it has to be determined whether based on the tiebreaker rule of Article 4, Paragraph 4 of the Dutch-Maltese DTA the Taxpayer is deemed to be resident of the Netherlands or of Malta.

The Court established that the Taxpayer has not actually been taxed in Switzerland, nor are there indications that the Swiss tax authorities regard the Taxpayer as a Swiss resident.

Based on case law the Court is of the opinion that the place where the effective management of an entity within the meaning of Article 4, Paragraph 4 of the Dutch-Maltese DTA is situated, is to be understood as the place where key decisions relating to the activities of the entity are taken, where the final responsibility for these decisions is borne and from where, where appropriate, instructions are given to the persons working within the entity. Consequently, according to the Court who is in charge of the day-to-day management of the implementation of such decisions is not significant for the determination where the place of actual management of an entity is located.

Based on which activities of the Taxpayer constitute the main activities of the Taxpayer, as well as many e-mails correspondence between X and the Maltese director of the Taxpayer, X and the auditor and meeting reports the Court comes to the conclusion that in the underlying case the place of effective management of the Taxpayer is located within the Netherlands.

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