Let's Talk about US Tax Implications of the Malta Treaty
Yesterday, I was at a meeting. In the meeting here in Singapore, there were two representatives of a European Financial institution that services US exposed clients. As frequently happens, they brought up the Malta - US Treaty and the tax planning opportunities that appear to arise from this treaty.
As a result, I thought it is time for me to properly document my thinking on this. In short, I agree with some of the comments posted online - it's simply too good to be true -
- First, it is unlikely that the treaty was intended to provide for a glaring exception to the main tenants of U.S. citizenship based taxation.
- Secondly, and even more critically, these plans gloss over the issues of residency and jurisdiction. The treaty does not cover Americans who are not resident in Malta, or at least not resident in Malta at the time that contributions to the plan were made. Americans outside of Malta have no standing to make claims under the treaty’s provisions.
- Aside from the tax and compliance risk posed by these plans, the investment provisions of these plans are highly unattractive. In general, most of the Malta pension plans require a large ongoing financial commitment. Liquidity is low, fees are high, and the underlying investments are opaque.
- Finally, there is concern over the regulatory and financial capacity of the small state of Malta to thoroughly ensure the integrity and solvency of these offshore pension plans.
I have seen several legal opinions but understandably no law firm has put their name on the line to declare that the Treaty WILL work as promoters speculate. Legal opinions use the conditional tense so there are lots of "should", "likely" and "could" but no "must" or "will".
I am of course, unable to post these opinions but I have seen a paper published by the Florida (my home state) Bar Association which I will reproduce below and in full.....