Tax Treaty Case Law around the Globe 2019

S. 2161. Introduction

The case discussed in this chapter concerned interest sourced in Bulgaria paid out to a resident of Malta, which in turn upstreamed the interest to its parent on the Cayman Islands. The crux of the matter was whether the interposed Maltese company was entitled to the benefits of the Bulgaria-Malta Income Tax Treaty (1986) (hereinafter: Bulgaria-Malta Tax Treaty).

Three important issues needed clarification in the case. First, the treaty contained no beneficial ownership (hereinafter: BO) requirement under its article 10 (equivalent to article 11 of the OECD Model). Hence, it was questioned whether an implicit BO condition could be derived from the treaty based on its object and purpose. Second, concerning the burden of proof, the court had to address whether it was the tax authorities or the taxpayer that had to prove that the conditions for the application of a tax treaty are met. Third, there was a disparity between the Bulgarian and the English language versions of the tax treaty (both equally authentic under article 23 of the Bulgaria-Malta Tax Treaty) whereby article 10 was drafted as an open distributive rule in English and as a complete distributive rule in Bu...