Malta Pension Gap Closed with CAA
This is a short article to update us article published earlier this year on the issue of Malta Pensions and US Tax planning of retirement funds. Recently, the IRS published a Competent Authority Arrangement (CAA) between the United States and Malta on the issue of pensions and rollovers. The issue arose from the fact that some Taxpayers were claiming Malta / US tax treaty which means that they can form a Malta Pension under the Retirement Pensions Act 2011 and obtain significant tax-exempt pension benefits (similar to a Roth IRA) when distributions have been properly distributed. Taxpayers open a Malta Pension and strategically contribute and withdraw funds in order to obtain pension benefits under the treaty without maximum contribution limitation – resulting in an unexpected cessation for taxpayers.
The link to the CAA is here, but here are some key points:
- “It has come to the attention of the competent authorities that US citizens and residents are establishing personal retirement schemes in Malta under the Retirement Pensions Act of 2011 without any limitation based on earnings from employment or self-employment, and are making contributions to these schemes. in forms other than cash (eg securities). “
- “Questions have arisen in the United States as to whether these personal retirement schemes are ‘pension funds’ for the purposes of applying the Treaty.”
- “Accordingly, citizens and residents of the United States may not claim benefits under paragraph 1 (b) of Article 17 and Article 18 of the Treaty in respect of the type of fund, scheme or arrangement described in the paragraph immediately above, including an established personal retirement scheme. in Malta under the Retirement Pensions Act, 2011. ”
- “In addition, such funds, schemes or arrangements may not apply paragraph 2 (e) of Article 22 of the Treaty to be treated as qualified residents and may not claim the benefits of paragraph 3 of Article 10 of the Treaty. The competent authorities confirm that the interpretation in this Arrangement reflects the original intention of the Contracting States with regard to the definition of a “pension fund” for the purposes of the Treaty. “
What does this mean?
The competent authorities of the United States and Malta are aware that some residents and citizens of the United States have created personal retirement plans in Malta under the Malta Pensions Acts which contradict the spirit of the act – and this was not the intended purpose of the treaty. These US Residents and Citizens were contributing vast sums of money as well as non-cash / securities contributions to the Malta Pension Plans, in order to enhance the value of the fund outside the purported scope of the act and receive tax-free distributed distributions. Then, they claim tax-exempt status under the treaty in the same way as a Roth IRA. This was presumably not the intended purpose of the act, and as a result, the CAA confirms that personal pensions / retirement schemes the qualifies for preferential tax treatment for pensions under Articles 17 and 18.
Taxpayers who have already taken this type of tax position in previous years may want to consider consulting with a Board Certified Tax Law Specialist to assess their options.