Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

January 6, 2022

New US-Malta competent authority arrangement confirms meaning of “pension fund” for tax treaty purposes

In a competent authority arrangement (CAA) executed on 21 December 2021, the United States (US) and Malta competent authorities have confirmed their understanding of the meaning of "pension fund" for purposes of the US-Malta income tax treaty (Treaty). According to an Internal Revenue Service (IRS) news release (IR-2021-253), the CAA stems from concerns that "U.S. taxpayers with no connection to Malta were misconstruing the pension provisions of the Treaty to avoid income tax on the earnings of, and distributions from, personal retirement schemes established in Malta."

The CAA reflects the competent authorities' understanding that a "fund, scheme or arrangement" is not operated principally to provide pension or retirement benefits, so Treaty benefits do not apply, if it allows participants to contribute property other than cash or does not limit contributions based on a taxpayer's employment or self-employment income. (This understanding does not, however, apply to qualified rollovers from pension funds in the same country.)

Cautioning taxpayers against entering into "substantially similar arrangements that would seek to misconstrue the provisions of a bilateral income tax treaty of the United States to avoid income tax," the IRS notes that it "is actively examining taxpayers who have set up these arrangements and recognizes that other taxpayers may have filed tax returns claiming Treaty benefits as a result of their participation in these arrangements." The Service urges affected taxpayers to consult an independent tax advisor before filing their 2021 tax returns and to take "appropriate corrective actions" before filing.


The CAA is an example of a tool available to the US and its tax treaty partners in preventing unintended uses of tax treaties. It also illustrates that the IRS is not limited to resources under domestic law but can invoke its tax treaty network in its tax enforcement efforts.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Private Client Services, Washington, DC


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more