Malta introduced formal transfer pricing rules through Legal Notice 284 of 2022 published on the 18th of November 2022 and subsequently amended via Legal Notice 9 of 2024. The local transfer pricing (“TP”) rules are largely based on the OECD Transfer Pricing guidelines however, they will not apply across the board, but rather, only to specific transactions entered into by certain taxpayers.
The Rules aim to ensure that profits generated through cross-border transactions between associated enterprises are allocated and taxed fairly in Malta. In-scope taxpayers are required to substantiate adherence of their related party transactions to the arm’s length principle by showing that the transactions yield the same return that unaffiliated parties would have derived in comparable circumstances, provided that the amount receivable or payable under the cross-border arrangement is relevant in ascertaining its total income.
Summary of the Malta Transfer Pricing Rules
Firstly, the TP Rules only apply to companies which are subject to income tax in Malta and are not SMEs as defined in Annex I of Commission Regulation (EU) No 651/2014.
Moreover, the provisions are applicable for basis years commencing on or after 1st January 2024 and only apply to arrangements entered into after 1st January 2024 or which were materially altered on or after that date. Otherwise, the TP Rules shall apply from basis year commencing on or after 1st January 2027.
The TP Rules apply to cross-border arrangements between associated enterprises, including notional agreements between a Maltese resident party and its PE outside Malta and vice-versa. When applying the Rules to such notional arrangements, reference must also be made to the 2010 Report on the Attribution of Profits to Permanent Establishments approved on 22 June 2010 by the Committee on Fiscal Affairs and by the OECD Council on 22 July 2010. Domestic transactions are excluded from the scope of the Rules.
A company will also be considered out of scope if the arrangement comprises a securitisation transaction in terms of the Securitisation Transaction (Deductions) Rules, (SL 123.128) or if the de-minimis threshold applies.
The de-minimis threshold applies where the aggregate arm’s length value of all items of income and expenditure stemming from a cross-border arrangement in the relevant financial year do not exceed:
- €6 million for arrangements of a revenue nature
- €20 million for arrangements of a capital nature
If the taxpayer is considered in scope, the taxpayer must determine the arm’s length pricing of the relevant arrangement using the methods outlined in Chapter II of the OECD Transfer Pricing Guidelines. Preference should be given to these methodologies, however, alternative methods may be accepted, particularly in more complex situations where the application of multiple approaches might be appropriate. For low value-adding intra-group services, the guidelines allow the use of simplified approaches in line with the OECD Guidelines and the EU Joint Transfer Pricing Forum Guidelines.
Taxpayers falling within the scope of the TP Rules must also maintain adequate transfer pricing documentation. This should include both a Master File and a Local File, prepared in accordance with Chapter V of the OECD Transfer Pricing Guidelines. The taxpayer may be required to make available the documentation to the Malta Tax and Customs Administration upon request, within a reasonable period.
Transfer Pricing Rulings
Given the element of judgement and uncertainty involved in certain instances in arriving at the arm’s length amount, the Rules provide for two mechanisms to increase tax certainty – Unilateral TP Rulings and Advance Pricing Agreements (APA).
A Unilateral TP Ruling is a ruling that may be requested from the Commissioner that determines, in advance of an arrangement, an appropriate set of criteria for the determination of the transfer pricing for that arrangement. The decision to issue a Unilateral ruling ultimately rests with the Commissioner, who may reject an application if the taxpayer is not compliant with their tax filing obligations or where the tax treatment of the arrangement being requested can be clearly arrived at. Applicants may escalate any disputes, including the Commissioner’s refusal to issue a Unilateral TP Ruling to the Administrative Review Tribunal.
APAs may be of a bilateral or multilateral nature. APAs empower the Malta Competent Authority to enter into bilateral or multilateral advance pricing arrangements with the relevant foreign competent authority/ies. The issuance of an APA depends on the Malta Competent Authority reaching an agreement with the corresponding authority/ies in the other jurisdictions.
Both Rulings are binding on the Commissioner for a maximum period of 5 years, assuming that there were no material changes to the underlying agreements. Both allow for a roll-back period and a renewal period, subject to non-refundable fees.
In conclusion, Malta’s new transfer pricing rules are now in effect, with full implementation by 2027. These developments introduce important changes for businesses engaged in cross-border transactions, particularly in terms of scope, thresholds, documentation, and the availability of rulings or advance pricing agreements. We’ve outlined the key points to help you confidently navigate the new requirements. If you’d like to understand better how these rules may apply to your business or require assistance with compliance, please get in touch from the form below.