Malta Introduces Formal Transfer Pricing Rules

On 18 November 2022 Malta published subsidiary legislation implementing formal Transfer Pricing Rules (“the Rules”).
The Rules will be effective from 1 January 2024 and will apply to any arrangements entered into - or altered - on or after that date.

Application and Scope

The Rules will apply to cross-border arrangements between related parties (or associated entities), defined as having 50% or more common direct or indirect participation rights in large multinational groups in scope for Country-by-Country reporting, or 75% in the case of large multinationals excluded from such reporting.

The following instances constitute cross-border arrangements and as such fall within the scope of the Rules:

• An arrangement between a Maltese-resident company and a non-Maltese-resident party;
• An arrangement between a Maltese-resident company and a permanent establishment situated outside Malta to which the arrangement is effectively connected; and  
• An arrangement between a company that maintains a permanent establishment in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta, and a non-Maltese resident party.

In ascertaining the total income of any company, the Rules make reference to the arm’s length principle, which is defined as the amount that independent unrelated parties would have agreed to in comparable circumstances. The Rules make room for further guidance as to the methodology that should be used when determining the arm’s length amount and the documentation that is expected to be relevant, to be issued by the Commissioner for Revenue.

Exceptions

The Rules shall not apply to micro, small or medium-sized enterprises as defined by the EU State Aid Regulations. In addition, the Rules shall not apply:

1. where the arrangement comprises a securitisation transaction in terms of the Securitisation Transactions (Deductions) Rules; or
2. where, in relation to a company within the scope of the Transfer Pricing Rules:

1. the aggregate arm’s length value of all items of income and expenditure of a revenue nature forming part of cross-border arrangements in the year preceding the year of assessment, does not exceed €6,000,000; and
2. the aggregate arm’s length value of all items of income and expenditure of a capital nature forming part of cross-border arrangements in the year preceding the year of assessment, does not exceed €20,000,000.

It is important to note that the Rules are only taken into consideration for income tax purposes and not for VAT.

How can we help?

If you have any questions or if you require further guidance on the matter, please do not hesitate to contact please do not hesitate to contact Nadya Turban and Janice Copperstone in our Malta office.