The Maltese government has been planning the implementation of transfer pricing rules, in line with global standards related to the principle of free competition, as part of Malta’s recovery and resilience plan, agreed with the EU Commission in September 2021 and approved by ECOFIN in October 2021.
The Commissioner for Revenue has received requests for certainty on transfer pricing from the private sector, which have become increasingly important in today’s global economy. An enabling provision has been added to the income tax law to allow for the drafting of transfer pricing rules and advance pricing agreements (APAs).
After a period of consultation with stakeholders, Malta introduced supplementary legislation on November 18, 2022, to implement transfer pricing rules in its tax system.
These rules will be applicable to all agreements entered into as of January 1, 2024, as well as to existing agreements that are “substantially” modified from that date.
The transfer pricing rules will be used to determine the taxable base of a company arising from a “cross-border” agreement between “associated enterprises” that directly or indirectly hold more than 75% of the participation rights. For entities constituting a multinational group, the participation rate will be 50%.
SMEs as defined in state aid rules will not fall within the scope of these rules.
The multinational group in transfer pricing operations.
The concept of a multinational group for these rules is a group of companies that have their tax residence or a permanent establishment in more than one jurisdiction (including Malta) and have a consolidated group total income of at least 750 million euros per year.
The transfer pricing regulations do not apply to cross-border transactions with an aggregate arm’s length value of respectively €6 million and €20 million of revenue and capital. Securitisation transactions are excluded from the scope of these rules.
The rules will apply to cross-border transactions and agreements between a resident company and a non-resident company, a resident company with a permanent establishment located outside Malta and a non-resident company dealing with a PE in Malta of another non-resident company, if the transactions are effectively connected in terms of determining the overall income of the company.
The rules provide for unilateral transfer pricing decisions and bilateral and multilateral advance pricing agreements.
In determining the overall income of companies where any amount under a cross-border agreement differs from the arm’s length amount, the rules provide for a presumptive provision that the arm’s length amount has been incurred or derived instead of the actual amount.
It is expected that specific guidelines will be issued which will include, among other things, reference to the OECD transfer pricing guidelines.