Malta Transfer Pricing Rules: An Extensive Analysis

The Transfer Pricing Rules, 2022 (TP Rules) were formalised on November 18, 2022, when Malta issued Legal Notice 284 of 2022. The presently implemented regulations have incorporated transfer pricing guidelines into Malta's legal structure and levied supplementary duties on business taxpayers. Additionally, new legal entities like transfer pricing rulings have been established by the TP Rules.

It is noteworthy that the Malta Transfer Pricing Rules will just be applicable to cross-border agreements that are formed or significantly modified on or before January 1, 2024. Given its expertise, Papilio Services can assist you in effectively navigating the Transfer Pricing requirements.

Arrangements defined

The Malta Transfer Pricing Rules define an arrangement as:

● any transaction, agreement, or dealing of any kind, or series thereof, where, at the relevant time, the parties to such an arrangement are associated enterprises, or

● any notional dealing between a body of persons and its permanent establishment ("PE").

Associated Enterprises

Only transfers between related businesses are covered by the Malta Transfer Pricing Rules. Companies are considered connected if one directly or indirectly holds at least 75% of the other's ordinary capital or voting rights, or if both are jointly held by another company and meet the same criteria for participation rights (75% direct or indirect). For multinational companies required to file Country-by-Country reports (e.g., those with a total consolidated group revenue of at least EUR 750 million), the participation level is reduced to 50%. Small and medium-sized enterprises are exempt from the TP Rules.

Agreements between non-resident businesses and their Malta permanent establishments, under which a permanent establishment is regarded as though it were a distinct and independent enterprise, will also be subject to the Malta Transfer Pricing Rules.

Originating Across Borders

The arrangements must have at least one corporate taxpayer and be of cross-border origin in order to be subject to the Malta Transfer Pricing Rules. This means that either a non-resident company and a resident of Malta, a non-resident company and the permanent establishments of another non-resident company in Malta to which the transaction is effectively connected, or a non-resident company and a PE outside of Malta and one of the parties thereto is a resident of Malta, are the parties to the agreements.

According to the de-minimis exemption, cross-border agreements with a total arm's length value of no more than EUR 6 million in revenue or EUR 20 million in capital will not be subject to the Malta Transfer Pricing Rules.

Provisions of the Transfer Pricing Rules: The Arm's Length Principle

The Malta Transfer Pricing Rules set particular provisions for the implementation of the arm's length principle in transactions involving related entities. The arm's length principle is a cornerstone of transfer pricing. It stipulates that conditions agreed upon or imposed between independent firms cannot differ from those set forth in commercial or financial ties between two connected businesses.

According to the Malta Transfer Pricing Rules, any amount related to a cross-border arrangement will be regarded to be incurred or due in the amount calculated in line with the arm's length principle whenever a company's income is computed under the Income Tax Act. If a business is subject to the Transfer Price Rules, it must keep transfer pricing records as evidence that it correctly implements the arm's length principle.

Introduction: Transfer Pricing Rulings

Among the new institutions created by the Malta Transfer Pricing Regulations are unilateral and advanced transfer pricing rulings. In the future, taxpayers will have the option to request that the Commissioner for Revenue issue a unilateral rule that clarifies the application of the TP Rules to a particular cross-border arrangement.

Such a request is subject to a EUR 3,000 charge and must be made in writing. The names of arrangement participants and their ultimate beneficial owners, along with any other relevant information the Commissioner may need, must be submitted by the applicant along with any other required information. The five-year duration of the unilateral transfer pricing ruling binds the Commissioner. The taxpayer has the option to extend a unilateral TP ruling for a fee of EUR 1,000 up to six months before to its expiration.

The Next Steps

Reach out to Papilio’s Services team of expert advisors HERE and schedule a complimentary consultation to learn more about how they can assist in identifying, assessing, and addressing transfer pricing concerns, as well as implementing a tax-efficient transfer pricing policy.