Transfer Pricing Rules

Malta will be introducing transfer pricing rules with effect from 1 January 2024 following the publication of Legal Notice 284 of 2022 on 18 November 2022.

The rules apply to cross-border arrangements entered between associated enterprises.   The term associated enterprises includes the relationship between a permanent establishment and the company. In terms of the Rules, bodies of persons will be considered associated enterprises when there is direct or indirect control through a holding of more than 75% of the voting rights or ordinary share capital.  However, in the case of a MNE group which is subject to the CbCR obligations, the threshold for voting rights or ordinary share capital is 50% and not 75%.

Cross-border arrangements entered on or after 1 January 2024 or any arrangements which were entered into before 2024 but materially altered after 1 January 2024 are all subject to the TP Rules.  However, the Rules are not applicable to:

• Micro, small or medium-sized enterprises as defined in Annex I of Commission Regulation (EU) No 651/2014 of 17 June 2014,
• An arrangement which comprises a securitisation transaction in terms of the Securitisation Transactions (Deductions) Rules,
• Entities whose aggregate arm’s length value of all items of income and expenditure of a revenue nature forming part of cross-border arrangements in a year does not exceed €6 million and the aggregate arm’s length value of all items of income and expenditure of a capital nature forming part of cross-border arrangements in a year does not exceed €20 million.

Entities subject to the TP Rules must ensure that the income accrued and/or received from cross border arrangements with associated enterprises are all at arm’s length.  If the income received under such arrangement is lower than arm’s length income, the entity is required to account for notional income to top up any discrepancy between the arm’s length amount and amount accounted for by the entity.  The Rules do not define or delve into the concept of arm’s length but simply state that the arm’s length amount shall be determined based on such methodologies as shall be designated by the Commissioner in guidelines (which are yet to be issued).

Entities will have the option to request a unilateral transfer pricing ruling from the Commissioner for Revenue against a non-refundable fee of €3,000 or an advance pricing arrangement against a non-refundable fee of €5,000.  Both will be valid for a period of five years.  A unilateral transfer pricing ruling may be renewed but the renewal must be made six months before the expiry and subject to a non-refundable fee of €1,000.

The Rules set out that a company, in relation to an arrangement to which the Rules apply, is to prepare on a timely basis and retain such records as may be reasonably be required. Further guidance on documentation requirements is expected to be included in the guidelines.