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Entry into Force
On 18 November 2022, Transfer Pricing Rules (the Rules) were introduced in Malta.
Initially, the Rules apply for basis years commencing on or after 01 January 2024 in relation to any arrangement entered into on or after 1 January 2024 and arrangements entered into before that date that are materially altered on or after that date.
As from 1 January 2027, however the Rules shall apply to all arrangements.
Size exclusion
SMEs are excluded from the scope of such Rules (i.e. those entities fulfilling the criteria laid down in Annex I of Commission Regulation (EU) No 651/2014).The Rules apply to enterprises that are classified as “Large” as they would not fall within the SME thresholds. Such thresholds are to be assessed by reference to the entire group of companies, taking also into consideration group companies outside of Malta (i.e. not by reference to an entity in isolation).
Cross-border arrangements between associated enterprises
The Rules are only be applicable to cross-border arrangements entered into between associated enterprises.
“Associated enterprises” means bodies of persons where one of the bodies of persons/ the same person (or persons) controls the other body of persons whether as a result of the fact that it holds, directly or indirectly, a participation of more than 75% in the voting rights, or the ordinary capital, of the other body of persons or by virtue of any powers conferred by the articles of association or other document regulating the other body of persons.
The threshold is lowered to more than 50% for constituent entities part of a MNE group subject to the CbCR obligations.
“Cross-border arrangement” means:
- An arrangement between a Maltese-resident company and a non-Maltese-resident party;
- An arrangement between a Maltese-resident company and a PE situated outside Malta to which the arrangement is effectively connected; and
- An arrangement between a company which maintains a PE situated in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta, and a non-Maltese resident party.
Domestic (Malta – to – Malta) transactions are excluded from the Rules.
De Minimis Threshold
The Rules do not apply where the aggregate arm’s length value of all items of income and expenditure of a:
i) revenue nature forming part of cross-border arrangements, does not exceed €6m; and
ii) capital nature forming part of cross-border arrangements, does not exceed €20m;
in the year preceding the Year of Assessment.
OECD TP Guidelines
Methodologies and documentation
The methodologies set out in Chapter II of the OECD TP Guidelines are the preferred methodologies to determine the arm’s length price. Other methods may also be accepted in accordance with the OECD TP Guidelines.
TP documentation is required to be prepared on a timely basis. Such documentation should be in terms of Chapter V of the OECD Transfer Pricing Guidelines i.e., including both a master file and a local file and shall be made available to the Malta Tax and Customs Administration upon request.
Unilateral Transfer Pricing Rulings and Advance Pricing Agreements (APA)
The Rules provide a framework for the request and issuance of unilateral transfer pricing rulings and APAs
A unilateral transfer pricing ruling is binding on the Commissioner for Tax and Customs for a period of five years from the date the ruling takes effect.
An APA may also be entered into for a duration not exceeding five years from the date the advance pricing agreement takes effect as determined during the relevant mutual agreement procedure. An APA may be of a bilateral or multilateral nature.
How can we help?
PwC can help you review and evaluate your current transfer pricing position and provide practical recommendations to manage risks and realise opportunities. We can also conduct a Transfer Pricing health check as part of a broader income tax ‘health check’.
For more information on our services, please reach out to one of our contacts below.
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