Transfer Pricing Documentation

September 2022

Transfer pricing (TP) rules would typically require the preparation and retention of documentation which would provide evidence that an entity’s related-party transactions would have been concluded in accordance with the TP rules and by reference to the arm’s-length principle.

The expectation is that TP documentation would clearly set out how the relevant functions, assets and risks are shared between related parties in each related-party transaction.

Although Malta is yet to introduce TP rules, the proposed rules set out that:

“A company, in relation to an arrangement to which these rules apply, shall prepare on a timely basis and retain at its registered office such records as may reasonably be required for the purposes of determining whether, in relation to the arrangement, the total income of the company has been ascertained in accordance with the provisions of these rules.”

So far, no further guidance is available regarding the level of documentation that is expected to be maintained by those entities that would fall within the scope of the TP rules or by when the documentation is expected to be available.

The OECD TP Guidelines should constitute an essential source of reference concerning the documentation requirements. The said Guidelines, refer to a three-tiered approach to TP documentation consisting of:

a Master File containing standardised information relevant for all group members within a multinational enterprise (MNE);

a Local File referring specifically to material transactions of the local taxpayer; and
a Country-by-Country Report (CbCR) containing certain information relating to the global allocation of the MNE group’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group.

The CbCR requirements are part of Maltese tax law. Current requirements provide that MNE groups whose consolidated revenue is at least €750m, should file key financial information on all MNE group members on an aggregate country-by-country basis for each MNE group member.

Entities should assess whether appropriate TP documentation supporting their inter-company arrangements is in place and should determine the required steps to enhance or update such documentation given the introduction of TP Rules in Malta.