Malta's Transfer Pricing Rules

Legal Notice 284 of 2022 introduced Transfer Pricing Rules (TPR) in Malta. The rules apply as from basis years starting on or after 1^st January 2024 and with respect to arrangements that are either newly entered into after 1^st January 2024 or are materially altered on or after that date. The rules will apply to all cross-border transactions (domestic transactions are excluded from the scope of the TPR) between associated enterprises, even if there has not been any material alteration thereto. 

What is Transfer Pricing?

Transfer Pricing is the methodology through which prices for the supplies of goods, services and assets are determined between entities that are associated. They apply to multinational entities (MNEs) that operate in multiple jurisdictions where the group entities transact between themselves.

Malta's transfer pricing rules

Malta's TPR prescribe the adjustment to the arm's length price (the price that would prevail if the individual members of the MNE group were independent rather than inseparable parts of a single group) should intra-group pricing (both income and expenses) deviate from the arm's length price. 

The Maltese rules apply to cross-border arrangements 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 associated enterprises where:

(a) at least one party to the arrangement is not resident in Malta and at least one party to the arrangement is a company resident in Malta;

(b) at least one party to the arrangement maintains a permanent establishment situated outside Malta to which the arrangement is effectively connected and at least one party to the arrangement is a company resident in Malta;

(c) at least one party to the arrangement is not resident in Malta and at least one other non resident company maintains a permanent establishment situated in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta.

Exclusions

Malta's TPR are subject to two exclusions:

A) Size limitation

SMEs are outside the scope of the transfer pricing rules in Malta. For the purpose of the rules, SMEs are determined in line with the criteria in Annex 1 of Commission Regulation (EU) No 651/2014, and it is important to note that when assessing of a company is an SME or otherwise, the assessment must be made by reference to group entities outside of Malta too. 

B) De Minimis thresholds

Even when the entity is not an SME, the TPR do not apply where the aggregate arm’s length value of all items of income and expenditure (in the year preceding the year of assessment) 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.

Malta's TPRs and the OECD TP Guidelines

The Maltese TPRs prescribe that when determining the arm's length price, the transfer pricing methodologies in Chapter II of the OECD Transfer Pricing Guidelines are the preferred methodologies.  Moreover, the TPRs prescribe the retention of TP documentation in line with Chapter V of the OECD Transfer Pricing Guidelines, that is, including local files and a master file. Such documentation should be made available to the tax authorities upon request.

Other provisions of the TPRs

The TPRs also provide for the possibility of requesting unilateral TP ruling (binding for a period of five years) and Advance Pricing Arrangements (also for valid for up to five years).

Preparedness

Our team at Quazar can assist with identifying whether your entity and its transactions are within the scope of the Maltese TP rules and the preparation of the necessary TP studies to identify the ALP in any particular transaction and subsequently drafting the local file and master file. 

Get in Touch:

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Josef Mercieca

jmercieca@quazar.mt / +356 2388 4600