The Countdown to New Transfer Pricing Rules in Malta

One of the most important initiatives of the OECD is the introduction of revised transfer pricing guidelines, which were proposed through Actions 8-10 of the global BEPS Project.  

The OECD’s primary goal is to ensure that today’s transfer pricing rules are a match for the global business environment in which they operate, particularly given the exponential growth in worldwide intra-group trade driven by globalisation.

A particular area of focus has been the long-established arm’s length principle, where transactions between associated enterprises have to be priced as if the enterprises were independent, operating at arm’s length and engaging in comparable transactions under similar conditions and economic circumstances.

The arm’s length principle has provided a practical and balanced standard for tax administrations and taxpayers to evaluate transfer prices between associated enterprises, and to prevent double taxation. However, it can be vulnerable to manipulation, leading to outcomes which do not correspond to the value created through the underlying economic activity within an international group of companies.

New Rules Ahead

While Malta has, for many years, indirectly introduced Transfer Pricing rules through adhering to international conventions and relevant EU directives, it is now going through the political process to introduce specific new transfer pricing rules at the beginning of 2024.

On 22 December 2021, the Malta Commissioner for Revenue issued draft Transfer Pricing Rules for public consultation. The consultation period ended on 28 February 2022.

The Commissioner for Revenue will now consider any feedback received when formulating the final transfer pricing rules, which will be published by the end of 2022.

The rules are expected to apply in relation to any relevant arrangement entered into on or after 1 January 2024 and arrangements entered into prior 1 January 2024 that are materially altered on or after that date.

Which Companies Are Affected?

Transfer pricing rules only apply to cross-border intra-group transactions in multinational groups of companies. The rules will therefore only apply to cross-border arrangements entered into between associated enterprises.

Associated enterprises are defined as companies where the same owner exercises direct or indirect control through a minimum holding of more than 50% of the voting rights or ordinary share capital.

Micro, small or medium-sized enterprises are expected to be excluded from the scope of the Transfer Pricing Rules (i.e. those entities fulfilling the criteria laid down in Annex I of Commission Regulation (EU) No 651/2014).

What Should Companies in Malta Do Now?

Detailed guidelines by the Commissioner for Revenue are expected to be issued shortly on the commercial terms and the documentation that companies will be required to hold to demonstrate that the principles of transfer pricing are being respected.

Ultimately, the spirit of the legislation is to ensure that cross border transactions between related companies in scope of the rules are carried out at arm’s length, with the allocation of income between jurisdictions reflecting the associated underlying economic activity.

How Can We Help?

We are monitoring developments and awaiting the publication of detailed guidelines by the Malta Commissioner for Revenue. In the meantime, please do not hesitate to contact Nadya Turban and Janice Copperstone in our Malta office for any further guidance you may require.