Transfer pricing (TP) is a pivotal consideration for multinational enterprises (MNEs) operating in Malta, influencing how profits are segregated across different jurisdictions. With Malta’s commitment to international tax standards, recent legislative developments have introduced formal TP rules that businesses must understand to ensure compliance and optimise tax efficiency.
Malta has formalised its TP framework through the introduction of the Transfer Pricing Rules (S.L. 123.207) via Legal Notice 284 of 2022, published on 18 November 2022. These rules have been further refined by Legal Notice 9 of 2024, issued on 19 January 2024.
For basis years commencing on or after 1 January 2024, the rules apply to any arrangement entered into on or after this date, as well as to pre-existing arrangements that are materially altered on or after this date. From 1 January 2027, the rules will extend to all arrangements, regardless of the date on entry, effectively limiting the grandfathering provision to three years.
Scope and Exemptions
The transfer pricing rules in Malta apply specifically to cross-border arrangements between associated enterprises. Domestic transactions between Maltese entities are excluded from the scope of these Rules. Additionally, small and medium-sized enterprises (SMEs), as defined in Annex I of Commission Regulation (EU) No 651/2014, are exempt from these requirements, ensuring that compliance obligations are proportionate and targeted at larger multinational operations.
In the Rules the term “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 permanent establishment (PE) located outside Malta to which the arrangement is
effectively connected; and - An arrangement between a company with a PE situated in Malta, to which the
arrangement is effectively connected or from which it derives income or gains
arising in Malta, and a non-Maltese-resident party
The Rules provide for a definition of what is meant by the term “associated enterprises”, which means bodies of persons where:
- one of the bodies of 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
seventy-five per cent (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; or
- the same person or persons controls two (2) or more bodies of persons whether
as a result of the fact that it holds, directly or indirectly, a participation of more
than seventy-five per cent (75%) in the voting rights, or the ordinary capital, of
the two (2) or more bodies of persons or by virtue of any powers conferred by
the articles of association or other document regulating the two (2) or more
bodies of persons.
Rule 9 – Exceptions
The rules do not apply to cross-border arrangements entered into a financial period where during the said financial period the aggregate arm’s length amount of:
- transactions of a revenue nature do not exceed €6 million; and
- transactions of a capital nature do not exceed €20 million.
The arm’s length principle is central to these rules. Cross-border arrangements will be assessed to determine whether they meet this principle. If not, the total income will be computed under a deeming provision, and the arm’s length amount will be considered when determining a company’s chargeable income. The “arm’s length amount” is the amount independent parties would have agreed to under comparable circumstances.
Documentation and Methodologies
Taxpayers must ensure that cross-border transactions with associated enterprises adhere to the arm’s length principle, aligning with international transfer pricing standards. To substantiate compliance, and minimise the risk of dispute, companies are required to prepare and maintain detailed transfer pricing documentation, including a master file and local file, in accordance with Chapter V of the OECD Transfer Pricing Guidelines. This documentation must be readily available for review by the Malta Tax and Customs Administration upon request.
Advance Pricing Agreements (APAs) and Rulings:
The Rules also provide a framework for unilateral transfer pricing rulings and bilateral or multilateral APAs that must be satisfied by the Commissioner with a validity period not exceeding five years from the date the ruling takes effect.
Conclusion
The introduction of formal transfer pricing rules in Malta reflects the country’s commitment to international tax standards and the prevention of base erosion and profit shifting.
How can NCMB assist?
Our firm, in collaboration with our international networks, specialises in streamlining transfer pricing compliance by helping organisations align their policies with regulatory standards and adhere to the arm’s length principle. Through our expertise, businesses can effectively manage transfer pricing risks, enhance transparency, and maintain trust with tax authorities and stakeholders while minimising compliance burdens.
