Amendment to the Maltese Transfer Pricing Rules
Legal Notice 9 of 2024 introduced important changes to Malta’s Transfer Pricing Rules (TP Rules). This Legal Notice introduces a sunset clause to the grandfathering provision. Prior to the amendment, only cross-border arrangements entered into or significantly altered after January 1, 2024, were affected. However, with this update, all cross-border arrangements will be in scope, regardless of their initiation date, starting from January 1, 2027.
Guidelines for Transfer Pricing
The guidelines accompanying the TP Rules offer clarity on what constitutes a “materially altered arrangement”. Essentially, they advocate for a detailed examination on a case-by-case basis, focusing on the substance of the arrangement rather than just its form. This involves analysing the functions performed, assets utilised, and risks assumed by each party involved. Any changes to considerations, rights/obligations, or duration of the arrangement are deemed material alterations.
It’s worth noting that the application of the TP rules takes precedence over the application of the Notional Interest Deduction (NID) Rules (S.L.123.176). This means that before assessing the risk capital of an entity falling under the TP Rules, it’s necessary to determine whether loans or other debt should bear interest in line with these rules. Additionally, any tax attributes carried forward from previous years in respect of arrangements that were previously outside the scope are not subject to restatement.
Regarding the methodology for determining the arm’s length price, the guidelines refer to those outlined in Chapter II of the OECD Transfer Pricing Guidelines. However, other methods may also find acceptance by the Malta Tax and Customs Administration (MTCA) in accordance with these guidelines.
The Guidelines affirm that transfer pricing documentation must be maintained by the taxpayer and shared with the MTCA upon request within a ‘reasonable’ timeframe as specified in the request. This documentation should adhere to Chapter V of the OECD TPGs, comprising the Master and Local files, presented in either English or Maltese, structured according to Annex I and II to Chapter V of the OECD TPGs respectively. Moreover, the Guidelines introduce a simplified method for record-keeping concerning low value-adding intra-group services, which should be formulated following Chapter VII of the OECD TPGs.
Regarding the de minimis thresholds outlined in Rule 9 of the TPR, the Guidelines specify that when consolidating the items of income and expenditure of a revenue nature to ascertain the applicability of these regulations, dividends paid to an associated entity should be omitted, while distributions in kind may need to be included.
Lastly, concerning Unilateral Transfer Pricing Rulings, the guidelines specify that unless prompted by a primary adjustment initiated by another jurisdiction, the Commissioner will only entertain requests for issuing a Unilateral Transfer Pricing Ruling for a downward adjustment under certain conditions.
At NCMB, our Transfer Pricing specialists are equipped with the knowledge and skills to assist your organisation. If you’re seeking information regarding the Maltese Transfer Pricing Rules, feel free to contact any of our sector leaders listed below for further details.
