On the 18th November 2022, Malta introduced Transfer Pricing Rules via legal notice 284 of 2022.
As of when will the rules apply?
The rules will be applicable with respect to cross-border arrangements entered into on or after 1st January 2024. Arrangements entered into before this date but which were materially changed on or after 1st January 2024, will also fall within the ambit of the Transfer Pricing Rules.
Who would fall within the ambit of such rules?
Associated enterprises entering into cross-border arrangements defined as:
1. Associated enterprises is one body of persons controlling another or the same person/s controlling two or more bodies of persons, holding directly or indirectly a participation of more than 75% of the voting rights or ordinary share capital of the other body of person/s or by virtue of any powers granted by the articles of association or other documents regulating the body of person/s. Nevertheless, the percentage interest in voting rights or ordinary share capital goes down to 50% in the case of associated enterprises forming part of a Multinational Enterprise Group having a consolidated group revenue of €750 million or more.
2. Cross-border arrangement is an arrangement between:
- a company resident in Malta and a party which is not so resident;
- a company resident in Malta and another party maintaining a permanent establishment (to which the arrangement is connected) situated outside of Malta;
- a party resident outside of Malta and a non-resident company having a permanent establishment (to which the arrangement is connected) in Malta.
a. micro, small or medium-sized enterprises employing less than 250 persons, with an annual turnover not exceeding €50 million and/or an annual balance sheet total not exceeding €43 million;
b. securitisation transactions;
c. cross-border arrangements in the year preceding the year of assessment having an aggregate arm’s length value of:
- €6 million for items of income and expenditure of a revenue nature;
- €20 million for items of income and expenditure of a capital nature.
Parties falling under b) and c) above, will have the option to make a written request to the CfR so as to apply the Transfer Pricing Rules.
The arm’s length amount is the value to which independent parties would have agreed had they entered into an arrangement in comparable circumstances as that between related parties. Guidelines are expected to be issued by the CfR in relation to transfer pricing methodologies to be utilised to arrive at an arm’s length amount.
How will the Transfer Pricing Rules affect in scope parties?
- Income derived or accrued and/or expenditure incurred or due in the preceding year of assessment under a cross-border arrangement need to be valued at arm’s length. If this is not the case, adjustments are to be made, which adjustments shall only affect the parties to the cross-border arrangement in question;
- In scope parties may request:
- Unilateral transfer pricing rulings so as to provide certainty in relation to the application of the Transfer Pricing Rules to a cross-border arrangement;
- Advanced pricing agreements, on a unilateral or bilateral basis. This is an agreement entered into between the Maltese competent authority and foreign competent authority or authorities in relation to cross-border arrangements. Such an agreement lays out an appropriate set of criteria for determining in advance the transfer pricing or the attribution of profits to a permanent establishment in line with the arm’s length principle.
- may cover cross-border arrangements entered into prior to the date of the request;
- are to be made against a fee;
- are binding on the Commissioner for a period of 5 years from the effective date, unless otherwise determined by the Commissioner;
- can be renewed during the 6 months preceding their expiry.
If you require assistance with Transfer Pricing, please get in touch with us.