Transfer Pricing Rules (hereinafter, ‘TPR’) have been transposed into Maltese tax legislation on 18th November 2022 through Legal Notice 284 of 2022. These rules shall apply for basis years commencing on or after 1 January 2024 in relation to arrangements entered into on or after that date and for arrangements entered before that date but which are materially altered on or after that date. At this stage, no guidance has been provided on what would constitutes a material alteration to an arrangement.
The Rules apply for cross border transactions taking place between associated enterprises. For the purpose of determining the applicability of the transfer pricing rules, associated enterprises are defined as a body of persons where:
- one of the body of persons controls the other body of persons as a result of it holding, directly or indirectly, more than 75% in voting rights, or ordinary capital of the other body of persons or by virtue of powers conferred to it by the articles of association or other document regulating the other body of persons, or
- the same person or persons controls two or more bodies 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 ordinary share capital of two or more bodies of persons or by virtue of powers conferred by the articles of association or other document regulating two or more bodies of persons.
Important to note is that the TPR apply to cross border transactions i.e. transactions taking place between associated enterprises resident for tax purposes in the same country are not effected by the rules. Under these rules, cross border arrangements are to be assessed in order to determine whether such transactions follow the arm’s length principle. In the event that the arm’s length principle has not been followed, the arm’s length amount shall be taken into consideration in determining the income of the company.
Micro, small or medium sized enterprises (hereinafter, ‘SME’s’) are excluded from these rules. SME’s are defined as undertakings fulfilling the criteria laid down in Annex I of Commission Regulation (EU) No651/2017 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty in force at the time. The rules also contain a carve out when:
- the arrangement in question comprises a securitisation transaction in terms of the Securitisation Transactions (Deductions) Rules, or
- the aggregate arm’s length value of all items of income and expenditure of a revenue nature forming part of cross-border arrangements in the year preceding the year of assessment, does not exceed six million euro (€6,000,000) and the aggregate arm’s length value of all items of income and expenditure of a capital nature forming part of cross-border arrangements in the year preceding the year of assessment, does not exceed twenty million Euro (€20,000,000).
The Rules also cater for unilateral transfer pricing rulings whereby the Malta Commissioner for Revenue is empowered to issue such rulings at a fee, to provide certainty in relation to the application of these rules to a cross-border arrangement. Under these rules, bilateral and multilateral advanced pricing agreements are also possible.
Where can we help?
Identifying your cross-border arrangements – we can help you use the months to come to assess your intra-group arrangement and determine whether these fall within the Rules
Is your documentation in order? – we will assist you to assess whether your transfer pricing documentation is in order and whether new documentation must be drafted.
Do you have new arrangements in the pipeline – we can assist you with drafting documentation for new arrangements or in the updating of existing documentation.