The key take aways from the rules (TPR) are as follows:

Transfer pricing is being introduced in Malta with effect from basis years commencing on or after 1st January 2024 in relation to any arrangement entered into on or after that date, and for those arrangements entered into before that date, to arrangements that are materially altered on or after that date.

The new transfer pricing rules apply to cross-border arrangements between associated enterprises. For purpose of the rules, associated enterprises are defined as bodies of persons where one of the bodies controls 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  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 (or two as applicable) body / bodies of persons. When such bodies are constituent entities of a multinational enterprise (MNE) group, the percentage interest in the voting rights or the ordinary capital referred to therein shall be 50 percent.

The rules do not apply to micro-, small or medium-sized enterprises (defined in Annex I of Commission regulation (EU) 651/2014 as enterprises that employ fewer than 250 persons and that have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million).

The TPRs apply exclusively to cross border arrangements, defined as an arrangement between associated enterprises where any one of the following conditions is satisfied and the arrangement is relevant in ascertaining the total income of that company:

• At least one party to the arrangement is not resident in Malta and at least one party to the arrangement is a company resident in Malta;
• At least one party to the arrangement maintains a permanent establishment situated outside Malta to which the arrangement is effectively connected and at least one party to the arrangement is a company resident in Malta;
• At least one party to the arrangement is not resident in Malta and at least one other party, not being resident in Malta, is a company which maintains a permanent establishment situated in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta.

As expected the rules contain the main deeming provision that where any amount incurred, accrued, due or derived in the year preceding the year of assessment under any cross-border arrangement to which these rules apply differs from the arm’s length amount, it shall be deemed that the arm’s length amount was incurred or due instead of the actual amount incurred accrued, due or derived.

The "arm’s length amount" is defined as the amount that independent parties would have agreed to in relation to the arrangement had those independent parties entered into that arrangement in comparable circumstances, and which shall be determined on the basis of such methodologies as shall be designated by the Commissioner in guidelines (to be published). Any adjustment pursuant to the transfer pricing rules is effective for income tax purposes only, and not for VAT purposes. 

The transfer pricing rules do in the following situations (unless the parties to the transaction specifically request that the commissioner for Revenue not apply the exclusion):

• Securitisation transactions; and
• When 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 EUR 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 EUR 20,000,000.

The new transfer pricing rules apply in an equivalent manner to arrangements between (a) a permanent establishment of a foreign company in Malta and the foreign company and (b) a permanent establishment of a Malta company outside of Malta and the Malta company.

The new rules allow taxpayers to request a unilateral transfer pricing ruling and to enter into unilateral advance pricing arrangements.

 

How can BDO help

With our deep understanding of transfer pricing regulations and methodologies, we assist in identifying relevant commercial or financial relations, accurately delineating transactions, and selecting appropriate transfer pricing methods. Our comprehensive analysis ensures compliance with arm's length requirements and provides robust support for substantiating loan transactions and determining arm's length interest rates, thereby optimising your transfer pricing strategies.

 

Want to know more?

Get in touch