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Helping you easily find everything you need to know about the rules and regulations regarding transfer pricing and Country by Country reporting for every country you do business with.
Global transfer pricing guide
Transfer pricing - Malta
01 Jan 20254 min read
This publication provides a high-level overview of Malta's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents
Introduction to transfer pricing in Malta
TP rules were introduced in Malta on 18 November 2022 via Legal Notice 284 of 2022 (‘LN 284/22’). The TP Rules were introduced pursuant to the enabling provision introduced within Article 51A of the Income Tax Act, Cap. 123 of the Laws of Malta (‘Malta ITA’) and were subsequently amended via Legal Notice 9 of 2024 (‘LN 9/24’). In addition, and as empowered by the TP Rules, the Commissioner for Tax and Customs (the ‘Commissioner’) has issued guidelines in relation to the TP Rules (‘TP Guidelines’).
The TP Rules are applicable to intra-group cross-border transactions between associated enterprises which have been entered into on 1st January 2024, or which have been materially altered on or after that date. With effect from 1st January 2027, with the amendment brought about by Legal Notice 9, the TP Rules will then be subsequently applicable to all cross-border arrangements irrespective of the arrangement date.
The TP Rules are applicable to companies in accordance with the definition available within Article 2(1) of the Income Tax Act. The rules however have introduced a proviso which essentially exempts companies which are defined as either micro, small or medium-sized enterprises. The definitions laid out for these companies is found within the criteria laid down in Annex I of the Commission Regulation (EU) No. 651/2014 of 17th June 2014.
Finally, the TP Rules have also introduced a de-minimis threshold, which would need to be exceeded in order for a Maltese company to have TP documentation obligations. The de-minimis criteria has been outlined with Article 9 of the TP Rules and would need to be exceed both in order for a Maltese company to have documentation obligations:
A company must exceed an aggregate arm’s length value of €6,000,000 for all cross-border income and expenditure items of a revenue nature (P/L line items) and €20,000,000 for all cross-border income and expenditure items of a capital nature (B/S line items).
The TP regulations apply to cross-border transactions between associated enterprises and are based on OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
Malta’s Transfer Pricing (TP) legislation requires taxpayers to self-assess their TP positions and demonstrate that the arm’s length principle has been applied to intragroup transactions. In line with the TP Rules, an assessment must be conducted for transactions falling within their scope. If the amounts used or incurred by the company do not align with the arm’s length standard, they must be adjusted accordingly. As a result, the company’s tax return should always reflect the arm’s length amount.
Transfer pricing documentation
Multinational groups are required to file Country-by-Country reports, if they have a total consolidated group revenue of at least EUR 750 million.
Companies which fall within scope of the Transfer Pricing Rules, would need to prepare a Master File and Local File. In accordance with the guidance issued both the Master File and the Local File would need to be prepared in accordance with the Annexes to Chapter V of the OECD Transfer Pricing guidelines.
Transactions conducted with related parties that operate in low tax jurisdictions (tax paradise).
Persistent losses in any entity can be a reason of a full tax audit with a risk of potential significant tax adjustment.
Tax deductions for intra-group head office charges and interest rates on intra-group loans are capped by tax regulations.
Non-interest-bearing loans and their effect on the Notional Interest Deduction. Malta had introduced the Notional Interest Deduction which is a balance between entities primarily financed by debt and those financed by equity, effectively treating equity financing as having an interest component. A non-interest-bearing loan would be considered as risk capital for the purposes of this deduction. However, as per guidance issued, the TP Rules must take precedence (i.e., whether such loan is considered to be actually seen as debt or equity) prior to the application of such deduction. Various examples were presented within the guidelines issued by the Tax Authorities indicating that this could be an area were challenges might arise.
No penalties have to date been outlined by the legal notice and guidance issued.
Economic analysis and how to demonstrate an arm’s length result
The TP legislation is placing the onus on taxpayers to self- assess their TP positions and to be able to demonstrate the arm’s length price applied in the intragroup transactions.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
An advance pricing agreement may also be requested for a fee of €5,000, and subject to a validity period of up to five years. The competent authority has the ability to establish an advance pricing agreement with the relevant foreign competent authority, which can be either bilateral or multilateral.
The request for an advance pricing agreement can be made in relation to the tax treatment of a cross-border arrangement starting on or after the date the agreement takes effect. If the arrangement has already started on the date of the request, the request can extend to transactions that occurred during the previous three basis years.
Exemptions
Generally, no exemptions from a TP perspective.
Related developments
No specific TP provisions in relation to Covid-19.
Contact us
For further information on transfer pricing in Malta please contact:
Wayne Pisani Partner – Head of Tax, Technology & Compliance | ILD
