In November 2022, Malta introduced Transfer Pricing Rules aimed at enhancing transparency and fairness in cross-border transactions. These rules have significant implications for businesses operating in Malta, particularly for large enterprises engaging in cross-border arrangements. Let’s delve into the essential aspects of these regulations to understand their impact better.
Scope and Application:
The Transfer Pricing Rules apply to arrangements commencing on or after 1 January 2024, with a broader application from 1 January 2027, encompassing all arrangements. However, small and medium-sized enterprises (SMEs) are exempt, as defined by the criteria in Commission Regulation (EU) No 651/2014. The assessment of SME status considers the entire group of companies, including entities outside Malta.
Cross-Border Arrangements:
The rules primarily target cross-border arrangements between associated enterprises. “Associated enterprises” are defined by control, with one entity holding more than 75% of voting rights or ordinary capital in another. This threshold is lowered to 50% for constituent entities within a multinational enterprise (MNE) group subject to Country-by-Country Reporting (CbCR) obligations.
“Domestic transactions within Malta are excluded.”
De Minimis Threshold:
A notable provision is the de minimis threshold, exempting arrangements below certain income and expenditure levels. For revenue items, the threshold is €6 million, and for capital items, it’s €20 million in the preceding year of assessment.
Methodologies and Documentation:
The OECD Transfer Pricing Guidelines serve as the foundation for determining arm’s length prices, with defined methodologies. However, alternative methods may be accepted in line with OECD guidelines. Comprehensive transfer pricing documentation, comprising master and local files, is mandatory and subject to scrutiny by the MTCA.
Unilateral Transfer Pricing Rulings and “APAs”:
The rules establish a framework for obtaining unilateral transfer pricing rulings and Advance Pricing Agreements (APAs). A ruling binds the Commissioner for Tax and Customs for five years, providing certainty to taxpayers. APAs, bilateral or multilateral, offer a mechanism for agreeing on transfer pricing methods, providing clarity and reducing the risk of disputes.
