By means of LN 284 of 2022, the Government of Malta has published the Transfer Pricing Rules (hereinafter referred to as ‘the rules’) which will be effective as from 1st January 2024.
Applicability of the Rules
With effect from this date, in ascertaining the chargeable income of a company, if any amount is incurred or derived under any cross-border arrangement (including notional dealings) which differs from the arm’s length amount, then it shall be deemed that the arm’s length amount was incurred or derived. The rules stipulate that the arm’s length amount is the amount that independent parties would have agreed to in comparable circumstances. The arm’s length amount is to be determined on the basis of methodologies to be designated by the Commissioner for Revenue (CfR) by means of Guidelines which are still to be published.
The rules shall apply to cross-border arrangements between associated enterprises where at least one of the following conditions is satisfied:
- Where at least one of the parties to the arrangement is a person not resident in Malta and at least one other party to the arrangement is a company resident in Malta where the arrangement is relevant in ascertaining the total income of that company.
- Where at least one of the parties to the arrangement maintains a permanent establishment (PE) outside Malta to which the arrangement is effectively connected and at least one other party to the arrangement is a company resident in Malta where the arrangement is relevant in ascertaining the total income of that company.
- Where at least one of the parties to the arrangement is a person not resident in Malta and at least one other party to the arrangement is a company not resident in Malta which maintains a PE situated in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta where the arrangement is relevant in ascertaining the total income of that company
The term ‘Cross border arrangement’ shall be construed as including an arrangement between a non-resident company and its PE situated in Malta and between a company registered in Malta and its PE situated outside Malta.
The rules shall also apply in the following circumstances in ascertaining the total income of a PE:
- To arrangements between a PE situated in Malta and a body of persons not resident in Malta where the said body of persons maintains such a PE
- To arrangements between a PE situated outside Malta and a company registered in Malta where the said company maintains such a PE
The rules shall not apply to companies which are considered for the purpose of these rules as micro, small or medium sized enterprises. The rules shall also not apply in the following circumstances:
- Where 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 €6,000,000; and
- Where 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 €20,000,000.
For the purposes of these rules, a PE is to be treated as if it was a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions.
Unilateral Transfer Pricing Rulings
The rules provide for such rulings to be issued by the CfR so as to provide certainty in relation to the application of the rules. The request must be made in writing by a party to an arrangement (or its representative) in relation to a specific cross-border arrangement.
A request for a ruling may be made in connection with the tax treatment of a cross border arrangement commencing on or after the date that the request was made. Notwithstanding this, the scope of the request may be extended to transactions, agreements and dealings that took place within the 3 previous basis years.
The CfR may refuse to issue such a ruling where the legislation, regulations and guidelines provide sufficient certainty with respect to the tax treatment of an arrangement. The CfR may withhold a ruling where the party requesting the ruling is not up to date with respect to its filings of the pertinent income tax returns.
An application for a ruling shall be accompanied by a non-refundable fee of €3,000. Such rulings shall remain binding on the CfR for a period of five years from the date the ruling takes effect. The CfR may if he deems fit and according to the circumstances issue rulings which shall remain binding for a shorter period.
A directly interested party may request a renewal of a ruling dealing with an ongoing cross-border arrangement. The request must be accompanied by a non-refundable fee of €1,000 and must be made in writing to the CfR during the six months preceding the expiry of the ruling.
Advanced Pricing Agreements (APA)
The Maltese competent authority may enter into an APA with one or more foreign competent authorities. Such an agreement may be of a bilateral (with one foreign competent authority) or multilateral nature (with at least two foreign competent authorities).
The scope of a request for such an APA may also be extended to transactions that took place during the previous three years. Such requests must be accompanied by a non-refundable fee of €5,000.
An APA may be entered into for a duration of a period not exceeding 5 years from the date that the APA takes effect.
Renewals may be requested by a directly interested party. Requests may be made in writing to the competent authority during the six months preceding the expiry of the relevant APA. The APA will be renewed after the Maltese competent authority would have sought and obtained the agreement of the other competent authorities involved. A request for a renewal for an APA must be accompanies by a non-refundable fee of €2,000.