Malta introduced transfer pricing rules in 2022 for tax years commencing on or after 1 January 2024, that are applicable to any intercompany arrangements entered into or materially altered on or after that date.
The transfer pricing rules apply to cross-border arrangements between associated enterprises. For purposes 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%.
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 annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million).
The transfer pricing rules apply exclusively to cross-border arrangements, defined as arrangements between associated enterprises where any one of the following conditions is satisfied and the arrangements are relevant in ascertaining the company’s total income:
The "arm’s length amount" is defined as an 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 will be determined on the basis of such methodologies as shall be designated by the Commissioner for Tax and Customs 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 not apply in the following situations:
For more information on Malta’s transfer pricing regime, please reach out to your regular BDO contact or the author of this article.
Sara Farrugia
BDO in Malta
The transfer pricing rules apply to cross-border arrangements between associated enterprises. For purposes 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%.
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 annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million).
The transfer pricing rules apply exclusively to cross-border arrangements, defined as arrangements between associated enterprises where any one of the following conditions is satisfied and the arrangements are relevant in ascertaining the company’s total income:
- 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 located outside of 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 that maintains a permanent establishment situated in Malta to which the arrangement is effectively connected, or otherwise derives income or gains arising in Malta.
The "arm’s length amount" is defined as an 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 will be determined on the basis of such methodologies as shall be designated by the Commissioner for Tax and Customs 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 not apply in the following situations:
- 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.
For more information on Malta’s transfer pricing regime, please reach out to your regular BDO contact or the author of this article.
Sara Farrugia
BDO in Malta