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Malta – Transfer Pricing Rules Amended

OVERVIEW

On 19 January 2024, the Malta Tax and Customs Administration amended the Transfer Pricing Rules for the related party operations and fiscal periods initiated on or after 1 January 2024. For those operations initiated before such date, the new rules are applicable if these are subject to significant modifications, otherwise the new rules will apply from 1 January 2017 onwards.

What´s new?

The guidelines, issued in terms of Article 96(2) of the Income Act Tax (Chapter 123 of the Laws of Malta) are to be read and interpreted together with the Transfer Pricing Rules (Subsidiary Legislation 123.207).

The Transfer Pricing Rules, however, will not be applicable to fiscal periods with an aggregate amount of arm’s length transaction values of:

  • EUR 6,000,000 if these have a revenue nature (dividends paid excluded); and
  • EUR 20,000,000 for related party transactions with a capital nature.

Requests for the issuing of Unilateral Transfer Pricing Rulings will only be considered if:

  • A primary adjustment is initiated by another jurisdiction; or
  • A downward adjustment is performed, and it is (i) based on the arm’s length principle, (ii) to avoid double taxation, or (iii) subject to a bilateral agreement.

Impact on Transfer Pricing

Based on the amendment, the preferred transfer pricing methods are tied to those determined in Chapter II of the OECD Guidelines. Other methods may be accepted. For complex cases, the use of more than one method is accepted.

A change in the transfer pricing method, in the rights or obligations of the parties, or in the duration of the agreement are considered material alterations and call for the application of the amended rules.

For low value adding intragroup services, the arm’s length charge may be determined in line with the OECD and EU Joint Transfer Pricing guidelines. Supporting records shall be kept.

Taxpayers are required to maintain Transfer Pricing Documentation, i.e. Masterfile and Local File as per Article 19(1) of the Income Tax Management Act and provide it to the Malta Tax and Customs Administration upon request.

Key actions

To comply with the amended Transfer Pricing Rules and mitigate risks, taxpayers based in Malta shall apply the Transfer Pricing methods based on the OECD Guidelines and control if any material alterations apply to their related party transaction methods defined for their transactions prior to the amendment. Taxpayers shall also make the Transfer Pricing Masterfile and Local File documentation available to the Malta Tax and Customs Administration in either English or Maltese. For low value adding intragroup services, the simplified method may be applied, but records shall be kept by the taxpayers and provided to the Malta Tax and Customs Administration upon request.

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