BDO Transfer Pricing News

Malta - Malta issues transfer pricing guidelines

Malta’s Commissioner for Tax and Customs (CfTC) on 19 January 2024 published guidelines pertaining to the country’s transfer pricing rules, which were formally enacted on 18 November 18 2022, through Legal Notice 284 of 2022.

The guidelines, published as Legal Notice 9 of 2024, expand the scope of the transfer pricing rules. As originally enacted, the transfer pricing rules apply to intercompany arrangements commencing on or after 1 January 2024; however, arrangements that were entered into prior to 1 January 2024 will also be subject to the transfer pricing rules if such arrangements are materially altered on or after that date. 

The new guidance provides that for fiscal years starting on or after 1 January 2027, arrangements initiated before 1 January 2024 that have not been materially altered on or after that date will also be included within the scope of the rules, hence imposing a three-year time limit on the grandfathering provision. For prior coverage, see Malta Transfer Pricing Rules Published.

The guidelines clarify that determining whether an arrangement has been materially altered requires a case-by-case analysis that must consider whether an alteration to an existing transaction or agreement between parties to an arrangement materially alters the substance of the arrangement by reference to the functions performed, assets used, and risks assumed by each of the parties to the arrangement. Specifically, the guidelines provide that changes to the consideration, the rights and/or obligations of the parties, and the duration of the agreement are deemed to be material changes to the agreement. 
Notional interest deduction 
The guidelines provide that the transfer pricing rules take precedence over the notional interest deduction rules (Subsidiary Legislation 123.176 of the Laws of Malta). Entities that are subject to those regulations must initially assess whether loans or other debt or any portion thereof should incur interest for transfer pricing rules, before determining if such loans or debt qualify as risk capital under the notional interest deduction rules.
Transfer pricing methods 
The guidelines clarify that the preferred methods to be applied for purposes of the Malta transfer pricing rules are the methods outlined in Chapter II of the OECD Transfer Pricing Guidelines. Other methods may be accepted in accordance with Paragraph 2.9 of the OECD transfer pricing guidelines. Whilst the guidelines do not require the use of more than one transfer pricing method, the use of multiple methods when warranted is not prohibited.
Record keeping 
Under the guidelines, taxpayers are expected to maintain transfer pricing records and would be required to disclose those records to the Malta Tax and Customs Administration only upon a specific request. The documentation that is required to be maintained by taxpayers is in line with Chapter V of the OECD Transfer Pricing Guidelines, including the master file and the local file, which must be made available in either Maltese or English.

The guidelines provide that a taxpayer that opts to adopt the simplified approach for low-value-adding intragroup services must prepare the information in accordance with the terms of Chapter VII of the OECD Transfer Pricing Guidelines.
Regarding the de minimis thresholds included in rule 9 of Malta’s transfer pricing rules, the regulations state that in aggregating the items of income and expenditure of a revenue nature to determine the application of the rules, any dividends paid to an associated enterprise should not be included. However, distributions in kind may need to be considered for purposes of the rules.
Unilateral Transfer Pricing Rulings
The guidelines also introduce certain conditions that must be satisfied for the Commissioner to consider requests for the issuance of unilateral transfer pricing rulings on downward adjustments.

If you have any questions, please contact the author(s) or reach out to one of our Global Transfer Pricing professionals

Josef Mercieca
Milena Palikarova
BDO in Malta
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