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Although Maltese tax law contains several references to the ‘arm’s length principle’ the Maltese legislator had never introduced a set of formal transfer pricing rules in the Income Tax Act, till the 18th of November 2022.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span> Further to the enactment of enabling legislation namely, Article 51A of the Income Tax Act back in 2021, the Minister has, by means of Legal Notice 284 of 2022 implemented a set of long-anticipated Transfer Pricing Rules (the ‘Rules’) which shall come into effect as from basis year 2024. It is expected that these rules shall be shortly supplemented by a set of guidelines to be issued by the Commissioner for Revenue detailing the methodologies to be used in order to determine the arm’s length amount.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n In essence, the Rules introduce deeming and computational provisions requiring companies (excluding those constituting micro, small, or medium-sized enterprises as defined in Article 2 of Annex 1 of Commission Regulation no. 651\/2014) to include the arm’s length value of any amount incurred, due, accrued or derived by that company with respect to cross-border arrangements between associated enterprises in ascertaining the total taxable income in the respective basis year.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n ‘In-Scope’ Cross-Border Arrangements<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/strong><\/p>\n The Rules define a cross-border arrangement as an arrangement with an associated enterprise (relevant in ascertaining the total income of the company in question) where either of the following conditions are met:<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n For the purposes of the Rules, associated enterprises are bodies of persons where the either of the following applies:<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n The above thresholds are lowered to 50% where the bodies of persons are constituent entities of an MNE group defined in terms of Malta’s Cooperation with Other Jurisdictions on Tax Matters Regulations. <\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span>The lower threshold therefore applies to groups having two or more enterprises that are tax resident in one jurisdiction but subject to tax in another (unless otherwise excluded by the same regulations.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Determining the Arm’s Length Amount<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/strong><\/p>\n The \u201carm’s length amount\u201d is defined as the amount that independent parties would have agreed to in relation to the arrangement had those independent parties entered into that arrangement in comparable circumstances. <\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span>The Rules do not specify the methodology for establishing the arm’s length amount. <\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span>This amount must be determined on the basis of detailed methodologies laid out by the Commissioner in the aforesaid guidelines.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Exceptions<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/strong><\/p>\n The Rules shall not apply where:<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\n
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