Malta

 On November 18, 2022, the Minister of Finance issued Legal Notice 284 of 2022 (‘LN 284/22’), which formally introduced specific Transfer Pricing rules in Malta.

LN 284/22 was issued in terms of article 51A of the Income Tax Act, Cap. 123 of the Laws of Malta (‘Malta ITA’). These rules will apply as of any financial year commencing on or after January 1, 2024, and in any agreement entered into on or after that date.

Related Parties

While Malta’s domestic legislation provides several definitions of ‘related parties’ in different circumstances, mainly for anti-avoidance provisions, it does not specifically define ‘related parties’ for Transfer Pricing purposes.

The Transfer Pricing rules only apply to cross-border intra-group transactions in multinational groups of companies. Therefore, the rules will only apply to cross-border agreements entered into between associated enterprises.

Associated enterprises are those in which the same owner exercises direct or indirect control through a minimum shareholding exceeding 50% of the voting rights or the ordinary share capital.

Transfer Pricing Methods

Maltese national legislation does not provide for TP methods. Conversely, it refers to the OECD establishments.

Transfer Pricing Documentation

The introduction of the Transfer Pricing rules implies that entities with in-scope transactions will have to demonstrate the adherence of their related party transactions to the Arm’s Length Principle, evidencing that such transactions generate a performance that unrelated parties would obtain in comparable circumstances.

Maltese ultimate tax resident parent entities of multinational entities (MNEs) and certain constituent entities, which have been designated as Surrogate Entity are required to file a Country-by-Country Report (CbCR) before the Commissioner of Revenue regarding fiscal reporting years on or after January 1, 2016.

Penalties

The Transfer Pricing penalties, lower than 10% on unpaid taxes, apply in countries with low tax rates, such as Malta.

Source: Commissioner for Revenue

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