On December 22, 2021 the Maltese Commissioner for Revenue opened a public consultation on draft transfer pricing rules it intends to introduce as per January 1, 2024. The consultation period will end on February 28, 2022.
In 2021 an enabling provision (Article 51A) has been introduced into the Income Tax Act enabling the making of rules in relation to transfer pricing and Advance Pricing Agreements (APAs).
The Commissioner for Revenue is now seeking feedback in relation to a set of transfer pricing rules drafted with a view to implement legislation prescribing the requirement for the application of the arm’s length principle for the pricing of transactions between associated enterprises falling within the scope of the rules. The requirement is a computational rule for the purposes of the Income Tax Acts and does not propose to impact the actual commercial arrangements between the parties. Moreover, through advance pricing agreements, the draft rules aim to provide a framework intended to grant certainty of outcomes to taxpayers in relation to cross-border transactions.
General description of the rules
It is envisaged that the proposed transfer pricing rules (the rules) shall come into force with effect for financial years commencing on or after January 1, 2024.
The rules shall be applicable to cross-border arrangements entered into between associated enterprises as defined.
Bodies of persons will fall within the purport of associated enterprises when there is a direct or indirect control through a minimum holding of more than 50% of the voting rights or ordinary share capital or by virtue of any powers conferred by the articles of association or other document regulating the controlled body of persons. Bodies of persons subject to common control by virtue of the above-mentioned thresholds will also be within the scope of the rules.
Specific provisions relating to dealings and arrangements between a company (or other body of persons, where applicable) and its permanent establishment have been included.
Micro, small or medium-sized enterprises shall be excluded from scope. The rules shall also not apply where the aggregate arm’s length value of all cross-border arrangements do not exceed a de minimis threshold that is yet to be determined.
The rules define the “arm’s length amount” and provide for the determination of such amount on the basis of methodologies designated by the Commissioner for Revenue in guidelines yet to be published. It is envisaged that the OECD Transfer Pricing Guidelines will constitute an important source of reference in the application of the rules.
The income chargeable to tax of companies that fall within scope of the rules will be computed with reference to the arm’s length amounts of incomes and expenditures. The rules provide for corresponding adjustments to be made in computing the chargeable income of other parties to the arrangement where such income falls within the scope of Maltese taxation.
Companies falling within scope must prepare and retain records for the purposes of determining whether, in relation to an arrangement, the total income of the company has been computed in accordance with the rules. Further details relating to such documentation will be included in guidelines.
The rules also provide a formal framework for the request and issue of Unilateral Transfer Pricing Rulings and APAs (bilateral and multilateral). These are intended to provide certainty in relation to the application of these rules to a transaction or a series of transactions.
Click here to be forwarded to the consultation document, which also contains all the necessary information on how you can respond to this consultation.
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