INTRODUCTION

As a part of Malta’s Recover and Resilience Plan as agreed with EU Commission and approved by ECOFIN in 2021, Malta introduced Article 51A in its domestic Income Tax Act Advanced Pricing Arrangements (“APAs”) which will be in line with the global standards related to the arm’s length principle supported by OECD.

Due to the above attempt, the Commissioner for Revenue (“CoR”) issued draft rules which will be described below in order to receive public consultation which can be provided until 28 Feburary 2022.

A. Brief Description of the Rules Included in the Consultation Document

1. TP rules shall apply to cross-border arrangements concluded between associated enterprises.
2. Associated enterprises definition will include:
   • Bodies of persons with direct or indirect control through at least 50% of voting rights, ordinary share capital, or powers conferred by articles of association or other governing documents.
   • Bodies of persons under common control as defined above.
3. Cross-border arrangements between a company and its permanent establishment will also be subject to TP rules.
4. Micro, small, or medium-sized entities are excluded.
5. Arrangements that do not exceed a de minimis threshold (to be determined) will not be subject to TP rules.
6. The methodologies for determining arm’s length amounts will align with OECD TP guidelines.
7. Chargeable income will be computed based on arm’s length income and expenses. A corresponding adjustment applies to the other party’s income if it is subject to Maltese taxation.
8. Enterprises must maintain records documenting the arm’s length nature of controlled transactions, with further details provided in TP guidelines.
9. A formal framework will govern requests for Unilateral Transfer Pricing Rulings and APAs (both bilateral and multilateral), providing taxpayers with certainty about the rules’ application.

The TP rules will take effect in the financial year starting on or after 1 January 2024.

For the detailed consultation document which included the TP rules please refer to the link.

We shall remain to see what suggestions will be provided at the end of the consultation period and what ar ethe next steps the CoR will decide to follow.