In April 2021 we have seen the introduction of Art 51A in the Maltese Income Tax Act, authorizing the Minister responsible for finance to introduce a more detailed regulatory framework in relation to transfer pricing, to provide for:

1. the determination of the arm’s length pricing of a transaction or a series of transactions,
2. any adjustments in relation thereto (TP audits) and
3. advance pricing agreements (APAs /Ruling).

Traditionally, Malta applied transfer pricing rules only in limited situations and mostly through the application of the general anti-avoidance provision (GAAR). See our comments on the current transfer pricing provisions here.

As of the date of this publication, no transfer pricing framework or guidelines have been published; however, these are expected to be published before the end of 2021.

The introduction of a formal Transfer pricing framework through Art 51A is expected to expand the scope of application of transfer pricing also to transactions that were traditionally not subject to transfer pricing, including transactions that do not necessarily have a tax avoidance motive. Although the law makes no direct reference to the OECD TP guidelines, it is expected that the transfer pricing framework in Malta will, to a much larger extent be aligned to the OECD TP guidelines for multinational enterprises.

Although Maltese operations of international groups are typically already aligned to the OECD TP guidelines, it is important for directors and tax managers to be aware of the transfer pricing policy of the group and identify early any possible aspects concerning the Maltese operation which may require some additional investigations. One should also keep in mind that any reorganizations necessary to align the Maltese operation with the group TP Policies would need to be planned in accordance with transfer pricing rules, in particular the comments in Chapter 9 of the OECD TP guidelines on business reorganizations.

Reach out to our tax team for assistance or write to us at: [email protected].