On 22 December 2021, the Commissioner for Revenue issued draft Transfer Pricing Rules for public consultation. The draft Rules prescribe the requirement for the application of the arm's length principle for the pricing of cross-border transactions between associated enterprises as defined and with permanent establishments. Essentially, the arm's length price is the amount that independent parties would have agreed in relation to the arrangement had those independent parties entered into that arrangement. The requirement will be an income tax requirement and will not affect commercial arrangements or other tax liabilities. Whilst it is envisaged that the OECD Transfer Pricing Guidelines will constitute an important source of reference in the application of the rules, the methodologies for determining the arm's length price are yet to be designated by the Commissioner for Revenue in guidelines yet to be published.
The draft Rules specifically exclude micro, small or medium-sized enterprises from scope. A de minimis aggregate arm's length value of all cross-border arrangements shall also be set, below which the Rules will not apply.
Draft provisions around the issue of Unilateral Transfer Pricing Rulings by the Revenue and Advance Pricing Agreements to be entered into by the Revenue with one or more foreign competent authorities are also included in the draft Rules.
The publication follows on Malta's commitment to implement specific Transfer Pricing rules in accordance with the current global standards related to the arm's length principle. With such intentions, enabling provisions were introduced in in the Budget Implementation Measures Act 2021 permitting such Rules. It is envisaged that the Rules will come into force with effect from financial years commencing on or after 1 January 2024.
Interested parties are invited to submit feedback on the draft Rules to the Revenue by 28 February 2022, including on the direction of Transfer Pricing tax policy, alternative approaches and any other Transfer Pricing issues.
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