New enabling provision paves the way for the introduction of transfer pricing rules in Malta

As part of the enactment of the Budget Measures Implementation Act, 2021 (the ‘Budget Act’), Malta has introduced Article 51A, a new section in the Income Tax Act, Chapter 123 of the Laws of Malta (the ‘ITA’) authorising the Minister of Finance to make rules in connection with transfer pricing in general and, in particular, to provide for the determination of arm's length pricing of a transaction or series of transactions, any adjustments thereto and advanced pricing arrangements.

Possible requirements and effects on Maltese entities

Any local future transfer pricing legislation will affect multinational entity (‘MNE’) groups present in Malta in several ways, depending on the nature of the new requirements and any corresponding compliance obligations. Whilst Malta's current tax legislation already includes a reference to the arm's length principle, it is expected that future transfer pricing legislation in Malta would include a more detailed regulatory framework on the application of the said arm's length principle.

In terms of transfer pricing documentation requirements, Malta has already implemented country-by-country Reporting ('CbCR') requirements in local tax legislation in line with BEPS Action 13. Current requirements generally provided that MNE groups whose consolidated revenue is at least €750 million should file key financial information on all MNE group members on an aggregate country-by-country basis for each MNE group member.

Conclusion

Taxpayers should consider the possible effects of potential future transfer pricing rules on their related party transactions and should ensure that all related party transactions are executed at arm's length.

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