TRANSFER PRICING RULES

SUBSIDIARY LEGISLATION 123.207

TRANSFER PRICING RULES

18th November, 2022

LEGAL NOTICE 284 of 2022, as amended by Legal Notice 9 of

2024.

(1)

The title of these rules is the Transfer Pricing

Rules.

(2)

These rules shall apply for basis years commencing on or

after 1st January 2024 in relation to any arrangement entered into on or

after that date, and for those arrangements entered into before that

date, these rules shall apply to those arrangements that are materially

altered on or after the said date

Provided that in relation to any arrangements entered into

before 1st January 2024 and which were not materially altered on or

after that date, these rules shall apply for basis years commencing on

or after 1st January 2027.

(1)

In these rules, unless the context otherwise

requires

"Act" means the Income Tax Act;

"advance pricing agreement" means an agreement

entered into between the competent authority and a relevant

foreign competent authority under the provisions for a mutual

agreement procedure found in

(a)

an arrangement as provided for in article

76 of Act;

(b)

the Convention on the elimination of

double taxation in connection with the adjustment of

profits of associated enterprises (90/436/EEC); or

(c)

any rules or regulations made in

accordance with the provisions of article 52B of the Act,

which agreement determines in advance of cross-border

arrangements between associated enterprises, an appropriate set

of criteria for the determination of the transfer pricing for those

transactions or determines the attribution of profits to a

permanent establishment in line with the arm’s length standard

as developed through international tax standards;

"arrangement" means

(a)

any transaction, agreement or dealing of

any kind, where, at the relevant time, the parties to such

an arrangement are associated enterprises. An

arrangement shall also include a series of transactions,

agreements and dealings of any kind; or

(b)

any notional dealing between a body of

persons and its permanent establishment;

"associated enterprises" means bodies of persons where

(a)

one (1) of the bodies of persons controls

the other body of persons whether as a result of the fact

that it holds, directly or indirectly, a participation of more

than seventy-five per cent (75%) in the voting rights, or

the ordinary capital, of the other body of persons or by

virtue of any powers conferred by the articles of

association or other document regulating the other body

of persons; or

(b)

the same person or persons controls two (2)

or more bodies of persons whether as a result of the fact

that it holds, directly or indirectly, a participation of more

than seventy-five per cent (75%) in the voting rights, or

the ordinary capital, of the two (2) or more bodies of

persons or by virtue of any powers conferred by the

articles of association or other document regulating the

two (2) or more bodies of persons

Provided that, for the purposes of paragraphs (a)

and (b) of this definition, where such bodies of persons are

constituent entities of a MNE group as defined in item 3 of

Section I of Annex III of the Cooperation with Other

Jurisdictions on Tax Matters Regulations the percentage interest

in the voting rights or the ordinary capital referred to therein

shall be fifty per cent (50%);

"company" has the meaning as is assigned to it in article

2(1) of the Act

Provided that the term "company" shall not

include any micro, small or medium-sized enterprise;

"competent authority" means the Minister or his

authorised representative. An authorised representative shall be

the competent official that is identified as such and whose name

and designation are published on the website of the

Commissioner;

"cross-border arrangement" means an arrangement

between associated enterprises where any one (1) of the

following conditions is satisfied

(a)

at least one (1) party to the arrangement is

not resident in Malta and at least one (1) party to the

arrangement is a company resident in Malta and the

arrangement is relevant in ascertaining the total income

of that company;

(b)

at least one (1) party to the arrangement

maintains a permanent establishment situated outside

Malta to which the arrangement is effectively connected

and at least one (1) party to the arrangement is a

company resident in Malta and the arrangement is

relevant in ascertaining the total income of that company;

(c)

at least one (1) party to the arrangement is

not resident in Malta and at least one (1) other party, not

being resident in Malta, is a company which maintains a

permanent establishment situated in Malta to which the

arrangement is effectively connected, or otherwise

derives income or gains arising in Malta, and the

arrangement is relevant in ascertaining the total income

of that company;

"micro, small or medium-sized enterprise" means

undertakings fulfilling the criteria laid down in Annex I of

Commission Regulation (EU) No 651/2014 of 17 June 2014

declaring certain categories of aid compatible with the internal

market in application of Articles 107 and 108 of the Treaty, as

in force at the relevant time;

"relevant material change" means

(a)

a change of facts from those described in

the request for the relevant unilateral transfer pricing

ruling or advance pricing agreement, including any other

communication connected thereto, and on which the

substance of the unilateral transfer pricing ruling or

advance pricing agreement, or any other matter that is

not trivial in connection thereto, was based

Provided that such change has occurred

after the date of the request of the said unilateral transfer

pricing ruling or advance pricing agreement;

(b)

a change in the relevant legislation on

which the substance of the unilateral transfer pricing

ruling or advance pricing agreement, or any other matter

that is not trivial in connection thereto, was based

Provided that such change has occurred

after the date of the said unilateral transfer pricing ruling

or advance pricing agreement; or

(c)

a decision of the directly interested party to

withdraw the unilateral transfer pricing ruling;

"relevant time" means the earlier of

(a)

the date on which the arrangement

becomes binding on the parties thereto; or

(b)

the date of commencement of the execution

of the arrangement

Provided that this definition shall be subject to

such other methodology as may be determined by means of

guidelines issued in accordance with article 96(2) of the Act.

"unilateral transfer pricing ruling" means a ruling issued

by the Commissioner that determines, in advance of an

arrangement, an appropriate set of criteria for the determination

of the transfer pricing for that arrangement. The said criteria

include the method used to arrive at the transfer pricing,

comparables and appropriate adjustments thereto and critical

assumptions as to future events;

(2)

Any terms not defined in sub-rule (1) shall, unless the

context otherwise requires, have the meaning assigned to them in the

In ascertaining the total income of any company in

accordance with the Act

(a)

where any amount incurred or due in the year

preceding the year of assessment under any cross-border

arrangement to which these rules apply differs from the arm’s

length amount, it shall be deemed that the arm’s length amount

was incurred or due instead of the actual amount incurred or

due;

(b)

where any amount accrued or derived in the year

preceding the year of assessment under any cross-border

arrangement to which these rules apply differs from the arm’s

length amount, it shall be deemed that the arm’s length amount

was accrued or derived instead of the actual amount accrued or

derived

Provided that any adjustment made in terms of

paragraphs (a) or (b) shall apply exclusively for the purpose of

ascertaining the total income of one (1) or more parties to the cross-

border arrangement as the case may be and shall not affect any other

person.

For the purposes of these rules the "arm’s length amount"

in relation to an arrangement is the amount that independent parties

would have agreed to in relation to the arrangement had those

independent parties entered into that arrangement in comparable

circumstances.

The arm’s length amount shall be determined on the basis

of such methodologies as shall be designated by the Commissioner in

guidelines issued in terms of article 96(2) of the Act.

A company, in relation to an arrangement to which these

rules apply, shall prepare on a timely basis and retain such records as

may reasonably be required for the purposes of determining whether,

in relation to the arrangement, the total income of the company has

been ascertained in accordance with the provisions of these rules.

Where

(a)

the total income of a person liable to tax in Malta

is computed such that, instead of the actual amount incurred,

due, accrued or derived under the terms of an arrangement, the

arm’s length amount in relation to that arrangement were

incurred, due, accrued or derived as the case may be; and

(b)

any other party to the arrangement is liable to tax

in Malta and the arrangement is relevant in ascertaining the

total income of that person,

then, subject to this rule, the total income of any person referred

to in paragraph (b) shall be computed as if, instead of the actual

amount incurred, due, accrued or derived under the terms of the

arrangement, the arm’s length amount in relation to that arrangement

were incurred, due, accrued or derived as the case may be.

Without prejudice to the provisions of any other law, any

adjustments made in furtherance of the requirements of these rules

shall be relevant only for the purposes of the Income Tax Acts.

These rules shall not apply where

(a)

the arrangement comprises a securitisation

transaction in terms of the Securitisation Transactions

(Deductions) Rules; or

(b)

(i) the aggregate arm’s length value of all items of

income and expenditure of a revenue nature forming

part of cross-border arrangements in the year preceding

the year of assessment, does not exceed six million euro

(€6,000,000); and

(ii)

the aggregate arm’s length value of all

items of income and expenditure of a capital nature

forming part of cross-border arrangements in the year

preceding the year of assessment, does not exceed twenty

million euro (€20,000,000)

Provided that where the parties to cross-border

arrangements referred to in paragraphs (a) and (b), make a request in

writing to the Commissioner for the issuance of a determination

stipulating that the provisions of these rules shall apply and the

Commissioner issues such a determination, the provisions of these

rules shall apply as may be determined.

(1)

For the purpose of ascertaining the total income of

any body of persons not resident in Malta, where such body of persons

maintains a permanent establishment situated in Malta, these rules

shall apply, mutatis mutandis, to the arrangements between the

permanent establishment and the body of persons.

(2)

For the purpose of ascertaining any income derived by a

company registered in Malta which is attributable to a permanent

establishment situated outside Malta, these rules shall apply, mutatis

mutandis, to the arrangements between the permanent establishment

and the company registered in Malta

Provided that for the purposes of this rule

(a)

the term "associated enterprises" shall be

construed as including the relationship between a permanent

establishment and the company;

(b)

the term "cross-border arrangement" shall be

construed as including an arrangement, as defined in this rule,

between a non-resident company and its permanent

establishment situated in Malta and between a company

registered in Malta and its permanent establishment situated

outside Malta; and

(c)

a "permanent establishment" shall be treated as if

it were a separate and independent enterprise engaged in the

same or similar activities under the same or similar conditions

Provided further that this rule shall be construed,

interpreted and applied to ensure, as far as practicable, consistency

between the effect which is to be given to this rule, and the 2010

Report on the Attribution of Profits to Permanent Establishments

approved on 22 June 2010 by the Committee on Fiscal Affairs and by

the OECD Council on 22 July 2010, as supplemented, modified,

revised or otherwise replaced, as may by notice be designated by the

Minister responsible for Finance for the purposes of this rule.

(1) The Commissioner may issue a unilateral transfer

pricing ruling in order to provide certainty in relation to the

application of these rules to a cross-border arrangement.

(2)

A request for a unilateral transfer pricing ruling shall be

made by a party to the arrangement or his authorised representative

(hereinafter in this rule referred to as "directly interested party"). Such

a request shall

(a)

be made in writing;

(b)

be made in relation to a specific cross-border

arrangement;

(c)

include a reference to these rules;

(d)

disclose the identities of the directly interested

parties and all other persons involved in the relevant

arrangement including the direct and ultimate beneficial owners

of such persons. Where any of such parties or persons are not in

existence at the time of the request, the request shall indicate

this fact, and the details shall be provided as soon such persons

come into existence including all the relevant details of the

relevant arrangement; and

(e)

any other details as determined by guidelines

issued under the Income Tax Acts.

(3)

A request for a unilateral transfer pricing ruling may be

made in connection with the tax treatment of a cross-border

arrangement commencing on or after the date that the request was

made

Provided that where the relevant arrangement had

already commenced on the date when the said request was made, the

scope of the request may be extended as follows

(a)

in the case of a cross-border arrangement which

does not consist of a series of transactions, agreements and

dealings to transactions, agreements and dealings taking place

in the year preceding the year of assessment in which the

request was made; and

(b)

in any other case, to transactions, agreements and

dealings that took place within the three (3) previous basis

years and that form part of that arrangement.

(4)

A unilateral transfer pricing ruling may only be issued

once all the necessary information, including all the identification

details and any other relevant information requested by the

Commissioner has been provided and the applicable fees have been

paid by the directly interested party.

(5)

A unilateral transfer pricing ruling shall specify that it

has been issued under the provisions of these rules.

(6)

The Commissioner shall not unreasonably withhold the

issuing of a unilateral transfer pricing ruling. The Commissioner may,

however, decline to issue a unilateral transfer pricing ruling where the

Income Tax Acts, and any rules, regulations and guidelines made or

issued thereunder, clearly provide sufficient certainty with regard to

the tax treatment of the relevant arrangement. When the Commissioner

declines to issue such a ruling on this basis, he shall issue a notice in

writing that includes a reference to the provisions that provide such

certainty. The Commissioner may withhold the issuing of a unilateral

transfer pricing ruling where the interested party is not up-to-date in

relation to the obligations in relation to tax returns at the time that such

request is made.

(7)

A non-refundable fee of three thousand euro (€3,000)

shall be paid when making a request for a unilateral transfer pricing

ruling.

(8)

A unilateral transfer pricing ruling shall remain binding

on the Commissioner for a period of five (5) years from the date the

unilateral transfer ruling takes effect

Provided that the Commissioner may, when issuing a

unilateral transfer pricing ruling and after considering the

circumstances of the request, stipulate that such ruling shall only

remain binding for a shorter period, which period shall be indicated in

the ruling itself

Provided further that a unilateral transfer pricing ruling

may also cover the period referred to in the proviso to sub-rule (3)

where a request has been made to this effect by the directly interested

party. The provisions of this proviso shall not affect the operation of

any provision relating to interests and penalties provided for in the

Income Tax Acts.

(9)

A directly interested party shall notify the Commissioner

of any relevant material change within thirty (30) days from the later

of the date of its occurrence or the date from when such party becomes

aware thereof. Where such notification includes a request for a

modification of the relevant unilateral transfer pricing ruling, such a

request may be considered to be a new request for a unilateral transfer

pricing ruling, as the Commissioner may deem fit.

(10) A unilateral transfer pricing ruling shall have no effect as

from the date on which the Commissioner notifies the directly

interested party that a relevant material change has taken place.

(11) A unilateral transfer pricing ruling shall be null and void

where the notification referred to in sub-rule (9) has not been made or

where the unilateral transfer pricing ruling issued by the

Commissioner was based on a misrepresentation or the withholding of

any relevant facts.

(12) (a)

A directly interested party that has made a request

under the provisions of sub-rule (2) may refer a matter relating to that

request to the Administrative Review Tribunal established by article 5

of the Administrative Justice Act, hereinafter in these rules referred to

as "the Tribunal". Such reference may only be made in relation to

matters that had been first raised in correspondence with the

Commissioner within the parameters of this rule.

(b)

A reference to the Tribunal in accordance with

paragraph (a) shall be made by means of an application which

shall state clearly all the facts relevant to the matter and the

manner in which, in the opinion of the applicant, that matter

should be determined. A copy of the correspondence with the

Commissioner referred to in paragraph (a) shall form part of the

reference to the Tribunal made by the directly interested party.

(c)

The reference to the Tribunal in accordance with

paragraph (a) shall be made not later than one hundred and

eighty-three (183) days from the date that establishes any of the

following instances

(i)

where the Commissioner has issued the

unilateral transfer pricing ruling or a refusal in terms of

sub-rule (6), the date of such ruling or refusal, as the case

may be;

(ii)

where the Commissioner has not issued the

unilateral transfer pricing ruling or a refusal in terms of

sub-rule (6), the date when a period of one hundred and

eighty-three (183) days have lapsed from the date that the

Commissioner received the request for a unilateral

transfer pricing ruling or such other longer period as

agreed between the Commissioner and the directly

interested party;

(d)

Where a directly interested party institutes a

reference to the Tribunal in accordance with this sub-rule,

article 34 of the Income Tax Management Act shall apply,

mutatis mutandis.

(e)

A decision by the Tribunal and by any subsequent

Court of Appeal on a reference made under this sub-rule shall

be binding on the Commissioner and the directly interested

person with respect to the specific matter referred to it

Provided that such decision shall be so binding only if

the relevant facts have been correctly stated in the application or

otherwise recorded in the records of the case and shall remain binding

only as long as there has not been a relevant material change.

(13) A directly interested party may request a renewal of a

unilateral transfer pricing ruling dealing with an ongoing cross-border

arrangement under the same conditions as prescribed in this rule where

there has not been a relevant material change since the date of its issue.

A request for such renewal shall be made in writing to the

Commissioner during the six (6) months preceding the expiry of the

relevant unilateral transfer pricing ruling. A non-refundable fee of one

thousand euro (€1,000) shall be paid when making a request for a

renewal of a unilateral transfer pricing ruling. Except for the

provisions of sub-rule (7), the provisions of this rule shall also apply to

a request for a renewal of a unilateral transfer pricing ruling.

(1)

The competent authority may enter into an

advance pricing agreement with the relevant foreign competent

authority. An advance pricing agreement may be of a bilateral or

multilateral nature.

(2)

A request for an advance pricing agreement may be made

in connection with the tax treatment of a cross-border arrangement

commencing on or after the date that the advance pricing agreement

takes effect

Provided that, where the arrangement has already

commenced on the date of the request, the scope of the request may be

extended to such transactions that took place during the previous three

(3) basis years.

(3)

The provisions of rule 11(2), (4) and (5) shall apply,

mutatis mutandis, to a request for an advance pricing agreement

Provided that, with respect to a request under this rule,

the requirements under rule 11(2)(c) shall also include a reference to

the relevant provision concerning the mutual agreement procedure.

(4)

A non-refundable fee of five thousand euro (€5,000)

shall be paid when making a request for an advance pricing agreement.

(5)

An advance pricing agreement may be entered into for a

duration of a period not exceeding five (5) years from the date the

advance pricing agreement takes effect as determined during the

relevant mutual agreement procedure.

(6)

In addition to the period provided for in sub-rule (5), an

advance pricing agreement may also cover a period not exceeding

three(3) basis years preceding the date of the request for the advance

pricing agreement where a request has been made to this effect by the

directly interested party.

(7)

A directly interested party shall notify the competent

authority of any relevant material change within thirty (30) days from

the date of its occurrence or the date from when such party becomes

aware thereof. Where such notification includes a request for a

modification of the relevant advance pricing agreement, such a request

may only be considered to be a new request for an advance pricing

agreement if the competent authority and the other competent

authorities so agree.

(8)

An advance pricing agreement shall have no effect as

from the date on which the competent authority notifies the directly

interested party that a relevant material change has taken place. The

competent authority shall obtain the agreement of the other competent

authorities involved before issuing such notification.

(9)

An advance pricing agreement shall be null and void

where the notification referred to in sub-rule (7) has not been made or

where it is based on a misrepresentation or withholding of any relevant

facts

Provided that the provisions of this sub-rule shall only

apply where there is agreement to this effect with the other foreign

competent authorities involved.

(10) A directly interested party may request a renewal of an

advance pricing agreement under the same conditions as prescribed in

this rule where there has not been a relevant material change since the

date of its issue. A request for such renewal shall be made in writing to

the competent authority during the six (6) months preceding the expiry

of the relevant advance pricing agreement. The competent authority

shall obtain the agreement of the other competent authorities involved

before confirming such a renewal. A non-refundable fee of two

thousand euro (€2,000) shall be paid when making a request for a

renewal of an advance pricing agreement. Except for the provisions of

sub-rule (4), the provisions of this rule shall also apply to a request for

a renewal of an advance pricing agreement.