For many tax professionals in Malta transfer pricing is still a new and vague concept. However, in view of the recently published subsidiary legislation 123.207 formally implementing Transfer Pricing Rules into Maltese law, and the applicability of the Rules as from 1st January 2024, tax advisors need to think ahead and ensure that their multinational clients involved in cross-border transactions meet their obligations in terms of pricing intra-group arrangements.
In anticipation of the transfer pricing rules’ effective date, now is the right time for entities to assess their preparedness for the upcoming changes in order to reduce the level of risk and uncertainty in respect of cross-border intragroup transactions.
What is transfer pricing exactly?
Transfer pricing refers to the terms and conditions surrounding transactions between associated enterprises forming part of a multinational enterprise (MNE) group. Tax authorities are increasingly carrying out exercises to ensure that the individual group members of the MNE are taxed on the basis that they act at arm's length in dealings with each other. Under the arm’s length principle, MNE groups must apply the same conditions to their transactions as those that independent parties would apply under similar circumstances.
In recent years, intercompany transactions have gained considerable attention from tax authorities around the world, as evidenced by the increasing volume of transfer pricing case law. In fact, tax authorities around the world have become more sensitive to the potential mispricing of intercompany transactions, which can lead to the artificial shifting of profits from one jurisdiction to another.
How can BDO help?
BDO Malta will be sharing further insights to raise awareness of the topic and will provide our readers with a series of articles covering transfer pricing principles and methodologies and the key concepts of transfer pricing, with a focus on intragroup financing, services, tangibles and intangibles. We will be also providing practical instructions based on the OECD Transfer Pricing Guidelines.