Practical implications of introducing transfer pricing regulation on the international tax landscape in Malta

Abstract

Purpose: This study analyses the practical implications that are expected to arise in light of the introduction of specific transfer pricing regulations in Malta. Therefore, the research assesses the interaction of these rules with other tax laws and any administrative and compliance considerations that should be taken into account in practice. Design: Due to the nature of the field of research, the objectives of this study have been achieved by means of semi-structured interviews conducted with twelve local practitioners and a high-ranking official from the ICTU. The participants’ perceptions regarding the introduction of TPRs were compared to the interpretation of foreign academics and local dissertations discussed in the literature review. Findings: This study highlights the importance of buttressing the reference to the OECD TPGs with the specific characteristics of the local scenario since Malta is a small island state. The results also show that although the lack of local comparables is one of the main anticipated complexities, the inclusion of applicable adjustments, EU databases should generally be acetated by the tax authority. Furthermore, tax certainty is provided through the APAs, but these may prove to be prohibitive due to their cost and impractical as they take significant time to be concluded. Conclusions: The “knowledge gap” has to be addressed via capacity building programs for the OCfR and continued education for tax practitioners. Until such gap is narrowed, firms should consider recruiting practitioners from abroad or outsourcing the TP function. The OCfR ought to undertake regular consultation with practitioners for the purpose of the balanced application of the Arm’s Length Principle. The research calls for the provision of public databases and sufficient examples being included in the local guidelines to support the comparability analysis. The study also highlights the need for an approach which makes APAs more accessible to smaller taxpayers and the issuance of practical guidelines for taxpayers for the negotiation and implementation of Rulings. Value: This study is the first to examine the impact of the TPRs on the international tax landscape in Malta. This was accomplished by considering the scope of the rules, the relevant carve-outs, the arm’s length amount and the processes for dispute resolution. This study is a valuable springboard for tax practitioners, taxpayers, and the OCfR for further cooperation and to ensure effective implementation and adherence to these rules.