Transfer pricing rules for Malta

Abstract

Transfer pricing is often considered one of the most complicated issues in international taxation, and in fact a number of jurisdictions adopt rules to control the prices set for cross-border transactions between related enterprises. The publication of the 'Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' (1995), known as the OECD Guidelines, has resulted in transfer pricing regulation gaining momentum, and nowadays there are transfer pricing rules in most EU jurisdictions. The application of transfer pricing rules is however, not harmonised and although the OECD Guidelines are used as the foundation for most systems their application varies. The OECD has developed the arm's length principle as the standard which should be applied in establishing the price for a transaction between related enterprises. In order to establish the arm's length price two sets of transaction methods have been created: the traditional transaction methods and the transactional profit methods. The difference in the application of transfer pricing rules from one jurisdiction to the other, has led the European Union to intervene in the matter. By their very nature, transfer pricing rules already impose compliance burdens on multinational enterprises, and the EU felt that the difference in the application of such rules increased such burdens, as well as increased the risk of double taxation. Through the creation of the EU Joint Transfer Pricing Forum, the EU seeks to increase harmonisation in the transfer pricing rules of the various Member States applying such rules. Malta has not adopted any transfer pricing rules, and there is currently political pressure for it to do so, however, to qate there does not seem to be any move in this direction. This work seeks to establish how, if forced to do so, Malta should model transfer pricing rules in order to suit its requirements.