MALTA Law and Practice Contributed by: Donald Vella and Kirsten Debono Huskinson, Camilleri Preziosi Advocates
payable, where such a scheme can be deemed to be of an artificial or fictitious nature. Principal Purpose Test It should be noted that Malta has approved of and adopted a number of the OECD’s anti-tax avoidance initiatives and pieces of research and anti-abuse leg - islation. One such initiative was the introduction of a principal purpose test for certain existing double tax treaties as a minimum-standard anti-abuse provision. The principal purpose test is designed to assess whether one of the principal purposes of a certain transaction (the provision of a loan, for example) or a certain structure (the establishment of a subsidiary in a specific jurisdiction, for example) is to obtain a treaty benefit granted by the tax treaties concluded between that jurisdiction and the other contracting state. Both the Maltese and foreign tax authorities might use the indicators set out in this test to challenge the use of entities established in the tax treaty partner of Mal - ta when they believe that the use of such entities is mainly for the purpose of gaining access to certain treaty benefits. 4.4 Transfer Pricing Issues for Inbound Investors Malta introduced formal transfer pricing rules in November 2022 through Legal Notice 284 of 2022, followed by the publication of transfer pricing guide - lines by the Malta Tax and Customs Administration. The rules apply for basis years commencing on or after 1 January 2023 to any arrangement entered into on or after 1 January 2024. For arrangements entered into before that date, application of the rules is limited to those arrangements that are materially altered on or after that date. The transfer pricing regulations were revised in 2024 to clarify that said rules shall apply in the case of arrangements entered into before 1 Janu - ary 2024, and which were not materially altered on or after that date, for basis years commencing on or after 1 January 2027. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements The Maltese tax authorities do not impose any specific limitations or restrictions on the use of related-party limited risk distribution. The general anti-abuse rule
laid down in the ITA could potentially challenge the use of such an arrangement where it is shown that such arrangement is artificial or fictitious in nature and reduces the amount of tax payable upon a certain income. 4.6 Local Transfer Pricing Rules and OECD Standards Malta published formal transfer pricing rules (see 4.4 Transfer Pricing Issues for Inbound Investors ) together with accompanying guidelines on the appli - cation of such rules. The OECD Transfer Pricing Guidelines constitute an important reference for the application and interpretation of the rules. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures Parties involved in a transfer pricing dispute may have recourse to the EU Arbitration Convention, to which Malta is a party, in relation to the elimination of double taxation in connection with the adjustments of profits of associated enterprises. Another poten - tial avenue for dispute resolution has been created through the EU Tax Dispute Resolution Mechanisms Directive Implementation Regulations, which provide for mechanisms to resolve disputes between Malta and other EU member states that may arise from con - flicting interpretations of agreements and conventions that provide for the elimination of double taxation of income. Local authorities are also proactive in assisting tax - payers in solving cross-border issues through the mutual agreement procedure (MAP) and follow OECD guidelines in this regard. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments Malta’s transfer pricing regime is relatively new; therefore, there is little practical experience insofar as transfer pricing claims are concerned. 5.2 Local Branches and Local Subsidiaries A Maltese subsidiary (ie, a Maltese company) is subject to tax on a worldwide basis, subject to any credits, relief or refunds that may be applicable on a
311 CHAMBERS.COM
Powered by FlippingBook