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Explaining Transfer Pricing: What It Means and Why It Matters
Transfer Pricing is the method used to determine the price charged for cross-border transactions between related entities within a multinational corporation. These transactions may involve the transfer of goods or services, intellectual property, financial support, or management functions between a parent and subsidiary, or across internal divisions operating in different countries.
Malta’s formal transfer pricing rules, effective from 1 January 2024, require large enterprises to align their intra-group pricing with the arm’s length principle. These requirements are guided by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines and apply the arm’s length principle to ensure consistency with global tax standards. This principle ensures that prices reflect the fair market value, similar to what would be agreed between independent third parties. At A2CO, we help you design a robust transfer pricing strategy, apply OECD-recognised methodologies, and prepare documentation that meets both Maltese and international tax laws.
What Is Transfer Pricing and Why Does It Matter?
Transfer Pricing is the value assigned to a controlled transaction between associated entities under common ownership. These may include the supply of goods, provision of services, royalty arrangements, or internal financing between group companies.
Accurate pricing is critical for allocating revenue, maintaining profitability, and ensuring compliance with local and international tax laws. Improperly priced transactions can lead to tax reassessments, penalties and interest, or double taxation across jurisdictions.
Transfer Pricing Methods, The Arm’s Length Principle and Compliance with Malta’s Rules
Transfer Pricing Methods
Malta follows the methodologies endorsed by the OECD to ensure compliance with the arm’s length principle. The most commonly used methods include:
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Comparable Uncontrolled Price (CUP): Compares the price charged in a related-party transaction to the price in a comparable independent deal.
-
Resale Price Method: Starts from the resale price to a third party and subtracts an appropriate margin.
-
Cost Plus Method: Adds a mark-up to the cost of providing the goods or services by reference to internal or external comparables.
-
Transactional Net Margin Method: Evaluates the net profit margin relative to an appropriate base such as costs, sales, or assets.
-
Transactional Profit Split Method: Divides, and allocates, the combined profits between related entities based on each party’s contribution.
Applying the Arm’s Length Principle to Intra-Group Transactions
The arm’s length principle is the foundation of transfer pricing regulations. It ensures that related companies within a multinational group transact under conditions that reflect independent commercial behaviour. To apply this principle, a business must:
-
Assess the transactions between related entities
-
Conduct a functional analysis to understand risks, assets, and functions
-
Choose the most appropriate transfer pricing method
-
Perform a comparability study using internal or external benchmarks
-
Document the findings in line with OECD standards
Whether pricing internal loans, management services, or intellectual property licences, A2CO ensures that your internal prices for goods and services meet this standard.
Transfer Pricing Rules in Malta
Malta’s transfer pricing rules apply to multinational corporations that meet all of the following criteria:
-
Engage in cross-border arrangements
-
Operate between associated enterprises (generally defined as ownership or control exceeding 75 %, or 50 % in MNE groups)
-
Are not classified as micro, small, or medium-sized enterprises under EU definitions
The transfer pricing rules apply to arrangements made on or after 1 January 2024, as well as to any existing arrangements that are materially altered on or after that date. All other relevant arrangements will fall within the scope of the rules as from 1 January 2027.
Documentation obligations follow the OECD’s Transfer Pricing Guidelines, mainly the preparation of both a Master File and a Local File. These must support the arrangement rationale and analysis,, selected transfer pricing methodology, and show how the arm’s length principle was applied. Records must be retained and presented upon request from the Malta Tax and Customs Administration (MTCA).
Companies are exempt from the Maltese rules if the aggregate arm’s length value of a revenue nature is under €6 million and aggregate arm’s length value of a capital nature is under €20 million in any given year. Any arrangements that consist of a securitisation transaction in terms of the Securitisation Transactions (Deductions) Rules are also excluded.
Transfer Pricing Documentation Requirements in Malta
Companies that fall within the scope of Malta’s transfer pricing rules are required to prepare and retain documentation that supports their pricing decisions. This documentation must follow the OECD’s two-tiered structure:
-
The Master File outlines the group’s global structure and business operations, value chain, intangible assets, and overall transfer pricing policy.
-
The Local File provides detailed information about the specific Maltese entities, including financial data, relevant arrangements, applied methodologies, and benchmarking studies.
The documentation must apply the arm’s length principle to ensure that the prices for arrangements between related parties reflect market conditions. While there is no fixed annual submission deadline, the documentation must be available upon request by the MTCA.
Failure to maintain proper documentation may result in transfer pricing adjustments, additional tax liabilities, and administrative penalties. A2CO assists clients with preparing, reviewing, and updating both files to meet all regulatory expectations.
Advance Pricing Agreements and Rulings in Malta
Malta offers businesses the opportunity to seek advance clarity through Unilateral Transfer Pricing Rulings and Advance Pricing Agreements (APA). These are formal agreements between a company and the MTCA that confirm how the transfer pricing rules will apply to specific transactions for a defined period of time.
Such arrangements provide a high degree of certainty and are especially useful for complex or high-value transactions. They are typically valid for five years and may be applied retroactively if conditions are met.
-
A Unilateral Transfer Pricing Ruling requires a €3,000 fee.
-
An APA with a foreign tax authority involves a €5,000 fee.
A2CO provides full support throughout the application process, from selecting the appropriate methodology to preparing the supporting documentation and liaising with the MTCA. Our goal is to help clients manage cross-border risks and improve tax efficiency through advance certainty.
Common Transfer Pricing Challenges for Multinationals
Multinational groups often face complex transfer pricing challenges when managing related party transactions across different countries. These may include:
-
Complex, inconsistent rules and significant documentation requirements across multiple jurisdictions
-
Limited availability of reliable comparables for benchmarking
-
Difficulty in valuing intangible assets or intellectual property
-
Mismatched pricing policies across jurisdictions
-
Increased audit scrutiny and the risk of double taxation with slow resolution
Effective transfer pricing requires more than just documentation. It demands a proactive approach that considers business models, data limitations, and changing tax laws. A2CO works closely with clients to identify risk areas early, design consistent policies, and maintain defensible documentation that aligns with both Maltese rules and international transfer pricing guidelines.
Industry-Specific Considerations
Certain sectors face unique challenges in applying transfer pricing principles. For example, highly regulated industries as iGaming and Blockchain, must navigate specific compliance risks related to intra-group transactions, IP ownership, and revenue recognition.
Service-based business models, including management companies or digital platforms, often need tailored methodologies to reflect the true value of services rendered. Similarly, financial arrangements and royalty structures may require additional functional analysis.
At A2CO, we understand the sector-specific considerations that affect pricing decisions. Our team provides practical solutions for industries such as iGaming, FinTech, Blockchain and Web3, ensuring that your transfer pricing approach remains consistent with your business reality.
Transfer Pricing Methods
Malta follows the methodologies endorsed by the OECD to ensure compliance with the arm’s length principle. The most commonly used methods include:
-
Comparable Uncontrolled Price (CUP): Compares the price charged in a related-party transaction to the price in a comparable independent deal.
-
Resale Price Method: Starts from the resale price to a third party and subtracts an appropriate margin.
-
Cost Plus Method: Adds a mark-up to the cost of providing the goods or services by reference to internal or external comparables.
-
Transactional Net Margin Method: Evaluates the net profit margin relative to an appropriate base such as costs, sales, or assets.
-
Transactional Profit Split Method: Divides, and allocates, the combined profits between related entities based on each party’s contribution.
Applying the Arm’s Length Principle to Intra-Group Transactions
The arm’s length principle is the foundation of transfer pricing regulations. It ensures that related companies within a multinational group transact under conditions that reflect independent commercial behaviour. To apply this principle, a business must:
-
Assess the transactions between related entities
-
Conduct a functional analysis to understand risks, assets, and functions
-
Choose the most appropriate transfer pricing method
-
Perform a comparability study using internal or external benchmarks
-
Document the findings in line with OECD standards
Whether pricing internal loans, management services, or intellectual property licences, A2CO ensures that your internal prices for goods and services meet this standard.
Transfer Pricing Rules in Malta
Malta’s transfer pricing rules apply to multinational corporations that meet all of the following criteria:
-
Engage in cross-border arrangements
-
Operate between associated enterprises (generally defined as ownership or control exceeding 75 %, or 50 % in MNE groups)
-
Are not classified as micro, small, or medium-sized enterprises under EU definitions
The transfer pricing rules apply to arrangements made on or after 1 January 2024, as well as to any existing arrangements that are materially altered on or after that date. All other relevant arrangements will fall within the scope of the rules as from 1 January 2027.
Documentation obligations follow the OECD’s Transfer Pricing Guidelines, mainly the preparation of both a Master File and a Local File. These must support the arrangement rationale and analysis,, selected transfer pricing methodology, and show how the arm’s length principle was applied. Records must be retained and presented upon request from the Malta Tax and Customs Administration (MTCA).
Companies are exempt from the Maltese rules if the aggregate arm’s length value of a revenue nature is under €6 million and aggregate arm’s length value of a capital nature is under €20 million in any given year. Any arrangements that consist of a securitisation transaction in terms of the Securitisation Transactions (Deductions) Rules are also excluded.
Transfer Pricing Documentation Requirements in Malta
Companies that fall within the scope of Malta’s transfer pricing rules are required to prepare and retain documentation that supports their pricing decisions. This documentation must follow the OECD’s two-tiered structure:
-
The Master File outlines the group’s global structure and business operations, value chain, intangible assets, and overall transfer pricing policy.
-
The Local File provides detailed information about the specific Maltese entities, including financial data, relevant arrangements, applied methodologies, and benchmarking studies.
The documentation must apply the arm’s length principle to ensure that the prices for arrangements between related parties reflect market conditions. While there is no fixed annual submission deadline, the documentation must be available upon request by the MTCA.
Failure to maintain proper documentation may result in transfer pricing adjustments, additional tax liabilities, and administrative penalties. A2CO assists clients with preparing, reviewing, and updating both files to meet all regulatory expectations.
Advance Pricing Agreements and Rulings in Malta
Malta offers businesses the opportunity to seek advance clarity through Unilateral Transfer Pricing Rulings and Advance Pricing Agreements (APA). These are formal agreements between a company and the MTCA that confirm how the transfer pricing rules will apply to specific transactions for a defined period of time.
Such arrangements provide a high degree of certainty and are especially useful for complex or high-value transactions. They are typically valid for five years and may be applied retroactively if conditions are met.
-
A Unilateral Transfer Pricing Ruling requires a €3,000 fee.
-
An APA with a foreign tax authority involves a €5,000 fee.
A2CO provides full support throughout the application process, from selecting the appropriate methodology to preparing the supporting documentation and liaising with the MTCA. Our goal is to help clients manage cross-border risks and improve tax efficiency through advance certainty.
Common Transfer Pricing Challenges for Multinationals
Multinational groups often face complex transfer pricing challenges when managing related party transactions across different countries. These may include:
-
Complex, inconsistent rules and significant documentation requirements across multiple jurisdictions
-
Limited availability of reliable comparables for benchmarking
-
Difficulty in valuing intangible assets or intellectual property
-
Mismatched pricing policies across jurisdictions
-
Increased audit scrutiny and the risk of double taxation with slow resolution
Effective transfer pricing requires more than just documentation. It demands a proactive approach that considers business models, data limitations, and changing tax laws. A2CO works closely with clients to identify risk areas early, design consistent policies, and maintain defensible documentation that aligns with both Maltese rules and international transfer pricing guidelines.
Industry-Specific Considerations
Certain sectors face unique challenges in applying transfer pricing principles. For example, highly regulated industries as iGaming and Blockchain, must navigate specific compliance risks related to intra-group transactions, IP ownership, and revenue recognition.
Service-based business models, including management companies or digital platforms, often need tailored methodologies to reflect the true value of services rendered. Similarly, financial arrangements and royalty structures may require additional functional analysis.
At A2CO, we understand the sector-specific considerations that affect pricing decisions. Our team provides practical solutions for industries such as iGaming, FinTech, Blockchain and Web3, ensuring that your transfer pricing approach remains consistent with your business reality.
Related Resources and Tools
Transfer pricing operates within a broader international framework. Staying informed and compliant requires access to trustworthy resources and local expertise. We recommend:
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The OECD Transfer Pricing Guidelines for foundational concepts and methodologies
-
The MTCA’s official guidelines on transfer pricing documentation and compliance expectations
-
Related A2CO services that may support your broader tax strategy include Audit Coordination , Corporate Tax Planning , and Accounting Services.
Our Transfer Pricing Services
We support businesses across all stages of the transfer pricing lifecycle, including:
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Strategic advisory for new or existing transactions and arrangements
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Preparation and review of Master File and Local File documentation
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Selection and application of the most appropriate transfer pricing method
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Benchmarking and comparability studies in line with international requirements
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Support with MTCA audits, and reviews
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Applications for unilateral transfer pricing rulings and advance pricing agreements, helping you gain certainty and improve tax efficiency
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Ongoing advisory to align your transfer pricing policy with your overall tax strategy, local tax laws, and corporate objectives
Why Choose A2CO
A2CO is trusted by multinational corporations for clear, accurate, and responsive transfer pricing support, particularly when navigating complex transfer pricing challenges across borders. With access to our international network and partners, we provide:
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Expert application of OECD Transfer Pricing Guidelines and Malta-specific rules to support effective transfer pricing outcomes
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Custom solutions for group structures, IP models, and finance transactions
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High-quality documentation that withstands audit scrutiny
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Guidance from both a strategic and compliance perspective
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Transparent communication and consistent follow-through
Frequently Asked Questions
Transfer pricing is the price charged for controlled transactions between related parties within a multinational corporation, such as goods or services exchanged between a parent company and its subsidiary.
The arm’s length principle ensures that transactions between related entities are priced at fair market value, similar to what independent third parties would agree, preventing double taxation and profit shifting across different countries.
Malta follows OECD transfer pricing guidelines, applying methods such as the Comparable Uncontrolled Price (CUP), Cost Plus, Resale Price, Transactional Net Margin Method (TNMM), and Profit Split Method to ensure compliance with the arm’s length principle.
Multinational companies face challenges such as valuing intangibles, ensuring compliance with local tax laws, maintaining effective transfer pricing documentation, and meeting tax authorities’ expectations across jurisdictions.
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