Transfer Pricing, Malta, EU Tax & Compliance Bulletin 76

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AML CFT, Company taxation, EU, VAT (Value Added Tax), European Union Commission, double taxation, roadmap, transfer pricing, business taxation-CFE, OECD Pillar 1

Malta Transfer Pricing Enabling Provision

The Budget Measures Implementation Act has introduced an enabling provision in the Income Tax Act which empowers the Minister of Finance to enact rules in relation to transfer pricing. The new article 51 of the Income Tax Act states that such rules may provide for the determination of the arm’s length pricing of a transaction or a series of transactions, any adjustments in relation thereto and advance pricing agreements.

Ireland raises Issues with US-backed proposed Minimum Company Tax

As a result of US proposals to introduce a minimum corporate tax rate of 21%, countries like Ireland are presumed to lose significant revenue. Under the Stability Programme Update for 2021 of the Irish Department of Finance published on 14 April, Ireland stands to lose 2 billion Euros in corporate tax revenue by 2025.

Commenting on these developments, Pascal Donohoe, Ireland’s Finance Minister said: “Small countries, such as Ireland, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, resources and location enjoyed by larger countries.” 

Technical details of the OECD proposals, including the rate on minimum tax, are currently under negotiations, but are widely expected to be settled in the range around 15%, rather than 21% as suggested by the United States. The negotiations at the OECD/ G20 level are expected to be completed by mid-year.

Digital Tax Agreement by October 

Speaking at a conference organised by the Government of Ireland, Pascal Saint-Amans, the OECD Tax Director confirmed the agreed timeline for reaching a global agreement on digital tax. Pascal Saint – Amans said that the G20 meeting of the finance ministers in July is still the tentative deadline for an agreement to be reached, however some details may need to be agreed until October, the date of the subsequent G20 meeting.

Benjamin Angel, European Commission Director for Direct Taxation at DG TAXUD, speaking at the same event said that the EU is keen to proceed with its own proposals on digital levy this summer, noting that the Commission does not intend to create obstacles to the digitalisation of the European economy, which is an EU policy priority. Key consideration in designing the levy is to avoid discrimination of non-resident companies or tensions with the United States. Mr Angel highlighted that the EU digital levy has nothing to do with the negotiations held at the OECD at present.

EU to Proceed with Own-Resource Digital Levy Regardless of US Digital Tax Proposals

Speaking during a European Parliamentary debate on 28 April, EU Commissioner for Economy, Paolo Gentiloni, confirmed that the Commission will proceed to publish its proposal for a digital levy by the end of June, irrespective of developments at OECD level and the US digital tax proposals, noting that the EU digital levy was necessary for the creation of a EU generated ‘own resource’, for funding the NextGenerationEU instrument and recovery and resilience fund. In May, the Commission will also publish its Communication on Business Taxation for the 21st Century.

EU Commission Proposes New Regulation to Address Distortion by Foreign Subsidies in Single Market

The EU Commission has announced a new proposal for a Regulation to address distortion by foreign subsidies in the Single Market, by introducing regulation which would enable the Commission to “investigate financial contributions granted by public authorities of a non-EU country which benefit companies engaging in an economic activity in the EU and redress their distortive effects”.

The Regulation proposes the introduction of three tools, two notification-based and a general market investigation tool:

  • A notification-based tool to investigate concentrations involving a financial contribution by a non-EU government, where the EU turnover of the company to be acquired (or of at least one of the merging parties) is €500 million or more and the foreign financial contribution is at least €50 million;
  • A notification-based tool to investigate bids in public procurements involving a financial contribution by a non-EU government, where the estimated value of the procurement is €250 million or more; and
  • A tool to investigate all other market situations and smaller concentrations and public procurement procedures, which the Commission can start on its own initiative (ex-officio) and may request ad-hoc 

UN Releases Updated Transfer Pricing Manual 

The United Nations has now published the 2021 update to the Practical Manual on Transfer Pricing for Developing Countries, adopted by the UN Tax Committee of Experts on International Cooperation in Tax Matters (“Tax Committee”), at its 22nd Session in April 2021.

The third edition of the Transfer Pricing Manual incorporates feedback received on the previous 2017 version, and also includes new content on financial transactions, profit splits, centralised procurement functions and comparability issues.


Source: Malta Institute of Taxation Click here and CFE Tax Advisors Europe Click Here

Please contact David Marinelli should you wish to discuss any matter relating to your Malta registered company.