​Even though the arm’s length principle is used in its domestic legislation, Malta does not have TP rules to provide guidance on establishing how the arm's-length price of intra group transactions should be reached.

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In particular, Article 5(6) of the Income Tax Management Act provides that if  a  non-resident  person  carries  on  business  with  a resident person, and due to their special relationship, the transaction does not produce arm’s length profits for the resident person, then taxation will be imposed on the ordinary profits that would be expected to arise from the business. Also, Articles 2 and 12(1)(u)(2) of the Income Tax Act provide for arm’s length provisions in relation to the permanent establishments.​

However, the above provisions of the law are rather vague and do not elaborate on an accepted methodology that can be used by all interested parties to reach to the arms’ length profits.

In recent years, Maltese law made specific reference to TP rules in its local and in particular, in its Special Tax Regime – The Patent Box.

Malta provided for the application of TP rules in its 2019 revised Patent Box Regime, following recommendations based on the BEPS initiative and the EU Rules. The revision of the regime was necessary, as the previous version was found to be harmful due to the absence of a “substantial activity” criterion. However, the revised regime not only incorporated the substantial activity criterion (by matching the allocation of income with the economic activity that generates that income), but also went a step further and provided for the determination of the income/gains from the intellectual property in accordance to the OECD TP Guidelines.

In addition, it can be argued that Malta has indirectly introduced TP rules by adhering to international conventions and relevant EU directives and in particular in the following:

1. Associated Enterprises - Article 9 of the OECD Model Tax Convention:

Malta’s double tax treaties use the OECD Model Tax Convention. Therefore, Article 9 “Associated Enterprises” of the OECD Model Tax Convention is included in Malta’s double tax treaties. This Article provides that any transactions between associated enterprises that are not at arm’s length shall be adjusted for tax purposes in accordance to the ALP.

The Commentary of OECD refers to the application of the ALP through the OECD TP Guidelines. Further, the majority of the countries following the ALP use as means of application and interpretation of ALP, the provisions of the OECD TP Guidelines.

In the absence of legislation underpinning the application and interpretation of the ALP, in a possible situation where a cross boarder transaction is not in accordance to the ALP, the determination of the ALP will refer to various sources of international law implying the use of the TP. In such a scenario, Malta will apply TP, due to the international obligation raised from the conclusion of the relevant Article in its treaties.

2. The EU Directive on Dispute Resolution Mechanism

Malta transposed the EU Directive on Dispute Resolution Mechanism in its domestic legislation. The Directive provides that in a case of a possible dispute, the contracting Member States concerned shall endeavour to resolve the dispute by mutual agreement, subject to conditions.

​A common dispute between the contracting Member States concerns the ALP. The internationally accepted principle of determining the ALP is the TP rules based on the OECD TP Guideline. Therefore, this may again be considered as an indirect application of TP rules in Malta.