The Grandfathering clause nears its Sunset: What comes next?

Overview

The Malta Transfer Pricing Framework (the “Framework”) includes an embedded grandfathering clause (the “Clause”) applicable to transactions entered into prior to 1 January 2024, provided such transactions are not materially altered on or after that date.

The Clause was always intended to be temporary and transitional in nature, allowing multinational businesses relief during the first three years following the Framework’s entry into force on 1 January 2024. Accordingly, the Clause was introduced subject to a sunset clause, after which full compliance with the Framework was expected subject to the satisfaction of other applicable in-scoping conditions contained in the Framework.

The Clause will expire from basis years commencing on or after 1 January 2027, such that any grandfathered transactions will become subject to the Framework as from the said basis year.

What comes next?

For most companies, the final year of the grandfathering period has already commenced. This makes it an opportune time for such companies which have been benefitting from the Clause to re‑examine their existing transfer pricing (“TP”) policies in respect of transactions that have remained outside the scope of the Framework solely due to the Clause.

While the requirement to adhere to the arm’s length principle has existed even for the grandfathered transactions, this requirement will assume heightened importance once the Clause expires. This is because, the Framework goes beyond the existing provisions which require adherence to the arm’s length principle and makes an explicit reference to the OECD Transfer Pricing Guidelines.

In addition, businesses that have exclusively relied on the Clause for all their transactions and have therefore never maintained TP documentation in the form of a Local File and Master File will now be required to maintain this documentation moving forward.

Next steps

Our team of dedicated TP professionals, with comprehensive experience across a broad range of industries, stands ready to assist businesses in navigating the implications of the grandfathering sunset. We can support you through services including, but not limited to, the review and re-alignment of operational TP policies and the preparation and ongoing maintenance of TP documentation in line with the Framework’s requirements.

Contact us