Fun with Transfer Pricing

JustAnotherNomad · Mar 1, 2025

I think it was @Marzio who mentioned that Malta's transfer pricing rules only kick in from quite high revenue thresholds.
Cyprus also seems to have a requirement of at least 1M or so in transfers before transfer pricing rules kick in.
Is that correct?

If yes, are there other reputable countries that have such a weak transfer pricing regime?

aniglo22 · Mar 1, 2025

Article 5 (6) of the Income Tax Management Act
Where a non-resident person carried on business with a resident person, and it appears to the Commissioner that, owing to the close connection between the resident person and the non-resident person and to the substantial control exercised by the non-resident person over the resident person, the course of business between those persons can be so arranged and is so arranged that the business done by the resident person in pursuance of his connection with the non-resident person produces to the resident person either no profits or less than the ordinary profits which might be expected to arise from the business, the non-resident person shall be assessable and chargeable to tax in the name of the resident person as if the resident person were an agent of the non-resident person.

This is pretty similar to the arm length principle and you are not exempted from it .
And also in Rule 9 - Exceptions it says :

However, the rules will not apply to transactions entered into a financial period where during the said financial period the aggregate arm’s length amount of

This won’t work because your transactions must be valued at arm’s length to qualify for the exemption.

JustAnotherNomad · Mar 1, 2025

aniglo22 said:
This won’t work because your transactions must be valued at arm’s length to qualify for the exemption.

I don't get it - why have a threshold for transfer pricing rules at all then?

aniglo22 · Mar 1, 2025

JustAnotherNomad said:
I don't get it - why have a threshold for transfer pricing rules at all then?

Because it lowers the compliance burden and the associated costs for SME's .

JustAnotherNomad · Mar 1, 2025

So it's only about documentation?

Xshore · Mar 2, 2025

In the UK, SME's are exempt from transfer pricing when trading with companies in countries that the UK has a tax treaty with and which contains a nondiscrimination article.

aniglo22 · Mar 2, 2025

Xshore said:
In the UK, SME's are exempt from transfer pricing when trading with companies in countries that the UK has a tax treaty with and which contains a nondiscrimination article.

You still have profit fragmentation rules ..
And also UK follows OECD guidelines this means arm's length principle, Master file, Local File , CBC etc.....
You are just exempted from documentation (Master File , Local File , CBC ) as it's really expensive especially for SME, NOT from arm's length principle

Xshore · Mar 2, 2025

aniglo22 said:
Master file, Local File , CBC etc.....

What does this mean?

HMRC says that SME's are exempted from "transfer pricing rules", not just documentation.
https://www.gov.uk/hmrc-internal-manuals/international-manual/intm412070

But still, any expense must be "wholly and exclusively for the purposes of the business".

Fun with Transfer Pricing

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