The BEPS action plan on transfer pricing of intangibles : a Maltese perspective

Abstract

Purpose: The objectives of this research were to analyse the perspective of Maltese practitioners with respect to the reports on the BEPS Action Plan concerning transfer pricing of intangibles. This enabled the researcher to then evaluate whether and to what extent changes being applied by the OECD members will impact Malta. The aim was also to evaluate how Malta may develop its transfer pricing regulations in terms of ownership of intangibles with comparison to what other jurisdictions are doing. Design: The study took a qualitative approach as it required insightful information gathered from further discussions with local tax practitioners. This study consisted of eight semi-structured interviews carried out with senior members within the profession from Big four, small and medium firms and a representative from the ITU. Findings: From the study it was clear that local tax practitioners are aware of the BEPS project, but had varying opinions of its success and effect on Malta particularly when discussing the issue of transfer pricing aspects of intangibles. The focus shifted onto increasing substance in Malta with respect to activities carried out to generate intangibles. This seems to be a challenging task for Malta, considering its market size and past business trends. Another point highlighted throughout this study was the lack of education on the area of research. This includes tax practitioners working with accounting firms of all sizes, tax authority and also clients. Moreover, the local tax system on intellectual property may also be at risk of being challenged for its competitive opportunity for foreign clients which may have been contributing to the problem of BEPS. Conclusion: The study concludes that tax practitioners should encourage clients to increase substance in Malta and be able to align transfer pricing outcomes with value creation as proposed by the BEPS project. This can be linked with the increased possibility of introducing formal transfer pricing rules in Malta in the near future which may positively affect Malta’s reputation of being a compliant jurisdiction. Moreover, there is great insistence on educating tax practitioners on this area of study. This will be beneficial for them to adequately perform their duties and would be in a better position to attract more investment and to monitor certain complex transactions. Value: The BEPS project has received significant attention and support from different governments including the most powerful governments within the EU. This would mean that the project will impact Malta in some way or another. When considering the issue of transfer pricing of intangibles, which is not yet regulated in Malta and on which Malta offers a competitive tax system, it was valuable to determine whether this will be compromised and what effect it may overall leave on Malta.