By Husam Shareef (Partner, CTL Strategies, Maldives)
On June 10, 2020, the Maldives tax administration, Maldives Inland Revenue Authority (MIRA), issued the country’s first transfer pricing regulation. The Regulation is made pursuant to the new Income Tax Act, which came into effect from January 1, 2020. The Regulation sets out the rules to be followed by enterprises that are required to maintain transfer pricing documentation and stipulates the criteria which exempt enterprises from maintaining such documentation. The Maldives has had a corporate tax regime since July 18, 2011, however, this is the first time that taxpayers are required to follow a specific transfer pricing documentation requirement.
Similar to the OECD’s Transfer Pricing Guidelines, the Maldives also adopts the three tiers of transfer pricing documentation: (1) the Master File, which provides a detailed representation of the global operations entities within the group; (2) the Local File, which contains detailed information on an entity and its related party transactions, and (3) the Country-by-Country (CbC) report. Country-by-Country report requirements are stated in the Tax Administration Act of the Maldives.
The Regulation published by the MIRA does not specify any transfer pricing methods in detail but does list the methods that are accepted by the MIRA; namely, Comparable Uncontrolled Price (CUP) Method, Cost Plus Method, Resale Price Method; Profit Split Method, Transactional Net Margin Method, or other such methods as approved by the MIRA.
Qualifying Past Transfer Pricing Documentation
The Regulation introduces the concept of Qualifying Past Transfer Pricing Documentation, whereby transfer pricing documentation prepared by taxpayers may be valid for a period of three years so that new document sets are not required to be prepared for each year. This is provided that the transaction with respect to which the transfer pricing documentation was prepared is the same type as the subject transaction or arrangement.
Where the taxpayer deems past transfer pricing documentation to be a qualifying past transfer pricing documentation, they are still required to keep a copy of such documentation and include a declaration in them stating that such documentation is a qualifying past transfer pricing documentation.
These rules are broadly similar to the qualifying past transfer pricing documentation rules adopted recently by Singapore.
Exemption from Preparing Transfer Pricing Documentation
SMEs are granted exemption from preparing transfer pricing documents provided that they were categorized as SMEs during the past 2 years, and were required to prepare transfer pricing documentation during the past 2 years.
Furthermore, transaction-specific exemptions are granted to the following types of transactions:
(1) Domestic transactions (except loans)
Local transactions with a related party doing business in the Maldives and such transaction is subject to tax at the same rate or is exempt from tax for both parties.
(2) Domestic loans
Loan transactions with a related party doing business in the Maldives, provided that the lender is not in the business of borrowing and lending.
(3) Domestic loans where indicative margin is applied
Loan transactions with a related party, that do not exceed MVR 15,000,000 and which apply indicative margin as published by the MIRA.
(4) Routine support services
Routine support services provided only to entities within the group and a mark-up of 5% is applied.
In addition to the above, a taxpayer may also be eligible for exemption from preparing transfer pricing documentation if the value of all other transactions (i.e. transactions other than those that are eligible for transaction-specific exemption) does not exceed MVR 5,000,000.
Although taxpayers are required to prepare transfer pricing documentation by the deadline for filing the annual tax returns, taxpayers are not required to file them unless the MIRA makes such a request.
The Regulation does not specify a particular retention period for transfer pricing documentation, but as a general rule, taxpayers are required to keep records for a period of 5 years.
Transfer pricing documentation may be prepared in Dhivehi, the local language, or in English.