- Updated
- December 2021
- Sections
- 13
- Questions
- 33
Key Facts
Core Framework
Section 67 and Section 79 (r) of Income Tax Act and Transfer Pricing Regulation (2020 –R-43).
The Transfer pricing regulation of the Maldives was prepared with reference to the OECD Transfer Pricing Guidelines (TPG). The Transfer pricing documentation and the Transfer Pricing Arm’s Length Guide have also been prepared in light of the OECD TPG.
Link to draft Transfer Pricing Arm’s Length Guide.
MIRA recommends that taxpayers adopt the following three-step approach to apply the arm’s length principle in their controlled transactions: Step 1 - Conduct comparability analysis Step 2 - Identify the most appropriate transfer pricing method and tested party Step 3 - Determine the arm’s length results Step 1 – Comparability analysis Application of the arm’s length principle is based on a comparison of the conditions in a controlled transaction with the conditions that would have been made had the parties been independent and undertaking a comparable transaction under comparable circumstances. There are two key aspects in such an analysis. They are: 1. Accurate delineation of the controlled transaction by identifying the commercial and financial relations between associated parties and economically relevant characteristics attached to it. 2. Comparing the economically relevant characteristics of the controlled transaction as accurately delineated to that of the potential comparable independent transaction.
There is nothing mentioned in law to say preference is given to domestic comparables. It depends on data availability as well. So far, it is applied in practice only. Currently MIRA has access to a transfer pricing database as well. Hence, in future there is possibility for MIRA to go for foreign comparables as well. In some cases, taxpayers have gone for foreign comparables as well. No preference to domestic comparables at this stage.
We do use secret comparables, though we do not encourage it. There is no limitation to using secret comparables in the law, this is followed in practice. And there is confidentiality clause mentioned in Tax Administration Act S.15. In bringing rates determined using secret comparables, MIRA ensures that confidentiality of taxpayer information is maintained. However, no legal cases on this matter so far.
Link to draft Transfer Pricing Arm’s Length Guide, Page 27.
When application of the most appropriate method produces a range of figures, all of which are equally reliable, then to go for an AL range. “…. where the dataset constructed consists of six or more entries, an arm's length range beginning from the thirty-fifth percentile of the dataset and ending on the sixty-fifth percentile of the dataset shall be constructed and arm’s length price shall be computed as follows: a. If the price of the controlled transaction falls within the arm’s length range, then the price is deemed as arm's length price. b. If the price of the controlled transaction falls outside the arm's length range, then the arm's length price shall be taken to be the median of the dataset. c. If median is not applicable, the arm’s length price shall be the arithmetical mean of all the values included in the dataset.”
Documentation
Section 24 of Income Tax Act.
Section 24 of Income Tax Act limits head office expenses up to 3% of the total income generated.
TP Methods
- CUP
- Resale Price
- Cost Plus
- TNMM
- Profit Split
- Other
Selection: Most appropriate method
Dispute Resolution
Simplifications
Special Topics
There is not a specific regulation about intangibles, however, general transfer pricing provisions in the tax law and regulations would apply. The Maldives also follows the OECD TPG for these cases.
No specific penalties regarding transfer pricing. Sanctions contained in Section 64 and 65 of the Tax Administration Act would apply in case of any non-compliance with the transfer pricing documentation requirement.
Full OECD Questionnaire
Legal ReferenceSection 67 and Section 79 (r) of Income Tax Act and Transfer Pricing Regulation (2020 –R-43).
The Transfer pricing regulation of the Maldives was prepared with reference to the OECD Transfer Pricing Guidelines (TPG). The Transfer pricing documentation and the Transfer Pricing Arm’s Length Guide have also been prepared in light of the OECD TPG.
Legal ReferenceSection 79 (ss) and 79 (oo) of Income Tax Act defines relative and associates.
Section 79 (00) defines a relative as below: (oo) “Relative” of a person means: (1) the person’s spouse; (2) the person’s child, parent, grandparent or sibling; (3) the spouse of a person referred to in subsection 79 (oo)(2). Section 79 (ss) defines associate as below: “Associate” means each of two persons where one person: (1) controls, or is controlled by, the other, or both persons are controlled by the same person or persons; or (2) is a relative of the other person; or (3) is a partnership and the other person is a partner in that partnership; or is a partner in a partnership and the other person is a partner in the same partnership; or (4) is a trust and the other person is a beneficiary of that trust; or (5) is a trust and the other person is a settlor of the trust.
Legal ReferenceSpecified under Transfer Pricing Regulation Section 8(e).
Other methods are a method approved by MIRA that takes into account the price paid or payable in comparable circumstances to an independent party in comparable circumstances, considering all the relevant facts. If a taxpayer wants to apply other method, they are required to seek prior approval from MIRA. So far, no such requests received.
- CUP (provided)
- Resale Price (provided)
- Cost Plus (provided)
- TNMM (provided)
- Profit Split (provided)
- Other (provided)
Legal ReferenceDraft Transfer pricing guide – determination of Arm’s length – Page 26
The most appropriate method shall be the method which is best suited to the facts and circumstances of each particular transaction, and which provides the most reliable measure of price, profit or income. In selecting the most appropriate method, the following factors shall be taken into consideration: 1. The nature of the controlled transaction, determined by conducting a functional analysis. 2. The degree of actual comparability when making comparisons with transactions between independent parties 3. The completeness and accuracy of data in respect of the independent party transaction 4. The reliability of any assumptions made; and 5. The degree to which the adjustments are affected if the data is inaccurate or the assumptions incorrect. MIRA does not have a specific preference for any one method. Instead, the method that produces the most reliable results, taking into account the quality of available data and degree of accuracy of adjustments, should be selected.
- Hierarchy of methods (not selected)
- Most appropriate method (selected)
- Other (not selected)
No specific guidance for commodity transactions
- For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
- Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (not selected)
- Other (not selected)
Legal ReferenceLink to draft Transfer Pricing Arm’s Length Guide.
MIRA recommends that taxpayers adopt the following three-step approach to apply the arm’s length principle in their controlled transactions: Step 1 - Conduct comparability analysis Step 2 - Identify the most appropriate transfer pricing method and tested party Step 3 - Determine the arm’s length results Step 1 – Comparability analysis Application of the arm’s length principle is based on a comparison of the conditions in a controlled transaction with the conditions that would have been made had the parties been independent and undertaking a comparable transaction under comparable circumstances. There are two key aspects in such an analysis. They are: 1. Accurate delineation of the controlled transaction by identifying the commercial and financial relations between associated parties and economically relevant characteristics attached to it. 2. Comparing the economically relevant characteristics of the controlled transaction as accurately delineated to that of the potential comparable independent transaction.
There is nothing mentioned in law to say preference is given to domestic comparables. It depends on data availability as well. So far, it is applied in practice only. Currently MIRA has access to a transfer pricing database as well. Hence, in future there is possibility for MIRA to go for foreign comparables as well. In some cases, taxpayers have gone for foreign comparables as well. No preference to domestic comparables at this stage.
We do use secret comparables, though we do not encourage it. There is no limitation to using secret comparables in the law, this is followed in practice. And there is confidentiality clause mentioned in Tax Administration Act S.15. In bringing rates determined using secret comparables, MIRA ensures that confidentiality of taxpayer information is maintained. However, no legal cases on this matter so far.
Legal ReferenceLink to draft Transfer Pricing Arm’s Length Guide, Page 27.
When application of the most appropriate method produces a range of figures, all of which are equally reliable, then to go for an AL range. “…. where the dataset constructed consists of six or more entries, an arm's length range beginning from the thirty-fifth percentile of the dataset and ending on the sixty-fifth percentile of the dataset shall be constructed and arm’s length price shall be computed as follows: a. If the price of the controlled transaction falls within the arm’s length range, then the price is deemed as arm's length price. b. If the price of the controlled transaction falls outside the arm's length range, then the arm's length price shall be taken to be the median of the dataset. c. If median is not applicable, the arm’s length price shall be the arithmetical mean of all the values included in the dataset.”
Specified in transfer-pricing arm’s length guide. The guideline specifies that in conducting comparability analysis, to identify the differences in economically relevant characteristics between the associated party transaction and the independent party transaction which could materially affect the pricing, and to determine reasonably accurate adjustments that can be made to eliminate those differences.
There is not a specific regulation about intangibles, however, general transfer pricing provisions in the tax law and regulations would apply. The Maldives also follows the OECD TPG for these cases.
Legal ReferenceLink to draft Transfer Pricing Arm’s Length Guide.
There is not a specific regulation about intra-group services, however, general transfer pricing provisions in the tax law and regulations would apply. The Maldives also follows the OECD TPG for these cases.
Legal ReferenceTransfer Pricing Regulation Transfer Pricing Arm’s Length Guide
Specific guidance is provided in the Transfer Pricing Regulation and the Transfer Pricing Arm’s Length guide
Legal ReferenceIncome Tax Act
Section 22 of the Income Tax Act imposes a 6% cap on interest paid to loans from non-approved bodies. Furthermore, Section 71 covers thin capitalization rules which impose a limit on interest deduction which is 30% of tax- EBITDA.
Legal ReferenceMaster and Local filing requirement under Transfer Pricing Regulation. Transfer pricing regulation is made pursuant to Section 68 (b) (4) and Section 76 (b) of the Income Tax Act Country by country reporting requirement under Section 31-1 of the Tax Administration Act as per the rules stipulated in Country by Country Reporting Regulation (2021 –R9). Schedule 4 of MIRA Income Tax Return is specifically for reporting of international transactions with associates. This has to be submitted along with the income tax return.
- Master file consistent with Annex I to Chapter V of the TPG (selected)
- Local file consistent with Annex II to Chapter V of the TPG (selected)
- Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
- Specific transfer pricing returns (separate or annexed to the tax return) (selected)
Legal ReferenceMaster and Local filing requirement under Transfer Pricing Regulation. Country by country reporting requirement specified under Country by Country Reporting Regulation (2021 –R9).
The transfer pricing documentation (which includes master file and local file) shall be prepared and finalized for the accounting period to which the transaction or arrangement relates. There is no fixed annual deadline for the submission of the documentation. It has to be submitted to MIRA upon request within 30 days of the request. The deadline for CbCR filing is 12 months after the last date of the reporting fiscal year of the MNE.
No specific penalties regarding transfer pricing. Sanctions contained in Section 64 and 65 of the Tax Administration Act would apply in case of any non-compliance with the transfer pricing documentation requirement.
Legal ReferenceSection 68(a) of the Income Tax Act Section 7 of the Transfer Pricing Regulation
Exemptions are specified under Section 68(a) of the Income Tax Act and Section 7 of the Transfer Pricing Regulation of Maldives. Transfer pricing documentation exemption is given at two levels basically. One is taxpayer level exemptions (that is in S.68 (a)) and further transaction level exemptions given in transfer pricing regulation (Section 7) For 68 (a) the exemptions at taxpayer level include, micro or SMEs (that is taxpayers with annual revenue below MVR 20 Million). Exempt income is specified in Income Tax Act S.12
Legal ReferenceAdvance Pricing Regulation (2021- R42). Section 52-1 of Tax Administration Act facilitates MAP. 4th Amendment on Tax Administration Act Maldives’ MAP Profile
Changes to the tax administration of Maldives were made recently, where also dispute resolution procedures were implemented. A separate APA regulation was published and effective from 16 March 2021. Amendments have been made to tax administration regulation to facilitate 52-1 of the Tax Administration Act which facilitates MAP. MIRA is currently working on formulating robust policies and procedures for the implementation of dispute resolution procedures. For more information on Maldives’s administration of MAPs, please refer to Maldives’s MAP profile.
- Rulings (not selected)
- Enhanced engagement programs (not selected)
- Advance Pricing Agreements (APA) (selected)
- Mutual Agreement Procedures (selected)
Maldives currently has only one treaty with UAE which follows the OECD approach for profit attribution and does apply the FAR rule.
Legal ReferenceSection 24 of Income Tax Act.
Section 24 of Income Tax Act limits head office expenses up to 3% of the total income generated.
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