By Zaina Zahir, Senior Associate, CTL Strategies, Maldives
The Maldives Inland Revenue Authority published advance pricing arrangement (APA) regulations (Regulation Number 2021/R-42) on 16 March as an executive regulation to implement provisions introduced in the third amendment to the Tax Administration Act. Taxpayers can now enter into APAs for up to five years.
Transfer pricing controversies have been frequent in the Maldives. Thus, the issuance of the APA regulation is promising for multinational enterprises doing business in the Maldives. The new procedure is expected to provide a more encouraging, non-adversarial environment for investors.
The APA regulation sets out the procedure to be followed to enter into an APA with the Maldives tax authority, introduces a rollback provision, and imposes an annual compliance report filing requirement.
The application process
The Maldives, like many other countries, implements a three-phase process in entering into an APA. Prior to the formal application, a pre-filing consultation is required, through which the scope of the arrangement is identified and the controlled transaction in question is understood. Following the pre-filing consultation, a formal application requesting an APA can be lodged, and then the application is passed through for evaluation. Once the parties have successfully entered into an APA, an annual compliance report will be filed along with the income tax return.
While the APA application process is expected to be time-consuming, no time frame is provided within which the tax administration completes the process.
The rollback provision
By allowing a ‘roll back’ or a retrospective coverage of an APA, the Maldives tax authority has facilitated an alternative path for companies doing business in the Maldives to administer their transfer pricing disputes in an efficient manner. However, the regulation is not very clear on the implementation of this provision.
The regulation merely states that in permitting a rollback, the tax administration will look into the APA duration of participating jurisdictions, investigate the surrounding circumstances of the transaction in question, seek whether a tax audit or investigation is being carried out, and determine whether any legal actions are being taken in relation to the transaction in question. We are awaiting detailed guidelines on the applicability and limitations of the rollback provision.
Other considerations
In consideration of uncontrolled economic circumstances and possibilities of significant changes to business operations, the regulation includes provisions on possible revisions and/or cancellation of the arrangement.
On the other hand, in cases of fraud, misrepresentation of information, or noncompliance, the tax authority may terminate the arrangement retroactively.
Recent Maldives transfer pricing developments
In addition to the publication of the APA regulation, with the commencement of the Income Tax Act in January 2020, the transfer pricing landscape has noticeably changed in the Maldives.
Within the past 12-months, the Maldives tax authority has published transfer pricing regulations, country-by-country reporting regulations, and introduced the mutual agreement procedure as a mechanism for tax dispute resolution – all in an effort to align its domestic laws with the OECD/G20 base erosion profit shifting (BEPS) plan.
Be the first to comment