Transfer Pricing Guide Maldives

Alignment with OECD Transfer Pricing Guidelines

The Maldives’ transfer pricing policy is in line with the OECD Transfer Pricing Guidelines (TPG). To support this, the Transfer Pricing Arm’s Length Guide and transfer pricing paperwork have been introduced.

Laws & Regulations

• References to OECD/EU/Local Rules: Transfer pricing regulations in the Maldives are primarily governed by Section 67 and Section 79 (r) of the Income Tax Act, along with the Transfer Pricing Regulation (2020 –R-43).
• Definition of Related Party: Related parties are defined under Section 79 (ss) and 79 (oo) of the Income Tax Act, and these definitions are related to arm’s length conditions and tax arrangements.
• Country by Country Reporting: The Maldives follows country-by-country reporting requirements under Section 31-1 of the Tax Administration Act and the related Country by Country Reporting Regulation (2021 –R9).

Nature of Transfer Pricing Documentation

The transfer pricing documentation in the Maldives adheres to OECD standards, and it consists of three main components: a Master File, a Local File, and a Country-by-Country Report (CbCR).

Advance Pricing Agreement (APA)

An APA regulation was introduced in the Maldives, effective March 16, 2021. This regulatory change is designed to facilitate Mutual Agreement Procedures (MAP) and dispute resolution procedures.

Audit Practice

In the Maldives, the tax system operates based on self-assessment and voluntary compliance. The Maldives Inland Revenue Authority (MIRA) aims to provide taxpayer education and promote voluntary compliance. Tax audits are conducted to enhance tax compliance but do not necessarily imply wrongdoing by the taxpayer.

Transfer Pricing Documentation

• Level of Documentation: The transfer pricing documentation includes a Local File that provides comprehensive information on controlled transactions, a Master File that offers an overview of the multinational enterprise (MNE) group, and a Country-by-Country Report (CbCR) for eligible taxpayers.
• Industry Analysis: Industry-specific value drivers are analyzed to determine common levels of profitability.
• Company Analysis: The documentation covers the local entity’s management structure, organization chart, business strategy, and any involvement in business restructurings or intangibles transfers.
• Functional Analysis: An assessment of significant activities, responsibilities, tangible and intangible assets, and risks is conducted, consistent with OECD Guidelines.

Choice of Transfer Pricing Method

The Maldives accepts all OECD transfer pricing methods, including Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), and Profit Split. The choice of method depends on transaction-specific facts and conditions.

Economic Analysis – Benchmark Study

Local comparables are preferred for benchmark studies, and international comparables may be considered if local data is insufficient.

Inter-company (IC) Legal Agreement

Legal agreements formalizing relationships between group entities are less emphasized, with more focus on the “conduct of parties” as outlined in the OECD 2017 Guidelines.

Financial Statements

The Maldives Company Act requires registered companies to submit annual financial statements, director’s reports, and auditor’s reports.

Production Process for TP Relevant Returns, Documents, Forms, and Financials Detailed information about filing requirements, formats, deadlines, notification requirements, thresholds, and language preferences is provided for various tax-related documents and forms.

Record Keeping

The statute of limitations mandates that records must be kept for a period of five years.

Penalties and Interest Charges

Specific penalties related to transfer pricing are not specified; instead, penalties are derived from other tax-associated violations. Penalties under Sections 64 and 65 of the Tax Administration Act apply if transfer price documentation requirements are not met.