1. Introduction and citation

(a) This Regulation is made pursuant to the authority granted to the Board of the Maldives Inland Revenue Authority by Section 68(b)(4) and Section 76(b) of the Income Tax Act (Law Number 25/2019).

(b) This Regulation shall be cited as the “Transfer Pricing Regulation”.

2. Objective 

The objective of this Regulation is to facilitate the implementation of Section 68 of the Act, set out rules to be followed by persons who are subject to that Section and establish the policies and procedures with regard to the implementation of the provisions of that Section. 

3. Preparation of transfer pricing documentation

The transfer pricing documentation required under Section 68(b) of the Act shall be prepared in the following manner.

(a) The transfer pricing documentation shall include the information specified in schedule 2 of this Regulation in respect of the following:

(1) The transaction or arrangement that is subject to Section 68 of the Act;

(2) The applicable entity that is subject to the transaction or arrangement specified in subsection (a)(1);

(3) The group to which the applicable entity that is subject to the transaction or arrangement specified in subsection (a)(1) belongs.

(b) The date on which the transfer pricing documentation is completed shall be stated therein.

(c) The transfer pricing documentation shall be prepared in English or Dhivehi

(d) The accounting period to which the transfer pricing documentation relates shall be specified therein.

4. Qualifying past transfer pricing documentation

(a) Notwithstanding Section 3 of this Regulation, where an applicable entity prepares a “qualifying past transfer pricing documentation”, the transfer pricing documentation prepared by that applicable entity in respect of a transaction or arrangement defined in this Regulation as a “subject transaction”, shall:

(1) fulfill all the requirements specified in Section 3 of this Regulation; and

(2) include a declaration by the entity stating that the entity has prepared a qualifying past transfer pricing documentation, and a copy of the qualifying past transfer pricing documentation thus prepared.

(b) The declaration specified in subsection (a)(2) shall not be deemed to be a qualifying past transfer pricing documentation.

5. Defining qualifying past transfer pricing documentation

(a) In this Regulation, “qualifying past transfer pricing documentation”, shall mean the transfer pricing documentation that was prepared for the previous accounting period in respect of a transaction or arrangement entered into with the same associated party with whom the transaction (the subject transaction) entered into, in respect of which the transfer pricing documentation is prepared.

(b) The qualifying past transfer pricing documentation specified in subsection (a) shall fulfill all the requirements specified in Section 6 of this Regulation.

(c) Where transfer pricing documentation was prepared for the previous accounting period in accordance with subsection (a), or, the transfer pricing documentation prepared for the previous accounting period did not fulfill any of the requirements specified in Section 6 of this Regulation, “qualifying past transfer pricing documentation” shall mean the transfer pricing documentation that was prepared for the accounting period immediately preceding the previous accounting period in respect of a transaction or arrangement entered into with the same associated party with whom the transaction (the subject transaction) entered into, in respect of which the transfer pricing documentation is prepared.

(d) The requirements specified in Section 6 of this Regulation shall be fulfilled even where subsection (c) applies.

6. Requirements of qualifying past transfer pricing documentation

The qualifying past transfer pricing documentation specified in Section 5(a) and (c) of this Regulation shall satisfy all of the following conditions:

(a) The transfer pricing documentation is prepared in accordance with Section 3(a), (b), (c) and (d) of this Regulation;

(b) The transaction for which the transfer pricing documentation was prepared is of the same type of transaction or arrangement as the subject transaction;

(c) The information in the transfer pricing documentation on all of the following matters accurately describes the same matters as regards the subject transaction:

(1) the commercial or financial relations between the parties;

(2) the terms and conditions made or imposed between the parties;

(3) the transfer pricing method that is used for the transaction or arrangement;

(4) the arm’s length terms as defined in Section 79(r) of the Act, applied in the transaction or arrangement.

7. Exemptions

Transfer pricing documentation need not be prepared for a transaction or arrangement undertaken by an applicable entity with its associated party in the following circumstances:

(a) The transaction or arrangement satisfies all of the following conditions:

(1) the applicable entity can be categorized into either a micro, small or medium enterprise under the Law on Small and Medium Enterprises (Law number 6/2013) in each of the following periods;

(i) the accounting period to which the transaction relates;

(ii) the accounting period immediately preceding the period specified in subsection (a)(1)(i) (hereafter referred to as the “previous accounting period”);

(iii) the accounting period immediately preceding the period specified in subsection (a)(1)(ii) (hereafter referred to as the “accounting period preceding the previous accounting period”).

(2) Section 68 of the Act requires transfer pricing documentation to be prepared for each of the following periods:

(i) previous accounting period;

(ii) accounting period preceding the previous account period.

(b) The transaction satisfies all of the following conditions and is not a loan transaction;

(1) each party to the transaction is either incorporated or registered in Maldives or carries on a business in Maldives;

(2) the income derived by the first party to the transaction from the transaction is subject to tax under the Act;

(3) the amount paid or payable by the second party to the first party is deductible in the computation of taxable income of the second party only against income of that second party which is subject to tax at the same rate applicable to the income specified in subsection (b)(2) received by the first party.

(c) The transaction satisfies all of the following conditions and is not a loan transaction;

(1) each party to the transaction is either incorporated or registered in Maldives or carries on a business in Maldives;

(2) the income derived by the first party to the transaction from the transaction is exempted from tax under the Act;

(3) the amount paid or payable by the second party to the first party is not deductible in the computation of taxable income of the second party against any income of that second party, or is deductible only from income of the second party which is exempt from tax;

(d) The transaction is a loan issued to an associated party or obtained from an associated party, which satisfies all of the following conditions; 

(1) each party to the transaction is either incorporated or registered in Maldives or carries on a business in Maldives;

(2) the party issuing the loan is not in the business of borrowing and lending money in the Maldives;

(e) The transaction is a loan which does not exceed MVR 15 million and the parties to the loan agree to apply the “indicative margin” for the year in which the loan is obtained or provided;

(f) The transaction is the provision of a routine support service, which satisfies all of the following conditions:

(1) a mark-up of 5% is applied to the cost of provision of the service;

(2) the service is only provided to entities in the group to which the applicable entity belongs;

(g) The value of all the transactions undertaken with associated parties during the tax year, except for those transactions specified in subsection (b), (c), (d), (e) and (f), does not exceed MVR 5 million;

8. Definitions

Unless otherwise specified in this Regulation:

(a) “Indicative margin” refers to the indicative margin published on MIRA’s website for to be used in determining the interest rate for associated party loans.

(b) “Applicable entity” refers to persons required to prepare transfer pricing documentation under Section 68 of the Act.

(c) “Group to which the applicable entity belongs” refers to a group of entities all of which are associated with each other and that includes:

(1) the applicable entity;

(2) where the applicable entity is a partnership, the partners of the partnership;

(3) where the applicable entity is a trust, the trustees of the trust.

(d) “Routine support services” refers to services of “supportive nature” which satisfy the following conditions and are not part of the primary business of the applicable entity, and, are specified in the First Schedule of this Regulation;

(1) the provision of the service neither requires the utilization of a unique asset or a valuable intangible asset, nor gives rise to such intangible asset; and

(2) the provision of the service does not involve the assumption or control of significant risk by the applicable entity.

(e) “Transfer pricing methods” refers any of the following methods used to determine the arm’s length price.

(1) “Comparable Uncontrolled Price (CUP) Method”: A transfer price method that compares the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances;

(2) “Cost Plus Method”: A transfer pricing method using the costs incurred by the supplier of property (or services) in a controlled transaction. An appropriate cost plus mark-up is added to this cost, to make an appropriate profit in light of the functions performed (taking into account assets used and risks assumed) and the market conditions. What is arrived at after adding the cost plus mark up to the above costs may be regarded as arm’s length price of the original controlled transaction;

(3) “Resale Price Method”: A transfer pricing method based on the price at which a product that has been purchased from a associated party is resold to an independent person. The resale price is reduced by the resale price margin. What is left after subtracting the resale price margin can be regarded, after adjustments for other costs associated with the purchase of the product (e.g. custom duties), as an arm’s length price of the original transfer of property between the associated parties;

(4) “Profit Split Method”: A transactional profit method that identifies the combined profit to be split for the associated parties from a controlled transaction and then split those profits between the associated parties based upon an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm’s length;

(5) “Transactional Net Margin Method”: A transactional profit method that examines the net profit margin relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realizes from a controlled transaction;

(6) “Other such method”: 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.

9. Commencement of the Regulation

This Regulation shall take effect from the date of its publication in the Government Gazette.