Effective 1 July 2017, Malawi introduced two transfer pricing (TP) related regulations. Firstly, the Taxation (Transfer Pricing Documentation) Regulation which deals with transfer pricing documentation requirements and secondly the Taxation (Transfer Pricing) Regulation which covers general aspects of TP such as approved methods, key terms, guidance on intangible property, general application and how to test related party transactions.
Interestingly, the Taxation Transfer Pricing Documentation Regulation requirements were introduced for transactions between any related parties, including local transactions, subject to a transaction threshold of USD135,000. The TP documentation should be contemporaneous and although Malawi, like South Africa, is not a member of the OECD, its TP Regulations are to be interpreted in accordance with the OECD Guidelines and Malawi relies heavily on the OECD Guidelines.
While submission is not required, TP documentation is to be submitted within 45 days of a written request from the Commissioner General. Taxpayers failing to comply with the above will be subject to a penalty of USD1,400 and further penalties of USD2,100 for each month the documents remain outstanding. Furthermore, any tax adjustment resulting from a transfer pricing adjustment carries usually a 100% penalty but can be up to 200%. Taxpayers are also liable for interest on the underpayment of tax. TP assessments can be raised retrospectively for up to 6 years or indefinitely if fraud is suspected. For these reasons, it is vital for taxpayers to ensure that they adhere to the transfer pricing rules and regulations historically and going forward.
What are your thoughts on the above, especially the local transfer pricing requirements?