Appendix I. Design Issues with the EBITDA Rule
There are a number of design issues that need to be addressed with the implementation of an interest deduction limitation rule based on EBITDA. Further consideration needs to be given to some of these design issues. The main design issues are:
I. Meaning of interest.
II. The calculation of EBITDA.
III. The acceptable ratio
IV. The group ratio approach for MNEs.
V. The carry forward of excess interest expense and excess interest capacity.
Kelly, R., 2013, Making the Property Tax Work, International Center for Public Policy, Working Paper 13–11, April 2013, Georgia State University.
Klemm, A., and Parys, S.V. 2012, Empirical Evidence on the Effects of Tax Incentives, International Tax and Public Finance 19, p. 393–423.
McLure, 2003, C., 2003, The Value Added Tax on Electronic Commerce in the European Union, International Tax and Public Finance 10(3), p. 753–762.
OECD Tax Policy Studies No. 20 (2010), Tax Policy Reform and Economic Growth, Particularly Concerning the Beneficial Effect of Property Taxes on Economic Growth.
Platform for Collaboration on Tax, 2018, The Taxation of Offshore Indirect Transfers of Assets, available at: : http://documents.worldbank.org/curated/en/322921531421551268/a-toolkit-draft-version-2
Section 11(b) of the TAA. It is noted that MIRA submits its budget to the Ministry (section 11(a) of the TAA).
Section 3(a) and (i) of the TAA.
Section 4(b)(3) of the TAA.
Section 94(a) of the Constitution.
Section 271 of the Constitution.
Section 49 of the BPTA and section 67 of the GSTA. Both sections provide that this is subject to the relevant Act providing otherwise. However, it appears that all regulations required to be made under both Acts are to be made by MIRA.
Section 20 of the GSTA.
Sections 10 and 11 of the BPTA.
Section 84 of the TAA.
Sections 10(a) and 1(a)(5) of the BPTA.
Section 30 of the BPTA.
Section 81 of the TAA.
There are alternative ways to define a benchmark tax system, but generally it should be chosen to exclude tax provisions that favor particular groups of taxpayers or goods and services (such as reduced GST rates).
The taxation of rental income would remain under the BPT; see Subsection D.
Section 43(a) of the BPTA.
In the case of partnerships, section 2(b) of the Partnerships Act of Maldives (1996) defines “partnership” to mean “a business association of two or more persons to carry on as co-owners a business for profit and bearing a separate name” (emphasis added). Consequently, by definition, the activities of a partnership are business activities.
Section 43(a) of the BPTA.
Individuals are taxed on a territorial basis, i.e. resident and non-resident individuals are taxed only on Maldives source income.
Sections 3(c)(1) and 4(b)(1) of the BPTA
Section 3(1c)(2) of the BPTA. It is noted that section 3(c)(1) of the BPTA applies only to rental income.
Section 3(c)(2) of the BPTA.
See Article 5(3)(b) and (6) of the Maldives Model Tax Treaty.
Section 11(a)(5) of the BPTA. The ceiling on the interest rate does not apply to interest paid to an approved bank or financial institution.
Sections 2 and 7(a) of the BPTA.
Section 14 of the Law on Foreign Investment and section 15(a)(3) of the BPTA.
Section 15(b) of the BPTA.
In the case of the Maldives, Chapter 5 of the TAA provides for unilateral double tax relief through the foreign tax credit.
The OECD Model Tax Convention on Income and on Capital.
The UN Model Double Tax Convention between Developed and Developing Countries.
The Maldives has already entered into a TIEA with India and has signed a TIEA with the Republic of South Africa. Further, the main focus of the SAARC Treaty is mutual administrative assistance between the Contracting States.
The issue of transfer pricing and the BPT is addressed in Chapter IV of this report.
The present mission focuses on tax policy issues, and can only refer to advice provided by experts in tax administration as well as suggest areas where the authorities may want to seek future technical assistance by experts in tax administration. The Maldivian authorities may consider seeking technical assistance on this issue.
The detailed threshold provisions are laid out in Chapter 10 (Registration) of the GST Act.
Which, in the Tourism Act is considered a payment for rent and not a tax.
See Tourism Land Rent Regulation 2010/R-20.
Actual ratio values, particularly in developing countries, may be substantially lower than those applied here.
A broader discussion of the components of the revenue formula is provided in Norregaard (2013) op. cit.