Although no formal regulations exist, the Internal Revenue Department (IRD) will use its knowledge of market prices of similar transactions conducted between independent parties as a guideline when assessing whether a transaction between related parties is reasonable, and will use a rationale similar to the basis of the methodologies set out in the OECD guidelines. Where the IRD deems that a price charged to a related party is not at market value or at arm's-length, it has the power to reassess tax based on a price and margin that it considers to be appropriate for that transaction.
Under Chapter VII of the Income Tax Law (ITL), taxpayers who have filed their annual tax return may also be required to "produce supporting evidence, accounts, and a list of property". If these are not sufficient, "income tax shall be assessed after scrutinising other supporting evidence required..." So, although no specific requirements exist for calculations to substantiate transfer pricing in Myanmar, when tax auditors from the Circle Companies Tax Office (CCTO) conduct their annual tax audits to issue tax assessments, they will require that supporting documents are available for their inspection.
Further, the IRD has the ability to reassess the tax amount where it believes there are instances of fraud, or under the following circumstances:
- Income chargeable to income tax has escaped assessment;
- Income has been under-assessed;
- Assessment has been made at a low rate; or
- Relief in excess of the amount actually allowable under the law has been allowed.
The IRD does not provide any further clarification or explanation of the above; hence, if the IRD applies these powers broadly, it may reassess under any circumstances where it believes that income is not being correctly declared, such as undercharged fee income in a related party transaction.
Where the ITL addresses the deductibility of expenses for the calculation of taxable income, it states that for expenses to be allowed to be deducted they must be "commensurate with the extent of the professional service". Again, this non-specific and undefined condition confers to the IRD the ability to disallow expenses in a very broad manner.
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