Opening Doors to Global Partnerships for Malawi’s Business Growth
Key Business Points
- Malawi’s business community should prioritize transfer pricing documentation to avoid audits and ensure compliance with tax authorities, as transfer pricing remains a common area of focus in MNE audits.
- Multinational enterprises (MNEs) must adopt best practices that embed tax compliance into their business culture and systems, such as maintaining robust transfer pricing documentation and ensuring that profits are allocated where value is created.
- Proactive engagement with tax authorities is crucial for MNEs to avoid surprises and unnecessary disputes, by adopting robust policies and engaging proactively with tax authorities, MNEs can minimize audit risks and ensure compliance.
In an era marked by increasing globalization, multinational enterprises (MNEs) are playing a pivotal role in shaping cross-border economic activity. However, their complex structures and aggressive tax planning initiatives have also drawn heightened scrutiny from tax authorities across the world. The knock by tax authorities often leads to complex investigations, disputes, adjustments, penalties, or reputational damage. Transfer pricing audits do not emerge from thin air, but are triggered by specific red flags and signals that suggest potential non-compliance or risk to the tax base. These triggers include failure to file transfer pricing documentation, unusual intercompany transactions, and inconsistencies between financial statements and tax returns.
Tax authorities are leveraging international data-sharing arrangements such as Country-by-Country Reporting to identify high-risk taxpayers, and databases such as TP Catalyst’s Orbis or Royalty Range to benchmark taxpayer margins against industry norms. Inside the audit, transfer pricing remains a common area of focus, with common issues including management and support services, intercompany financing, and intellectual property transfers. MNEs must prove that intercompany loans would have been acceptable to a third party under similar terms, and that intellectual property transfers are properly valued and substantiated.
To minimize audit risks, MNEs must adopt best practices that embed tax compliance into their business culture and systems. This includes maintaining robust transfer pricing documentation, ensuring that profits are allocated where value is created, and benchmarking periodically to update comparables and financial analyses. Implementing intercompany agreements and maintaining appropriate records to substantiate intercompany charges is also crucial. By adopting robust policies and engaging proactively with tax authorities, MNEs can avoid surprises and unnecessary disputes. As Vilipo Muchina Munthali, managing consultant at Swift Resources, notes, "transfer pricing compliance is not just about documentation, it’s about aligning substance with form, ensuring transparency, and demonstrating that profits are earned where value is created". In the post-BEPS era, the time to prepare is before the knock, and MNEs must be proactive in managing the process to ensure compliance and mitigate risk. By doing so, they can keep the door closed to unnecessary disputes and ensure a smooth operation in Malawi’s business environment, where "kugwiritsa ntchito mphamvu za ulimi" (using the power of language) can make a significant difference in navigating the complexities of transfer pricing and tax compliance.
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