On 16 November 2022, the Internal Revenue Department (“IRD”) issued Public Ruling 3/2022, which clarifies how the tax authorities will interpret tax avoidance, underpayment, false or misleading tax information, and tax evasion as provided under Myanmar’s Tax Administration Law (“TAL”). This Public Ruling will take effect on 1 January 2023.
A summary of the Public Ruling is provided here.
Section 32 of the TAL states that the Director General (“DG”) of the IRD may, in conducting an assessment, disregard a transaction or series of transactions that are artificial or fictitiously presented with the purpose of reducing the amount of tax payable. The IRD may determine transactions or a series of transactions on the economic substance of the transactions.
Public Ruling 3/2022 clarifies the term “Tax Avoidance” under the TAL. The Ruling provides that Tax Avoidance will apply if a taxpayer fully understands the tax laws and breaches the tax ethics with the purpose of avoiding the tax or acting to reduce the taxable income or tax liability. This includes the following matters and schemes:
- Failure to disclose an asset, property, service or benefit at market price;
- Making non-arm’s length transfers for cross-border transfer pricing;
- Splitting income between taxpayers and associated enterprises with the purpose of lowering the total tax payable on income;
- Re-organizing the structures of associations to enjoy tax benefits; and
- Tax avoidance by abusing bilateral or multilateral tax treaties.
Note: Myanmar has no transfer pricing and income splitting rules under its current domestic legislation. It remains unclear how the anti-avoidance rules may apply to transactions between related parties. However, we understand that the examples highlighted in the public ruling are aligned with the anti-avoidance provisions as per the draft of the new Income Tax Law.
Negligent or Fraudulent Underpayment
Section 68 of the TAL states that if tax is underpaid, or might have been underpaid, as a result of an incorrect statement or material omission in the tax return, and that statement or omission is a result of intentional conduct or negligence, the taxpayer will be subject to the following penalties:
- 25% of the underpayment if the underpaid tax does not exceed MMK 100 million (approx. USD 48,000) nor 50% of the tax payable; or
- 75% of the underpayment if the underpaid tax exceeds MMK 100 million or 50% of the tax payable.
Public Ruling 3/2022 clarifies that “Negligent or Fraudulent Underpayment” will apply if the taxpayer files a tax return and under-reports the tax payable as a result of intentional conduct or negligence. This includes the following matters:
- Deliberate failure to file a tax return for the period;
- Under-reporting of income and proceeds of sales;
- Fraudulently claiming tax relief;
- Fraudulently applying for depreciation;
- Using or submitting false documents or fictitious invoices;
- Receiving tax credit on input tax by fraudulent practices;
- Omission of output tax;
- Failure to affix the tax labels on the receipt for tax payable;
- Failure to affix the tax labels on identified specific goods; and
- False or incorrect bookkeeping due to either person or machine.
False or Misleading Statements
Section 69 of the TAL states that if the taxpayer provides a false or misleading statements to the tax authorities, the taxpayer (except if acting in good faith) will be subject to a penalty of MMK 150,000 (approx. USD 70) plus a higher penalty of:
- The difference between the tax liability that should have been paid and the actual tax paid; or
- The difference between the tax refund that should have been claimed and the actual tax refunded.
Public Ruling 3/2022 clarifies that “False or Misleading Statements” will apply if the taxpayer submits false or misleading information to the IRD in order to reduce the tax or to receive a non-liable refund, and such statements were relied upon by the IRD as the correct submission of the taxpayer. This includes the following matters:
- Intentional omission of income and proceeds of sales;
- Declaration of false or misleading statements in a tax return;
- Submission of false or misleading statements during an official tax inquiry (whether in written or verbal form);
- Keeping or submitting false or misleading accounting records and documents;
- Illegal importation or export of commodities;
- Transferring the assets to avoid recovery of tax;
- Omission of the bank account information; and
- Keeping more than one financial statement.
Section 77 of the TAL states that a taxpayer who willfully evades the assessment, payment or collection of tax, or who willfully claims a refund of tax to which the taxpayer is not entitled is liable to the following penalties:
- The higher amount of MMK 250,000 (approx. USD 120) or 100% of the tax amount evaded;
- Seven years imprisonment; or
- Both 1 and 2.
Public Ruling 3/2022 clarifies that “Tax Evasion” will apply if the taxpayer commits or intentionally violates the tax laws, or commits “Negligent and Fraudulent Underpayment” and “False or Misleading Statements” on several occasions, or if the taxpayer’s non-compliance resulted to significant losses to the state. The ruling also clarifies that tax evaders may be prosecuted in accordance with the TAL and the Anti-Money Laundering Law.
For further information or assistance on this matter, please contact Jack Sheehan, Partner, Head of Regional Tax Practice at [email protected] and Diberjohn Balinas, Tax Director, Myanmar at [email protected]