TAT Makes a Landmark Decision on WHT on Interconnection Charges

On 26 April 2019, the Tax Appeal Tribunal has set a landmark precedent on the application of Section 6 on Interconnection Charges and similar types of payments, and payments made for the use of certain types of Computer Software utilized in the Telecommunications Industry. The decision was made unanimously by the Members in favour of the Appellant, Ooreedoo Maldives Private Limited – a multinational telecommunications operator.

The Tribunal held that interconnection charges were payments made towards the use of intangible property and thus would not be subject to WHT under Section 6(a)(1) as the scope of the that Section is limited to payments made for the use of tangible property only. The decision made, with respect to Section 6(a)(1), cited the Tribunal’s decision, Medianet v MIRA, which also held that under Section 6(a)(1), “Rent, royalties and any other such consideration..” that is subject to WHT must be paid for the use of the types of tangible property.

Further, the Tribunal held that MIRA erred in application of the law by imposing WHT on interconnection charges under Section 6(a)(4), – under the heading payment for technical services – as the text in Section 6(a)(4) makes it clear that technical services must be construed to involve human intervention of such services while it is not the case in interconnection services. The usage of the phrase, “any other commission or free not constituting income from employment” makes it clear that the section refers to services rendered with a person’s involvement/intervention.

Another important decision made was with respect to Section 6(a)(3) – payments for the use of computer software – with the Tribunal members asserting that simply having access to adaptation features, or configurations for proper and convenient use of the software cannot be considered as customizing or modifying the software.

The Tribunal ordered the MIRA to refund all additional tax and fines paid by Ooreedoo.