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House approves transfer pricing rules - Phillips says law not retroactive, Shaw vows to reverse

Published:Tuesday | December 8, 2015 | 12:00 AM

Rules governing the operation of a transfer tax regime were yesterday approved by the House of Representatives despite the Parliamentary opposition voting against them, saying they were unfair and bad for investment.

Companies with gross annual revenue of $500 million or more and operating in two or more jurisdictions will be required under the new transfer pricing law to report on intra-company transactions.

The companies will be required to prepare documentation for Tax Administration Jamaica (TAJ) which will determine whether the arms-length principle should apply.

Dr Peter Phillips, the country’s finance minister, said the law seeks to ensure that “revenues or income earned in Jamaica, liable for taxation, is in fact paid in Jamaica rather than siphoned off to other jurisdictions as a means of tax avoidance or tax evasion”.

The House of Representatives recently passed the transfer pricing bill and Phillips has said that the law would not take effect until the rules are promulgated. But ever since the transfer pricing law was brought to the Parliament, many stakeholders have been expressing concern that it has a retroactive feature which should be frowned upon.

Reporting will have to begin in the 2015 year of assessment.

“It is not retroactive application of taxation as was incorrectly described in some sections of the media. There is nothing retroactive about it. 

"All the reports for 2015 are due not later than March 2016. This no less. What is the difference here is that we are giving the assurance that in this transitional period no prosecutions will be undertaken and that is to emphasise the collaborative approach that is to be taken," Phillips said.

“We have specifically amended the legislation to ensure that there be no prosecutions under this until 2017," Phillips added while acknowledging that there will be "teething pains".

Meanwhile, the rules allow the taxpayer and the Commissioner General of TAJ to arrive at an advance pricing agreement.

“What this allows is for taxpayers that operate in an industry which has unique features, the film industry for example, to make an agreement with TAJ authorities to decide their own rules, acceptable to the tax authorities to report on that basis,” Phillips explained.

Such an agreement would have to be initiated by the taxpayer and requires negotiation between the taxpayer, the connected entities and the tax authorities.

“The intention is not to waylay or ambush or bushwhack any corporation operating as a multilateral entity in Jamaica,” Phillips said.

But Audley Shaw, the opposition spokesman on finance, said the regime has built into it a retroactivity clause which could lead to taxpayers being penalised for acts that took place before the law is brought into effect.

“It is not meant to be contentious here but I can state without any fear of contradiction on this side, that in a future Jamaica Labour Party government, we would reverse this decision because it is anti-business and hostile to business,” Shaw said.

The regulation states that a transfer pricing agreement shall have effect with respect to the connected transaction that are carried out subsequent to the date on which it is approved and is valid during the period indicated in the agreement.  A resolution which was yesterday approved by the House said the transfer pricing regime "may be given retroactive effect to a date not earlier than January 2015". 

Shaw said Phillips should amend the clause to reflect January 2016.