On December 15th, the reach of transfer pricing regulations expanded to the Caribbean. The Jamaican government just amended the anti-avoidance section of its tax code, the Income Tax Act, to include transfer pricing provisions. Section 17 of the Income Tax Act includes the acceptable transfer pricing methods and documentation requirements for tax payers engaged in related party transactions.
The Advancing Caribbean Transfer Pricing Presence
While most Caribbean countries do have a form of anti-avoidance rules within their tax codes, they don’t have a formal transfer pricing legislation. These new transfer pricing rules will establish Jamaica as the second country in the Caribbean (after Aruba) to have enacted transfer pricing legislation. The newly introduced transfer pricing rules are expected to be written into law soon and will be effective beginning fiscal year 2015 onwards.
New Transfer Pricing Rules
The new transfer pricing rules will be based on the Organization for Economic Cooperation and Development (“OECD”) standards for transactions between related parties.
These new transfer pricing rules will be applicable to any transaction conducted by Jamaican taxpayers with related parties abroad.
Scope
- Effective fiscal year 2015, all taxpayers engaging in related party transactions will be required to complete a “Related Party Transaction Schedule” (Schedule 8) to be attached to the Income Tax Return and submitted by March 15, 2016.
- Only taxpayers with gross annual revenue that equals or exceeds J$500,000,000 are required to maintain transfer pricing documentation at the time of their transactions.
Penalties
Please note that no penalties, for failure to report transactions with related parties or for properly filing Schedule 8, will be applied for fiscal year 2015. However, penalties will be imposed for fiscal year 2016 and beyond.
Advance Pricing Agreement (“APA”)
Taxpayers who are engaged in highly complex transactions or specialized industries are encouraged to approach the Commissioner General of the Jamaican tax authorities (“JTA”) in order to negotiate an APA.
Transfer Pricing Methods
As with other countries adhering to the OECD guidelines, application of the best method rule is required with all transfer pricing documentation. There are five specified methods that may be deemed most appropriate. These specified methods are as follows:
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- Comparable Uncontrolled Price Method (“CUP”);
- Resale Price Method (“RPM”);
- Cost Plus Method (“CP”);
- Profit Split Method (“PSM”); and
- Transactional Net Margin Method (“TNMM”)
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In addition to the specified methods, there may be other unspecified methods that could be used. These unspecified methods should be applied in the event that none of the five specified methods are appropriate. Results from unspecified methods must be aligned with results that would have been achieved with unrelated parties carrying out a comparable, independent transaction.
Conclusions
With the expansion of transfer pricing rules to Jamaica comes a new set of points for consideration.
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- First deadline for filing Schedule 8 has been announced as March 15, 2016.
- The JTA will have the authority to assess penalties or adjustments to taxpayers uncompliant with transfer pricing rules. Therefore, BaseFirma recommends taxpayers to prepare documentation in advance, in order to avoid penalties or undesired transfer pricing adjustments.
- Jamaican entities with annual revenues of J$500 million and greater should start a review of their intercompany transactions and determine the best method to support compliance with the arm’s length character.
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BaseFirma can assist your company to perform a risk assessment and determine the best action plan in order to comply with the new transfer pricing rules.
For more information, please contact BaseFirma’s office in the US:
BaseFirma Inc.
801 Brickell Avenue, Suite 900
Miami, FL 33131
Tel: +1 (305) 461 3212