Gov’t uses majority to pass ‘bothersome’ transfer pricing provisions

Policy will disrupt investment: Samuda

THE Government fell back on its huge majority in the House of Representatives yesterday to approve the back tax provisions included in new transfer pricing regulations despite objections from the Opposition that the measure would strangle businesses and obstruct investments.

The 21 Government members (excluding Speaker Michael Peart) who were present voted solidly in favour of two resolutions accommodating the introduction of transfer financing, which is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. The 14 Opposition MPs voted against it after Opposition spokesman on finance Audley Shaw called for a “divide”.

The vote favoured two resolutions: the Income Tax (transfer pricing agreement) Rules, 2015; and the Income Tax (transfer pricing documentation) Regulations, 2015.

Earlier in the debate, Shaw and his Opposition colleague Karl Samuda pleaded with Finance Minister Dr Peter Phillips to remove the offending provision from the Bill, which requires that the affected companies pay the tax dated back to January 1, 2015, in support of the objections to the retroactivity which were raised by the Private Sector Organisation of Jamaica (PSOJ) in a response published in this week’s Sunday Observer..

Shaw even alluded to a Wall Street Journal article on the issue of retroactive taxes, in which India’s Prime Minister Narendra Damodardas Modi had referred to it as an act of “tax terrorism”.
“I wouldn’t want the minister to be so labelled… But, what is clear is that there is more than ample room for disagreement and it really begs for re-examination by the minister,” Shaw said.

“Remove that spot of bother. We don’t need it: The Government doesn’t need it. The country doesn’t need it. We need the taxes, but we don’t need the botheration,” Shaw insisted.

Samuda said that the action was “grossly unreasonable on the basis of its timing”, and cautioned that it would “disrupt the flow of investments and impede businesses”.

Shaw urged the minister to move up the effective date up from January 1, 2015, to January 1, 2016.

But Dr Phillips rejected the proposal, insisting that it was not a retroactive application of the taxes, “as was incorrectly described in some section of the media”.

“There is nothing retroactive about it,” Phillips said.

“All the reports of assessment for 2015 are due no later than March 2016, and this is no less. What is the difference is that we are giving the assurance that in this transitional period, no prosecutions will be undertaken and that is to emphasize the collaborative approach that is being taken,” Phillips argued.

He noted that the provisions only involved companies operating as multinationals, “who are of such a size that the provision and collection of this data is not to be considered onerous”.

Phillips pointed out that the revenue threshold for the affected companies was $500 million in gross annual revenue, and that it would be companies operating internationally (in two or more jurisdictions), that would be required to report on intra-company transactions.

“In the absence of the Consolidated Fund receiving funds that are due to Jamaica, then what would transpire otherwise is that other taxpayers would have to make up the gap, including the over-burdened PAYE worker or the consumer of goods and services that attract GCT,” he stated.

But, even so, he said that the Government recognised the need for a transitional period, during which the “teething pains” could be worked out.

“And so, in response to concerns raised by the Opposition spokesman and others, we have specifically amended the legislation to ensure that there will be no prosecutions under this Act until 2017,” Phillips noted.

“But we need to start somewhere. One of the things that we keep doing is postponing modernisation of our tax arrangements, and then complain that we are burdening the same set of taxpayers,” he said.