Submission for Customs Supplement Tax Administration Jamaica
Transfer pricing is the general term for the pricing of cross-border and domestic, intra-group transactions between connected parties. It refers to the setting of prices for transactions between connected persons involving the transfer of property or services. Companies can be connected in various ways, for example, two wholly owned subsidiaries with the same parent company are all connected.
Transfer pricing constitutes an important part of any Multinational Enterprise operation, however the concern of Tax Jurisdictions is where there is manipulation of prices or transfer “mis-pricing”, resulting in tax avoidance or evasion.
Jamaica joins a long list of approximately one hundred and thirteen (113) jurisdictions that has implemented transfer pricing rules with a view to protecting their tax base.
Transfer “mis-pricing” has the potential to erodea jurisdiction’s tax base. If you look at the Dominican Republic’s experience with the tourism industry, where based on a study conducted, a hotel chain having extensive international linkages can arrange their tax affairs by shifting their profits to low tax jurisdictions through the use of marketing intermediaries.
With transfer pricing rules the intermediary in the low tax jurisdiction would be deemed to be a connected party unless the local entity can satisfy the tax authority that no connection exists. If the marketing intermediary in a tax haven is connected by law to the local hotelier, the transfer pricing rules dictates that the transactions be adjusted to reflect the arm’s length price. The Arm’s length price is the price payable when two independent parties are conducting business together.
The implication of an arm’s length adjustment is that more profits will be attributed to the local hotel, resulting in a higher taxable income. This means more tax revenue for the country to provide badly needed socials goods and services.
