US-based transfer pricing specialist E Miller Williams Jr reckons that local businesses operating companies on the international market should begin negotiations with the Tax Authority of Jamaica (TAJ) to minimise discrepancies associated with the newly enacted Transfer Pricing rules.

Miller Williams Jr, who was speaking at the American Chamber of Commerce and Ernst and Young seminar on transfer pricing yesterday, stated that the implementation of the Advanced Pricing Agreement (APA) with the TAJ will encourage companies to comply with the Government, since the agreement minimises the work to be carried out by companies on completing annual returns under the new regime.

In a news release on the TAJ website, the Government agency has invited taxpayers who are engaged in highly complex transactions or specialised industries to approach the commissioner general with a view to negotiate an APA.

The TAJ noted that the advantage of such an agreement is that taxpayers will have certainty as to the acceptable economic terms and conditions applicable to each connected party transaction before the transaction is carried out. The negotiating parties are to determine the commencement of the agreement, which will not be retroactive.

Concerns have however been raised about the Government’s urgency to implement the Transfer Pricing policy, potentially overburdening the tax authority with requests. Miller Williams Jr, in an interview with the Jamaica Observer stated that roughly 1,500 companies in the United States underwent negotiations with the Internal Revenue Service (IRS), in addition to India which has more than 600 cases filed for APA since the system took effect in 2012.

“I think in Jamaica just bringing these rules and allowing various pricing agreements will result in companies wanting to work with the Government because they don’t want to be considered as a non-compliant company,” he said.

“It is very helpful for the companies because in many cases they really aren’t too worried about where they pay their taxes, but want to ensure that it is not being taxed by both governments as well as they want to avoid paying for future audits to deal with the issue,” Miller Williams Jr, told the Business Observer.

“So basically you go in and negotiate and each year you provide an annual report which shows how the company complied with it.”

He noted that APA is of a unilateral nature when it’s just between the IRS and the company, but can be bilateral and multilateral where two countries are involved.

“So if you have a company in the United States that’s selling goods or licensing an intellectual property to Canada, then both the Canada Revenue Authority and the IRS agree, through the mutual agreement procedures, on what the pricing should be so that the company gains certainty in Canada and in the United States on what that price is,” he explained.

The anti-avoidance provisions in Jamaica’s Income Tax Act were enacted by Parliament in early December 2015 to introduce transfer pricing rules applicable to transactions between parts of a multinational corporate group. The rule applies to only large taxpayers whose gross annual revenue equals or exceeds $500 million and should be attached to the Income Tax Return and submitted by March 15, 2016.

The new transfer pricing rules apply to transactions conducted by taxpayers resident in Jamaica with connect persons that are abroad . The rules are based on the Organisation for Economic Co-operation and Development’s (OECD) arm’s-length principle for transactions between connected parties — that a transfer price should be the same as if the two companies involved were indeed two independents, not part of the same corporate structure.

The OECD also regulates the criteria taxpayers must follow to perform a comparability analysis and establishes the transfer pricing methodology to apply when assessing the arm’s-length principle.