Why the mad rush to implement a transfer pricing regime?
January, 27th 2016
Dr Peter Phillips, the finance minister, is about to undo all the good he has done with the economy by implementing the proposed transfer pricing regime.
The Government assures the country that this unconstitutional transfer pricing mechanism isn’t a tax, but an attempt to get affected businesses to pay their fair share of taxes. But anyone who has had to run any commercial enterprise, let alone a successful one, understands that businesses need to operate with clear rules of engagement upon which to base all sorts of contractual agreements, draft business plans, and project income, expenditure, profit and loss.
The question that still has not been answered is why this unholy rush to implement such a risky endeavour.
We can think of one possible reason:
The law compels companies to disclose related party transactions when filing 2015 tax returns, but the minister says no penalties will be applied in cases of breaches before 2016 tax returns which are filed in 2017. One is therefore left with the impression that this rush to disclose related party transactions in 2015 — without any understanding of the contractual basis of the transaction — is merely a means to gather data for determining who is to be audited and/or assessed.
The danger, of course, is that this approach creates an unnecessary bias which will prejudice what should be an orderly negotiation for an Advance Transfer Pricing Agreement with Tax Administration Jamaica, which is to be used for future tax returns.
But that is what you get when policies are based on abject cynicism and pander to the popular view that companies, to avoid taxes, have been cooking the books and manipulating the relationships existing among related parties.
Our business community deserves better than this. Most have been extraordinary corporate citizens, sticking with Jamaica through thick and thin. We are surprised that the finance minister is going ahead knowing fully well that the private sector does not have the necessary expertise, at this stage, to handle and implement the various requirements and will therefore need to hire external consultants, which is costly and time-consuming.
We now know that transfer pricing legislation is one of the most complex laws. That is why we are insisting that the transfer pricing rules and regulations must be clearly defined before implementation so that they can be understood, in order to avoid court sanction/imprisonment due to unintended breaches.
To do otherwise is unfair and creates uncertainty which could hurt businesses and investments in Jamaica. No business, whether old or new, local or foreign, can operate in an unstable environment.
Moreover, the failure of the tax authorities to begin public education of the populace on the transfer pricing regime is palpable indication that they themselves are unclear about the rules and regulations. It is instructive that the drafting and finalising of the Advanced Pricing Agreements are yet to commence.
A government concerned about growing businesses would complete its due diligence, followed by implementation in year of assessment 2016, thus allowing constructive and orderly negotiations that avoid ruining this country’s economy.
Dr Phillips needs to show that he understands this and that he cares.