Transfer Pricing in Jamaica

Arm's Length Principle

​Jamaica has transfer pricing rules which seeks to ensure that taxpayers use arm’s length principle when computing their income tax liability.

The arm’s length principle in its simplest form, makes certain that the price charged in a transaction between related parties for goods and services is the same as the price which would have been charged between unrelated/independent parties for similar goods and services.

Level Playing Field

The purpose of transfer pricing rules is to have a level playing field and to prevent related parties from manipulating prices to obtain an unfair tax advantage.

For example, the price charged between related parties can result in profits being shifted from an entity taxed at a higher rate to an entity taxed at a lower rate.  Or it can shift profits from an entity with taxable income to an entity with unused tax losses, which would lower the effective tax rate of a group.  

This is an important point because the income tax recognized in your financial statements may be subject to change by Tax Administration Jamaica (TAJ) if the transactions with related parties were not done in accordance with the arm’s length principle.

Required Documentation 1

In Jamaica, persons with a gross annual revenue of J$500M or more are required under law to conduct a transfer pricing study to verify whether the conditions in their related party transactions are consistent with the arm’s length principle.

Persons are also required to keep the results (the documentation) of the transfer pricing study on file as TAJ can, at any time, request that your transfer pricing documentation be presented to them within 30 days of their written request.  

This is an important point because it may take longer than 30 days to actually conduct a proper transfer pricing study for all of the connected party transactions and failure to comply may result in penalties or assessments.

Required Documentation 2

Transfer pricing studies include transaction analysis, functional analysis, economic analysis, among other things, which requires persons who have the necessary skills, experience and resources to perform them effectively.  

It is not uncommon for TAJ to have a difference of opinion from a taxpayer about the transfer pricing method utilized by the taxpayer because different methods may have different results on the transaction price and consequently the profits and income tax.

It is therefore very important to not only choose a transfer pricing method which is in line with your profit or income tax target, but further to have sufficient documentation to support the transfer pricing method chosen for respective transactions, taking into consideration local law, international best practices, and decided court cases.