Transfer pricing instructions include OECD-type documentation requirements
Jordan’s tax authorities issued transfer pricing instructions on 16 September 2021 that provide tax officials and taxpayers with guidance on the application of Regulation No. 40. The regulation—published on 7 June—is Jordan’s first step towards implementing a formal transfer pricing regime and it applies to financial periods starting on or after 1 January 2021.
The instructions generally are consistent with the three-tiered documentation requirements developed as part of BEPS Action 13 and they reflect Jordan's commitment to the OECD/G20 BEPS project. (Jordan joined the OECD Inclusive Framework in 2019, which requires the country to implement the BEPS minimum standards, as well as a transfer pricing regime.)
The regulation and instructions apply to any taxpayer in Jordan with related party transactions of JOD 500,000 or more within a consecutive 12-month period.
The following transfer pricing information and documentation must be prepared and submitted:
- Disclosure form: Although not part of the OECD transfer pricing documentation requirements, taxpayers in Jordan must prepare and submit a disclosure form that captures basic information, such as the names of the related parties, the type of transactions (purchase, sale, finance, royalties, franchises, etc.) and their value, the transfer pricing methods used, etc. The disclosure form must be submitted to the Jordanian tax authorities along with the annual income tax return within four months from the end of the fiscal year.
- Local file: The local file provides more detailed information on all of the taxpayer’s transactions with related parties, as well as information on the taxpayer, including a description of its organizational structure, business strategy, business activities and a description of financial data that will allow a comparison to be made to the data in the taxpayer’s financial statements. The local file also must describe transactions, as well as their nature and purpose and associated financial flows. Relevant documents, such as contracts or agreements between the related entities, should be attached to the form. The local file must be submitted to the Jordanian tax authorities within 12 months after the end of the fiscal year.
- Master file: The master file must be prepared by corporate income taxpayers that are part of a multinational group whose consolidated revenue in the preceding fiscal year is JOD 600 million or more. The master file contains high level information on the taxpayer’s global operations and transfer pricing policies and must be submitted to the Jordanian tax authorities within 12 months after the end of the fiscal year.
- Country-by-country reporting (CbCR): CbCR requirements apply to multinational groups whose consolidated revenue for the previous year exceeds JOD 600 million. The annual CbCR contains key information related to the financial statement and is designed to provide the tax authorities with data on income, revenue, retained earnings, tax due and tax paid, number of employees, currency used, etc., as well as the locations of business activities of the taxpayer’s subsidiaries and foreign branches. The CbCR must be submitted to the Jordanian tax authorities within 12 months after the end of the fiscal year.
The introduction of a transfer pricing regime will enhance business transparency between groups of companies and related persons, but at the same time, it will require taxpayers to pay more attention to the pricing of related party transactions and to ensure that they have robust systems in place to capture all of the relevant data and evidence to support the arm’s length nature of their transfer prices.