Jordan issues Executive Instructions for Transfer Pricing regulations

In detail

Considerations related to TP documentation

Disclosure Form for Controlled Transactions (“TP Form”)

Article 3 of the instructions states that taxpayers are required to submit a TP Form if the total value of controlled transactions within a period of 12 consecutive months exceeds the threshold of JOD 500,000. As per Article 4, the TP Form shall include detailed information, including:

1. Information related to intercompany transactions, including the names of related persons and their respective jurisdictions

2. Type and nature of relation with the transacting entity (including ownership percentage, country of residency, country of incorporation, ultimate owner, beneficial owner, revenues, expenses, and income/loss)

3. Any business restructuring undertaken within the Group or by the taxpayer

4. Information about the actual and the beneficial owners

5. Total revenues, total expenditures and the value of net profit or loss mentioned in the tax return

6. The nature of intercompany transactions (purchase/sale of goods, purchase/sale of fixed assets, services, agency services, rent/lease services, R&D, royalty and license and financial transactions)

7. The TP method considered

8. Details of any free of charge transactions or transactions with non-cash consideration 

9. A declaration if the required TP documents are maintained (i.e. the master file and the local file)

Taxpayers are required to submit the TP Form based on the template provided in the instructions, which includes two sections - (i) Section 1 includes information on related parties and (ii) Section 2 includes information on related party transactions. 

Deadline - Aligned with the tax return submission date, i.e. to be submitted within four months from the end of the financial year concerned.

TP Affidavit (new requirement)

An additional requirement is introduced as per Article 10 of the instructions, whereby taxpayers are required to submit an Affidavit issued by a chartered accountant confirming taxpayers’ compliance with Group TP policy and its impact on the financial statements.

Deadline - Not specified.

CbCR, Master file and Local File

The content of the CbCR, Local file and Master file is provided in Article 6, 7 and 8 of the instructions respectively, which is broadly aligned to the OECD TP Guidelines. The key difference relates to the Industry analysis section in the Local file, where specific requirements are provided on the expected content of the analysis (i.e. major competitors, power of suppliers and buyers, availability of substitutes, size, demand and supply trends, etc.).

Deadline (new requirement) - To be submitted within 12 months from the end of the financial year concerned.

Other key considerations

Concept of ‘Surrogate filing entity’ for CbCR (new clarification)

The regulations published earlier mentioned that the ‘Surrogate filing entity’ concept will be addressed through the instructions. The instructions have now provided guidance on such concept, which is aligned with the OECD TP Guidelines.

Based on the regulations published earlier, the CbCR requirements apply to Jordan tax resident entities that are part of a Multinational Group with consolidated revenues exceeding JOD 600 million (approx. EUR 695 million / USD 845 million) in the financial year preceding the reporting year concerned. 

Based on the regulations published earlier, the Jordan resident Ultimate Parent Entities (UPE) of the Group are primarily required to submit the CbCR (i.e. primary CbCR filing requirement). Additionally, the regulations prescribed that, under the secondary filing requirement, Jordan resident entities of Groups headquartered outside of Jordan may also be required to submit the CbCR in Jordan, in certain cases. 

Based on the ‘Surrogate filing entity’ concept, as newly clarified through the instructions, Jordan resident entities of Groups headquartered outside Jordan will not be required to submit the CbCR in Jordan, in case the CbCR is filed by the ‘Surrogate filing entity’ of the Group, where the jurisdiction of tax residence of such ‘Surrogate filing entity’:

1. Requires the filing of CbCR

2. Has a qualifying competent authority agreement in effect with Jordan that allows for automatic exchange of CbCR

3. Has not notified the Jordan Competent Authority of any systemic failure in exchange of CbCR

4. Has been notified of the identity of the ‘Surrogate filing entity’

5. A notification has been provided to the Jordan Competent Authority including the name and jurisdiction of tax residence of the ‘Surrogate filing entity’ and its tax identification number

Consistent use of selected TP method (new requirement)

Based on Article 10 of the instructions, where a TP method, amongst the approved TP methods3, has been adopted by the taxpayer, the tax authorities expect the same TP method to be used by the taxpayer on a consistent basis for subsequent tax years.

The Takeaway

The publication of the Executive Instructions within a short duration of publishing the TP regulations demonstrated the intention of the tax authorities in Jordan to implement the TP requirements effectively. 

These additional instructions provide more direction to taxpayers and represent a welcome step. However, certain areas are yet to be clarified by the tax authorities in order to ensure consistent application by taxpayers. The expectation from the instructions was to aid in executing the clauses of the existing regulations, however, a few new key requirements have also been introduced through these instructions such as TP Affidavit, consistent use of TP method and mandatory filing of Local file/Master file within 12 months of year end.

For taxpayers in Jordan, the regulation introduces additional documentation requirements which include TP disclosure form, TP Affidavit (new requirement), Local file, Master file, CbCR and CbCR notifications. Taxpayers are encouraged to proactively evaluate the applicability of these requirements. Given the wide application of the rules under the regulation, taxpayers should take a detailed look at their business operations and current TP policies to identify any TP risks for the open tax years and on a forward looking basis.