Formal TP rules have now been published with a commencement date of 2 August 2012. The rules are effective for basis periods beginning after the commencement date. For example, a company with an accounting year end of 31 December will be required to have a TP documentation in place for its financial year commencing 1 January 2013 rather than 2012.
The regulations are based on the existing anti avoidance provisions contained in the various tax laws particularly the Personal Income Tax, Companies Income Tax, and the Petroleum Profits Tax Acts. It aims, amongst others, to provide certainty in the tax treatment of related party transactions and will apply to both domestic and cross border transactions.
Persons covered are “Connected taxable persons” which is broadly defined to include individuals, permanent establishments created by head offices, subsidiaries, associates, partnerships, joint ventures and trusts to the extent that they participate directly or indirectly in the management, control or capital of another; or both of which have common control, management or shareholders.
Other highlights of the regulation include:
- Introduction of the Organisation for Economic Cooperation and Development (OECD) TP methodology;
- Provision for corresponding adjustments to avoid double taxation for residents in treaty countries;
- Requirement to file an annual declaration form regarding intercompany transactions with tax returns and documentation to be in place prior to returns filed;
- Penalties for non-compliance; and
- Introduction of Advance Pricing Arrangements.
- Safe habour where a taxpayer may be exempted from the TP provisions if prices have been approved by other Government regulatory agencies.
Watch this space for more on the key points to be aware next steps. You can also visit our TP microsite for more information.