Jordan: Transfer pricing regulations are introduced

Transfer pricing regulations have been introduced in Jordan

Transfer pricing regulations have been introduced in Jordan

Transfer pricing regulations—published in the official gazette on 7 June 2021 as regulation No. (40) for 2021—have been introduced and are effective 30 days after the date of publication in the official gazette.

The transfer pricing regulations require multinational enterprises (MNEs) operating in Jordan to conduct cross-border transactions with related parties at arm’s length, and the regulations apply to transactions between related parties of all companies and branches that are residents of Jordan.

Related parties, terms defined

The transfer pricing regulations define related parties by reference to certain terms such as:

  • Effective control is deemed to exist when a party (up-to the second degree) directly or indirectly controls (50%) or more of the voting rights, profits or capital of the company or if the person participates in the capital or management of, or control, the legal person (entity). Effective control can be established through several means such as ownership, corporate governance, and financial and business relations and thus reflects:  
    • An ability to enter into agreements on providing the company with administrative services or performing management functions
    • Appointment of 50% or more of the members of the board of directors (or has the right to appoint representatives of management or to terminate representation)
    • A right to receive 50% or more of the profits of the other person, loans provided forming 50% or more of the total loans and capital (except for undistributed dividends), guarantees issued covering 33% or more of the total value of loans to the other person (exceptions provided for banks and financial corporations)
    • 50% or more of the transactions of one party is the other party and if the affiliated person or groups of persons are commercial agents or suppliers of the other person
  • Parties under common control exist when two or more parties are subject to joint management or control determined by reference to when any party or parties control either directly or indirectly (50%) or more of the capital, profits or voting rights of a legal person and jointly or severally effectively control the legal person or the decisions of such entity.

New compliance and documentation requirements

A four-layered documentation will need to be prepared and filed with tax authorities in Jordan.

  • Transfer pricing disclosure form—captures basic information pertaining to transfer pricing including the names of related parties, transaction type (purchase, sale, etc.), transaction value (monetary value), and transfer pricing methods applied to demonstrate arm’s length pricing
  • Local file—provides further details of the MNE’s business operations in Jordan and contains more detailed information on all transactions with related persons (note that the tax authority is expected to issue further guidance with regard to these transfer pricing requirements in more detail)
  • Master file—provides an overview of the MNE group and includes detailed information on the international activities and transfer pricing policies of the transactions of the group as a whole. MNEs with headquarters in Jordan will have primary responsibility to prepare the Master file, and for MNEs headquartered outside Jordan but with business activities in Jordan, the primary responsibility to prepare the Master file will be that of the MNE headquarters. Like the Local file, the Master file must be prepared at the time when the annual tax return is filed and is be available to submit to the tax authority upon request.
  • Country-by-country (CbC) report—applies to MNE groups with consolidated revenue exceeding 600 million Jordanian Dinars (approximately U.S. $846 million). Taxpayers in Jordan that are part of such groups will need to file a notification in Jordan. If the taxpayer is a parent corporate entity in Jordan, it will need to prepare and file the actual CbC report by a date that is 12 months after its financial year-end.

Exceptions

The transfer pricing regulations allow exceptions from their application for natural persons and “small enterprises” whose value of transactions with related persons, based on the arm’s length principles, does not exceed 500,000 Dinars within a period of 12 consecutive months.

Future steps

Jordan joined the OECD’s Inclusive Framework for the global implementation of the base erosion and profit shifting (BEPS) project. As a member of the Inclusive Framework, Jordan has committed to the implementation of the four minimum BEPS standards, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse), and Action 14 (Dispute Resolution), as well as CbC reporting under Action 13 (Transfer Pricing Documentation).

Jordan also is aligning with international standards and further transfer pricing developments, such as the exchange of CbC reports. 


For more information, contact the Global Leader of KPMG’s Global Transfer Pricing Services:

Komal Dhall | +1 212 872 3089 | kdhall@kpmg.com

 

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