KINGSTON, JAMAICA- A thriving business environment for tourism is required in any country to support the development of that country’s economy.
Under that premise, the Jamaica Tourist and Hotel Association (JHTA) hosted a webinar for its members that examined transfer pricing and how it impacts the tourism industry. This is part of the association’s monthly webinar series aimed at exploring topical issues in tourism and was hosted by Allison Peart, Country Managing Partner and Tax Partner for EY Jamaica. “This month we focused on transfer pricing in the tourism industry because our members and member companies are impacted by transfer pricing” said Omar Robinson, President of the JHTA.
Globally, transfer pricing generally refers to the pricing of transactions between related parties. In Jamaica, the transfer pricing rules apply to transactions conducted by taxpayers resident in Jamaica with connected parties including transactions relating to services, loans, guarantees, etc.
Tourism is a complex industry with numerous subsectors. Players in the sector include hotels, air carriers, transport companies, tour operators, travel agents, rental agencies and other suppliers to the industry. Jamaica operates in a highly competitive market and as such it is important for all sectors, not just tourism to develop and implement a tax risk analysis methodology for transfer pricing, and develop monitoring mechanisms on transfer pricing’s impact on business operations.
The transfer pricing rules in Jamaica and globally can be quite intricate and as such; Ms Peart advises that businesses utilize the expertise of trained transfer pricing experts as they navigate this fast evolving measure. She stated that “businesses also need to ensure that they have the requisite documentation to share with the Tax Administration Jamaica to demonstrate they are aware of the connected party transactions and to certify their income tax returns. However, based on the new transfer pricing rules, only taxpayers whose gross annual revenue equals or exceeds J$500 million are currently required to maintain transfer pricing documentation at the time of their transactions to prove arm’s length pricing.”
Recent investments in Jamaica’s tourism industry have resulted in the sustained growth of the sector and have positive spill overs for the growth of the economy. The implementation of tax measures can be very costly and sometimes result in substantial obstacles to business and investment. Continued emphasis must be placed on streamlining the tax system, so as to further stimulate tourism growth by reducing the costs for businesses to start up and operate in the sector.
During the one hour webinar Ms. Peart addressed the arm’s length principle that underpins the Organisation for Economic and Co-operative Development (OECD) transfer pricing guidelines and outlined why transfer pricing should be taken seriously. She said “A recent EY study and survey identified transfer pricing as the most important tax issue currently”. Globally, governments implemented transfer pricing rules to ensure fairness across the board for all companies due to a difference in income tax rates in different countries. These governments and the OECD share the view that without relevant statutes, some companies might understate or overstate their tax revenues and so the OECD is recommending global transfer pricing standards be introduced to govern transactions between related parties.
