On 7 June 2021, the Hashemite Kingdom of Jordan has published Regulation No. 40 of 2021 in the Official Gazette. The Regulation has introduced transfer pricing rules for multinational entity (MNE) groups with effect from 7 July 2021. The Regulation introduces the following proposals related to transfer pricing provision.
Related party definition
The Regulation defines ‘related parties’ by the following terms:
If related persons are related to a legal person through control of 50% or more over income, or capital, voting rights, and participates in the capital or management of, or control, the legal person.
Effective control is defined by the following terms:
- Ability to enters agreements to provide, or effectively performing, and management functions;
- Rights to hold the composition of 50% or more of the board of directors;
- Rights to receive 50% or more of the profits;
- Provision of loans provided forming 50% or more of the total loans and capital;
- Issuing guarantees covering 33% or more of the total value of loans to the other person;
- Rights to hold 50% or more of a Person’s business activities’
- A Person or Persons are related to the person who owns 50% or more of a legal person or participated in its management.
Transfer pricing disclosure form
Transfer pricing disclosure form should be submitted with the annual income tax return (within 4 months from the end of the year).
Documentation requirement
Taxpayers are required to submit Master file, Local file, and Country-by-country (CbC) report. Master file, and Local file should submit to the ISTD upon request.
The country-by-country (CbC) report applies to the ultimate parent entities (UPEs) of multinational enterprise (MNE) groups with total consolidated group revenue of over 600 million Jordanian Dinars. The CbC report must be submitted within 12 months after the end of the tax year.
Penalties will be applicable between JOD 100 to JOD 1,000.
Comparability analysis
Transactions between independent persons can be compared with related party transactions in accordance with certain conditions.
Transfer pricing methods
The Regulation implements the following five transfer pricing methods that are the same as those in the OECD Guidelines:
- Comparable uncontrolled price (CUP) method.
- Resale price method.
- Cost-plus method.
- Profit split method.
- Transactional net margin method.
Corresponding adjustment
A corresponding adjustment is applicable if the proposed adjustment is according to the arm’s length principle, unless a mutual agreement to that effect has been reached under a tax treaty.
