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New Sri Lanka tax law tightens transfer pricing loopholes

Sep 13, 2017 10:37 AM GMT+0530 | 1 Comment(s)

ECONOMYNEXT – Sri Lanka’s new tax law has provisions that more effectively block companies from trying to dodge taxes by using techniques like transfer pricing, an expert said.

The Commissioner-General of Inland Revenue (CGIR) has been given the power to re-examine sch transactions if they are seen to have been structured for tax purposes, said Shamila Jayasekera, Partner-Tax at KPMG.

Transfer pricing is a tool used by companies show profits in tax havens or jurisdictions with lower taxes while allocating expenses to higher-tax countries and is being fought worldwide by governments trying to prevent revenue erosion.

 “A lot of power has been given to Inland Revenue to strengthen revenue enforcement,” Jayasekera told a forum organized by the Ceylon Chamber of Commerce on Sri Lanka’s new ‘Inland Revenue Act’ debated and passed by parliament last week.

The CGIR is allowed to redefine the recipient and payer in certain circumstances.

Transactions must be at market rates and the CGIR can bring in the concept of the ‘arm’s length’ principle if it is decided that the transaction is dominantly for tax purposes, Jayasekera said.

The new law can affect lots of export firms which have been shifting profits to a new company to get tax benefits.

Transfer pricing rules are now applied to related parties and international and local transactions with branches of foreign firms also covered under transfer pricing provisions with the proposed law viewing a permanent establishment separate from its head office.
(COLOMBO, Sept 13 2017)
 


 

1 Comments

  1. sacre blieu September 19, 08:38 AM

    This frauds have been going on for years with the Inland Revenue Department fully well aware and strangely have not come out strongly against it. Obviously The share holders, in particular the unsuspecting minority shareholders have been robbed of their legitimate returns. The authorities have strangely kept silent about it.

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