JHTA examines transfer pricing in the tourism industry

The Jamaica Hotel and Tourist Association (JHTA) hosted a webinar for its members that examined the issue of 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 contracts relating to services, loans and guarantees.

complex industry

Tourism is a complex industry with numerous subsectors. Players in the sector include hotels, air carriers, transport companies, tour operators, travel agents and rental agencies. Jamaica operates in a highly competitive market, hence the importance for all sectors 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 can be quite intricate and Peart advises that businesses utilise the expertise of trained transfer-pricing experts as they navigate this fast-evolving measure.

"Businesses also need to ensure that they have the requisite documentation to share with Tax Administration Jamaica to demonstrate they are aware of the connected-party transactions and to certify their income tax returns," she said. "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."

TRANSFER PRICING IMPORTANCE

During the one-hour webinar, Peart addressed the arm's-length principle that underpins the Organisation for Economic and Co-operation Development (OECD) transfer-pricing guidelines and outlined why transfer pricing should be taken seriously.

"A recent EY study and survey identified transfer pricing as the most important tax issue, currently," she said.

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. The OECD is recommending that global transfer-pricing standards be introduced to govern transactions between related parties.