Jordan

Introduction

In October 2019, Jordan signed the Organization for Economic Co-operation and Development (OECD) Agreement for the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Therefore, Jordan is actively taking measures to implement minimum BEPS standards and introduce the Transfer Pricing regime in one country. In this regard, it has introduced the Transfer Pricing regulation.

On June 7, 2021, the Kingdom of Jordan published its official Transfer Pricing regulation in the official gazette under regulation No. (40) for 2021. The regulation covers groups of multinational entities (MNE groups) headquartered and/or operating in Jordan.

Arm’s Length Principle

The regulation requires that related party transactions be under the Arm’s Length Principle, i.e., on terms and conditions similar to those agreed upon in independent transactions.

Related Parties

The rules apply to related party transactions with all companies and branches resident in Jordan.

A party has effective control over control: Any party (up to the second degree) directly or indirectly controls (50%) or more of the voting rights, profits, or capital of the enterprise if the person participates in the capital, management, or control of the legal entity.

Parties under common control: Two or more parties are subject to management or joint control if any of the parties directly or indirectly controls (50%) or more of the capital, profits, or voting rights of any other legal person and jointly, indirectly, or severally the effective control over the legal person or its decisions.

Capacity to enter into contracts to render administrative services to the company or to perform managerial functions in the company.
50% or more as members of the board of directors, or this is entitled to appoint the management representative of the other persons or terminate the representation thereof.
Right to receive 50% or more of the other persons’ profits, as long as the loans represent 50% or more of the total loans and capital, except for undistributed dividends or issued guarantees covering 33% or more of the total value of loans to the other person (exceptions are banks and finance companies).
50% or more of a party’s transactions are with another party if the affiliated person(s) is a supplier of commercial agents of the other person.

Transfer Pricing Methods

The following are the Transfer Pricing methods approved under the regulations:

Comparable Uncontrolled Price Method.
Cost Plus Method.
Resale Price Method.
Profit Split method.
Transactional Net Margin Method.

None of the above methods has a preference in the application. In addition, the taxpayer may also apply any other method after proving that none of the above ones can be reliably applied.

Transfer Pricing Documentation

Transfer Pricing Form

It must be filed before the due date of the tax return. The form shall contain certain information on related party transactions, including their nature, the Transfer Pricing method, etc.

Master File and Local Report

They must be filed at the request of the Income and Sales Tax Department. Individuals and small establishments with a market value of related party transactions not exceeding JOD 500,000 are exempted.

Country-by-Country Report

The Country-by-Country Report must be filed before the due date of the tax return within 12 months after the end of the year by multinational groups headquartered in and outside Jordan with consolidated revenues exceeding JOD 600 million.

Transfer Pricing Penalties

According to the Income Tax Law, the late tax filing penalty ranges from JOD 100 to JOD 1,000.

Source: Income and Sales Tax Department

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