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 processing the minimum standards of BEPS and introducing the necessary Transfer Pricing regime for the country. In this regard, the Transfer Pricing Regulation has been introduced herein.

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 dealt with on an Arm’s Length basis, i.e., on terms and conditions similar to those agreed upon in transactions between independent parties.

Related Parties

The rules apply to related party transactions with all companies and branches residing 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, the management, or control of the legal entity.

Parties under Common Control: Two or more parties are subject to joint administration or 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 or indirectly jointly and severally, effective control over the legal person or its decisions.

  • Ability to enter into contracts on the rendering of administrative services to the company or the performance of management functions therein.
  • 50% or more as members of the board of directors or being entitled to designate the administration representative of the other persons or terminate the representation thereof.
  • Right to receive 50% or more of the other persons’ profits, provided that the loans represent 50% or more of the total loans and capital, except for undistributed dividends, 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 or groups is/are a provider(s) of commercial agents of the other person.

Transfer Pricing Methods

The following are the Transfer Pricing methods approved under 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 apply any other method after proving that none of the above methods can be reliably applied.

Transfer Pricing Documentation

Transfer Pricing Form

It should be filed before the due date of the tax return. The form must include certain information on related party transactions, as well as the nature thereon, the Transfer Pricing method, etc.

Master File and Local Report

These must be filed upon request of the Income and Sales Tax Department. Conversely, these could be exempted for individuals and small establishments with a market value of related party transactions not exceeding JOD 500,000.

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 based in and outside Jordan with consolidated revenues exceeding JOD 600 million.

Transfer Pricing Penalties

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

Source: Income and Sales Tax Department

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 Author:       Wolfgang Hartl
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