Jordan's Transfer Pricing Regulation for Income Tax Purposes of 2021 subjects related-party transactions to the arm's-length principle, so that prices and taxable income are adjusted where the terms of a transaction differ from what independent parties would have agreed, and it obliges certain taxpayers to prepare specific documentation files and reports.
The Arm's-Length Principle
Article 3 of the Regulation provides that, for income tax purposes, the terms and conditions of transactions between related persons must be similar to the terms and conditions of comparable transactions between independent persons; otherwise the Department must adjust taxable income to reflect that difference.
Who Counts as a Related Person?
The Regulation treats a natural person and relatives up to the second degree as related to a legal person if they directly or indirectly control 50% or more of the voting rights, profits or capital. Two or more legal persons are also subject to the Regulation if one controls 50% or more of the other's capital, profits or voting rights, or if one issues guarantees covering 33% or more of the other's total loans.
The Local File and the Master File
The Regulation requires a taxpayer to prepare a local file containing basic and detailed information on all of its transactions with related persons, and a master file containing information on the global business and transfer pricing policies of the multinational group it belongs to, each to be submitted to the Department upon request.
Natural persons are exempt from this obligation, as are small enterprises whose transactions with related persons, on an arm's-length basis, do not exceed 500,000 dinars over a period of twelve consecutive months.
The Country-by-Country Report for Large Groups
The Regulation requires any person who is a member of a multinational group whose consolidated revenue exceeds 600,000,000 Jordanian dinars to submit a country-by-country report to the Department, within a period not exceeding the twelve months following that group's tax period.
Transfer Pricing Methods and Penalties for Non-Compliance
The Regulation adopts five methods for determining transfer prices in accordance with international accounting standards: the comparable price method, the resale price method, the cost-plus method, the transactional net margin method, and the profit-split method, with no method having priority over another. The Regulation also allows the Department to require any person to prepare and keep documents related to related-party transactions within a period of no less than 30 days from the date of the request, and anyone violating the Regulation's provisions is punished with the penalties prescribed under the Income Tax Law.
Legal References
- Transfer Pricing Regulation for Income Tax Purposes of 2021 — Article 3(b) (the arm's-length principle).
- Transfer Pricing Regulation for Income Tax Purposes of 2021 — Articles 5 and 6 (the definition of related persons and common control).
- Transfer Pricing Regulation for Income Tax Purposes of 2021 — Article 8 (the local file and the master file).
- Transfer Pricing Regulation for Income Tax Purposes of 2021 — Article 10 (the country-by-country report).
- Transfer Pricing Regulation for Income Tax Purposes of 2021 — Articles 12, 16 and 17 (pricing methods, document retention, and penalties).
For questions about your specific situation, you can ask the Jordan Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.