Transfer Pricing Compliance Jamaica
Is your Business at Arm’s Length?
Transfer pricing is the price or calculation of price of goods and services that are exchanged between companies under common control.
The transfer pricing regime in Jamaica integrates the arm’s length principle for tax purposes.
What is the arm’s length principle?
The “arm’s length principle” requires that a transaction between “connected persons” should be on the same terms as if the same transaction was between independent persons.
Examples of “connected persons” are:
parent company and its subsidiary
two subsidiaries within the same corporate group
company and its branch office
individuals and companies they own or control
Family ties (eg. Spouses)
Trusts and their beneficiaries
This principle prevents these connected persons from attempting to reduce the amount of tax payable from a taxable business to a connected one or person that may enjoy “a tax holiday”. This is particularly so for multinational companies.
Since 2015, by virtue of the Amendment of the Income Tax Act (ITA), every Jamaican tax resident company (and local branch of a foreign company) that trades with connected persons, whether across borders or within Jamaica, must show that the prices, fees, interest or royalties it charges or pays are arm’s-length.
Think of it this way: Even if you are connected, the price must keep its regular distance.
How do you calculate transfer pricing in Jamaica?
Transfer pricing is governed by the Income Tax Act, specifically Section 17 and the Eighth Schedule, along with the Transfer Pricing Documentation Regulations, 2015.
To calculate these prices, businesses must apply one of five OECD-approved methods. These include
Comparable Uncontrolled Price (CUP)
Compare the price you are charging to what others charge in similar deals.Resale Price Method
Start with the final sale price and subtract a normal profit margin.Cost Plus Method
Take your costs and add a fair profit markup.Transactional Net Margin Method (TNMM)
Check if your profit margin is similar to what others earn in similar roles.Profit Split Method
Split total profits between companies based on each one’s contribution.
The Commissioner General has the power to adjust prices if they are not at arm’s length and to apply a different method if the taxpayer’s choice is not suitable.
Prices must be defensible using benchmark studies, comparing your transaction to similar deals in the same industry and market. Proper documentation and method selection help businesses avoid penalties and to stay compliant.
May 27, 2025
Disclaimer: This content is for informational purposes only and does not constitute legal advice.