ECONOMYNEXT – Sri Lankan companies that violate transfer pricing rules can be fined up to two percent of the total value of transactions between related parties in case of non-disclosure of any required information under the new tax law.
The new law also provides for the Commissioner-General of Inland Revenue to impose a penalty of up to one percent of the total value of transactions with associated enterprises where required documents have not been maintained.
The new Inland Revenue bill is to be presented to parliament shortly and may become law over the next two months after extensive debate, ministers have said.
Tax authorities worldwide are cracking down on abuse of transfer pricing to prevent loss of tax revenue.
The practice refers to the price at which transactions between group firms or divisions of a company are done and which are supposed to be treated as ‘arm’s length’ transactions.
Tax authorities globally now require multi-national companies to satisfy substantive documentation requirements like preparing transfer pricing reports to comply with the rules and protect themselves from the severe transfer pricing penalties.
The new Sri Lankan law also has provisions for a penalty of up to two hundred and fifty thousand rupees where required documents have not been submitted and a penalty of up to one hundred thousand rupees where required documents have not been submitted on time.
A penalty of two hundred percent of the value of additional tax can be imposed under the new law where entities conceal particulars of income or furnished inaccurate particulars of such income.
(COLOMBO, June 29, 2017)