TIWB Jamaica

Jamaica is well-known (and loved) for its music, pristine beaches and waters. Beyond tourism, the economy is heavily reliant on sectors such as agriculture, fisheries and forestry, metals and mining (bauxite/alumina). With high public debt levels - amongst the highest in the Caribbean at 122.8 percent of GDP (World Bank, 2016) - domestic resource mobilisation has been identified as a key policy priority for the country. In 2012, Jamaica embarked on an Economic Reform Programme. Some of the key components include improving Jamaica’s tax policy, tax legislation and tax administration processes. Through this process, Jamaica seeks to create a more equitable tax environment. Tax to GDP ratio improved to 26.1 percent (World Bank, 2016) and remains relatively stable.

Jamaica has identified profit shifting by multinational enterprises (MNEs) as a key challenge for the country, denying it essential tax revenues. Given that the corporate tax share has the potential to form a relatively large part of total government revenues (declined from 16.5 percent in 1990 to 9.3 percent in 2015), corporations’ profit shifting strategies have wide implications for Jamaica’s development efforts. Tax avoidance by high profile corporate taxpayers is also perceived as ‘unfair’ by citizens, undermining the legitimacy and credibility of the tax system and discouraging compliance among all taxpayers. Abusive transfer pricing (pricing of international transactions between two associated enterprises) also distorts competition as it puts domestic businesses at a competitive disadvantage. Comprehensive tax reforms are seen as essential for increasing transparency, building capacity and creating a more certain investment climate.

In 2015, the Cabinet of Jamaica approved the introduction of a transfer pricing regime to address the challenges to its tax base from abusive transfer pricing. The law was eventually passed in December 2015. To support the implementation of this law, Tax Administration Jamaica (TAJ) recognised the need to strengthen its capacity in transfer pricing auditing. The OECD initially provided capacity building assistance through in-country workshops, however, the administration soon realised the need for hands-on practical application assistance. TAJ therefore requested a programme of technical assistance from the Tax Inspectors Without Borders (TIWB) initiative.

TAJ’s request for a TIWB programme focussed on strengthening the government’s expertise in applying the newly enacted Transfer Pricing (TP) legislation to conduct TP audits. The programme is based on an integrated approach, using all channels of information, for building tax audit capacities of TAJ tax officers in risk assessment and analysis, formulating risk and audit strategies, audit technique and communication with large taxpayers. A list of top 50 multinational taxpayers has been identified, from which three cases have been selected and transfer pricing audits are underway. The TIWB programme is supported by the German Ministry of Finance (Bundesfinanzministerium). A German tax audit expert from the German Federal Central Tax Office (Bundeszentralamt für Steuern) has been providing the much needed on-the-ground support by sharing his expertise and experience and giving feedback on audits conducted by the teams of TAJ auditors.

“TIWB has been of incredible value, not only in terms of building our capacities to manage transfer pricing audits and strengthening our overall institutional framework, but also by empowering us in exposing our teams to best practices to combat MNE tax evasion from around the world.”

- Donette Sommerville Mills - General Manager, Large Taxpayer Office, TAJ

The TIWB programme in Jamaica is yielding its share of learnings. One of the most important lessons learned by the TIWB expert has been how to adapt to and integrate the local work ethos. The expert has also invested time in identifying the skillsets of TAJ officials and customising the capacity building programme in order to capitalise on their particular strengths. Co-ordinating with TAJ’s senior and middle management to administer programme expectations has been pivotal to the programme’s positive results. Given the large volume of general audit cases handled by TAJ, effective time management to ensure maximum knowledge transfer was identified as an area requiring improvement. Additionally, the TIWB Secretariat has been responsive to re-examining the optimum number of days per mission for the expert to maximise programme impact in-country.

“Blending in with the TAJ work culture has been central to me building a strong working relationship and personal connect with the administration. This has, to a large extent, enabled the programme’s success.”

- Steffen Scholze - TIWB Expert deployed by the Federal Central Tax Office of Germany

Going forward, it is expected that the support provided through the TIWB programme will help TAJ in improving their risk assessment processes and procedures, consolidating technical transfer pricing audits and practical audit knowledge, and communicating with large taxpayers in Jamaica.

How does TIWB support TAJ in strengthening audit capacities?

• Training: “Learning by doing” approach to training TAJ officials in transfer pricing ground rules and regulations, and in risk assessment to help identify which MNEs to choose for further scrutiny
• Strategy: Helping TAJ officials improve risk assessment and audit strategies
• Operationalisation: Working with TAJ officials on actual audit cases of large MNEs in sectors of tourism, service and food/beverages to operationalise their theoretical learnings
• Best Practice Sharing: Transferring knowledge of global best practices to catalyse the team’s learning
• Institution Building: Supporting TAJ build a transfer pricing audit unit and large tax payer unit