Inland Revenue Act 2017 · As enacted · Part I
77. Profits and income or loss from transactions between associates
Official English translation. The Sinhala text prevails. Open the official Sinhala text, official PDF on documents.gov.lk
Official translationFrom Department of Government Printing, unchanged
Any income, gain or profits arising in, derived or accruing from, or any loss incurred in by any person in
Sri Lanka engaged in any transaction, other than transactions referred to in subsection (1) of section 76 entered into with its associated enterprises shall be ascertained having regard to the arm’s length price.
Where it appears to the Assistant Commissioner in the course of his audit, the income, gains or profits or the loss referred to in subsection (1), have not been ascertained having regard to the arm’s length price, he may initiate a transfer pricing audit.
When determining the arm’s length price the
Assistant Commissioner may in writing address to the person, referred to in subsection (1) and require him to prove to the satisfaction of the
Assistant Commissioner, that such profits and income or such loss, as the case may be, has in fact been ascertained having regard to the arm’s length price. Where such person fails to so prove, the Assistant Commissioner may determine, the arm’s length price.
For the purposes of subsection (1), the Assistant
Commissioner may give notice in writing to any person requiring him to furnish within the period specified in such notice, information in relation to any transaction between such person and any other person.
The arm’s length price shall be determined in accordance with the arm’s length principle and on the basis of application of the most appropriate method, as specified for that purpose.
After determining arm’s length price, the Assistant
Commissioner shall prepare a preliminary order and refer to the Technical Review Committee, for review.
The Technical Review Committee shall review the determined arm’s length price in the preliminary order and shall confirm, reduce or enhance the arm’s length price and refer to the
Assistant Commissioner -
a final order, where all the members of the Committee are in agreement; or
a interim order in any other circumstances where all the members of the Committee are not in agreement.
Assistant Commissioner shall communicate the final order or the interim order as the case may be to such person or partner of such partnership.
A person, who is dissatisfied with the interim order may communicate his dissatisfaction to the
Dispute Resolution Panel and the Dispute
Resolution Panel shall issue a final order under subsection (4) of section 78.
Where a person has not communicated his dissatisfaction on an interim order, the interim order is deemed to be a final order.
The Assistant Commissioner shall subject to the provisions of section 135 assess the amount of income, gain or profits and issue assessment in accordance with the final order of the Technical
Review Committee or the Dispute Resolution
Panel as the case may be.
If such a person who is aggrieved by such assessment made based on the final order, may, within thirty days of the notice of assessment make an appeal to the Commissioner-General.
The provisions of this section shall not apply in a case where the computation of income, gain or profits under subsection (2) has the effect of reducing the income, gain or profits chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of any year of assessment in which the transaction was entered into.
Notwithstanding anything in any other section of this
Act or any written law, no exemption or tax benefit provided under any of the provisions of this Act or any written law, shall be granted in respect of the amount of income, gain or profits by which the total income, gain or profits of the associated enterprises is increased after the computation of income, gain or profits under this section and in accordance with the arm’s length price.
The determination of arm’s length price referred to in subsection (1) may be subject to safe harbor rules.
For the purpose of sections 76 and 77 –
“a person” –
shall be an associated enterprise of another enterprise, if one person participates directly or indirectly or through one or more intermediaries in the management, control or capital of the other person; or
shall be deemed to be an associated enterprise of another person if one person participates directly or indirectly or through one or more intermediaries in the management, control or capital, in such manner or to such extent as may be specified;
a person referred to in paragraph (a) shall include a permanent establishment;
“Transfer Pricing Officer” means any officer of the Inland Revenue Department designated by the Commissioner-General as a Transfer Pricing
Officer;
“safe harbor” means circumstances in which the
Commissioner-General may propose a simplification measure that shall accept the transfer price declared by a person under certain conditions;
“Arm’s Length Price” means for the purpose of ascertaining income, gain or profits arising in, derived or accruing from or losses incurred in any transaction, operation or scheme entered into between two associated enterprises calculated in accordance with the arm’s length principle, as that where a connected transaction is carried out taking into account the terms and conditions that would have been used in comparable independent transactions.