25. Amendment of section 104 of the principal enactment

Official English translation. The Sinhala text prevails.

Section 104 of the principal enactment as last amended by Act, No. 9 of 2008 is hereby further amended as follows :-

(1)

in subsection (1) of that section, by the substitution for the words “any transaction entered into between”, of the words “any international transaction entered into between”;

(2)

by the repeal of subsection (2) of that section, and the substitution therefor, of the following subsection:—

“(2) Where it appears to an Assessor that the profits and income or the loss referred to in subsection (1), has not been as ascertained having regard to the arm’s length price, he may refer the computation of the arm’s length price in relation to such international transaction to a Transfer Pricing

Officer. The Transfer Pricing Officer may, in writng addressed to the person who carries on either the one or the other or both of the two associated undertakings referred to in subsection (1), require him to prove to the satisfaction of the Transfer pricing Officer, 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 Transfer Pricing Officer may determin the arm’s length price and inform it to the Assessor. Thereupon the Assessor may estimate the amount of the profit and income or the loss, as the case may be, referred to in subsection (1), and make an assessment accordingly.”;

(3)

by the insertion immediately after subsection (3) of that section, of the following new subsection:-

“(3A) An advance pricing agreement may be entered into between any person and the

Commissioner-General in respect of arm’s length price for the purposes of this section on the basis of a prescribed manner.”;

(4)

in subsection (4) of that section-

(a)

by the substitution in paragraph (b) of that subsection for the words “other than associated undertakings.”, of the words “other than associated undertakings;”; and

(b)

by the addition immediately after paragraph (b) of that subsection, of the following:-

“international transaction” means a transaction between two or more associated undertakings, either one or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of such undertakings, and includes any allocation or apportionment of, or any contribution to any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such undertakings under any mutual agreement or arrangement between two or more such associated undertakings. Any transaction entered into by an undertaking with a person, either one is non-resident, other than an associated undertaking shall, for the purposes of subsection (1) be deemed to be an international transaction entered into between two associated undertakings, if there exists a prior agreement between such undertaking and other person and, by which the terms of such transaction are determined in substance between such undertaking and other person which results in the reduction of or would have the effect of reducing the amount of tax payable.

Without prejudice to the generality of the provision of this subsection, the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm’s length price;

“Transfer Pricing Officer” means any officer of Inland Revenue prescribed by the

Commissioner - General as a Transfer Pricing

Officer.”; and

(5)

in the marginal note to that section, by the substitution for the words “from transactions between”, of the words “from international transactions between”.

Read on from s 26