Applicability Of Section 140 Of The ITA 1967 on Transfer Pricing Adjustment
SECTION 140 – POWER TO DISREGARD CERTAIN TRANSACTIONS
Section 140 of the Act provides wide and general powers to the Director
General of the Inland Revenue (DGIR) to combat tax avoidance by disregarding certain transactions and computing or re-computing tax liability of a taxpayer.
Where the DGIR has reason to believe that any transaction produces the effect
• altering the incidence of tax
• relieving from a tax liability
• evading or avoiding tax, or
• hindering or preventing the operation of the Act
he may disregard or vary such a transaction to counteract its intended effect.
In particular, DGIR may invoke Section 140 in respect of transactions between:
• related parties – ie persons, one of whom has control over the other or both are under common control, or
• individuals who are relatives (parent, child, sibling, uncle, aunt, nephew,
niece, cousin, grandparent, grandchild)
on the grounds that such transactions are not on par with transactions
between independent parties dealing at arm’s length.
Transfer pricing adjustment
Whilst the Revenue is empowered to counteract any tax avoidance scheme via Section 140(1) of the ITA, this provision does not extend to transfer pricing adjustments.
We examine a recent decision by the Special Commissioner of Income Tax in OMSB v KPHDN where the Revenue’s transfer pricing adjustments were set aside.
RDS analysis on OMSB v KPHDN
Read the full story on the RDS blog on “Transfer Pricing Adjustments: Applicability Of Section 140 Of The ITA”
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Published : 25-Apr-2022