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Sri Lanka: Moving toward enforcement

Shamila Jayasekara, a partner at KPMG in Sri Lanka, examines the local tax environment, BEPS, APAs and audits.

Local tax environment

Transfer pricing rules were introduced to Sri Lanka in 2006 and became enforceable from 2008, although they were not administratively enforced.

Through regulations issued in 2015, transfer pricing was administratively enforced, requiring companies to submit an Independent Accountant's certificate & Director's certificate to the revenue authorities, effective from the years 2015/16. The companies are also required to maintain documentation to prove the arm's length nature of the transactions. Presently, there is no database of companies available in Sri Lanka to perform a comparability analysis. Revenue authorities have also not prescribed a suitable database to perform the analysis.

View of BEPS

Sri Lanka is not a signatory of the OECD. Since Sri Lanka is in its early stage of implementing transfer pricing, so far no steps have been taken by the Revenue authorities to adopt BEPS action plans.

Local updates in relation to APAs

As per the local law, there is an option to enter into unilateral or bilateral APAs. However, so far, no APAs have been concluded by the Revenue authorities and they have intimated that they do not intend to enter into any APAs for a couple of years.

Audits and other relevant updates.

According to the regulation, the Revenue authority can initiate a transfer pricing audit within five years from the year of assessment. Since enforcement of transfer pricing is new to Sri Lanka, Revenue authorities have not raised many assessments and are still at the stage of collecting information and understanding the prevailing TP issues. Indications are that the focus will be on international transactions.

Penalties on non-compliance

Penalty provisions specific to transfer pricing, have not been introduced in the regulation, as yet.

Shamila Jayasekara

Partner

KPMG in Sri Lanka

32A, Sir Mohamed Macan Markar Mawatha,
P O Box 186,
Colombo 00300,
Sri Lanka
Tel: +94 11 5426 503
sjayasekara@kpmg.com

Shamila is the head of the Tax and Regulatory Division at KPMG in Sri Lanka and counts over 20 years of experience in tax areas including six years of experience as the head of tax in a large local conglomerate in Sri Lanka. Her experience has made her familiar with a wide range of aspects of Sri Lankan corporate taxation. She is also the Alternative Chairperson of the Faculty of Taxation of the Institute of Chartered Accountants of Sri Lanka and a member of the Tax Sub-Committee of the Chamber of Commerce.

Shamila has experience in tax engagements across a range of industries including banking, financial services, technology, telecommunication, energy, manufacturing, tourism, consumer markets, retail and infrastructure. She has led engagement teams in conducting tax due diligence assignments on target entities across a number of sectors covering banking, industrial, manufacturing, services and technology. She has also advised on tax implications and structuring pertaining to a number of new inbound investments including Strategic Development Projects to Sri Lanka covering both foreign direct investments and acquisitions.

She has led the tax teams on tax compliance and advisory engagements for a number of financial services entities in the country. Shamila will also be available to provide industry insights as she previously served as the head of tax for a large diversified group which also had a financial and investment cluster. Shamila handles tax advisory and compliance related services covering direct and indirect taxes. Her clients include local conglomerates, multinationals and companies on the stock exchange.

In 2015, Shamila set up and now leads the Transfer Pricing Unit of KPMG. At present, KPMG are market leader in transfer pricing and have won engagements in FMCG, Apparel, IT Service & Industrial sectors. Shamila has also been working very closely with the Department of Inland Revenue and assisted them in implementing transfer pricing in Sri Lanka and has been an active speaker at public forums on the subject.


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