Proposal for National Transfer Pricing Benchmarking Database 📈

Sri Lanka is urged to develop a domestic benchmarking database to effectively implement transfer pricing regulations and align with OECD standards. This move aims to ensure transactions between related parties meet the "arm’s length principle," preventing profit shifting and securing equitable tax revenue. • Current Gaps & Risks Reliance on regional databases (India, Thailand, Singapore) often leads to data mismatches due to differences in Sri Lanka's inflation, labor costs, and economic volatility. Lack of local data increases audit risks and litigation costs for both the Inland Revenue Department (IRD) and taxpayers. High costs of commercial global databases place a heavy burden on SMEs. • Impact on Key Sectors Precision in functional and risk analysis would benefit core industries like apparel, tea, tourism, and ICT/BPM. A local database would allow for more accurate benchmarking of intra-group loans and service transfers tailored to the Sri Lankan market. • Strategic Benefits Revenue Protection: Limits base erosion and profit shifting (BEPS) to low-tax jurisdictions. Investment Climate: Signals a mature tax regime, providing certainty for Foreign Direct Investment (FDI). Efficiency: Enables the introduction of "Safe Harbor" rules and Advance Pricing Agreements (APAs), reducing the audit workload for the IRD. • Implementation Strategy Collaborative effort between the IRD, Colombo Stock Exchange, and private providers. Phased rollout starting with high-risk export sectors using data from mandatory tax filings and audited financials.