House of Representatives Opens Debate on Special Economic Zone Amendment Act

The House of Representatives, on Tuesday (September 27), opened the debate on the Special Economic Zone Amendment Act.

The legislation seeks to ensure conformity with international standards of tax transparency and improve the efficiency of the regime’s administration.

Minister of State in the Ministry of Industry, Investment and Commerce, Dr. the Hon. Norman Dunn, who opened the debate, said profit shifting from one jurisdiction to another is a global challenge, for which it has been determined that a global solution is required.

He noted that the Organization of Economic Cooperation and Development (OECD) now stipulates the need for increased substance requirements in relation to the treatment of income-generating activities in Special Economic Zones (SEZs).

This, he indicated, is to reduce the possibility of revenue leakage locally or the shifting of profits internationally.

“The Special Economic Zone Act is, therefore, being amended to ensure that it meets these substance requirements as well as addresses administrative issues which we have identified,” the State Minister said.

Dr. Dunn explained that following a review of Jamaica’s SEZ regime by the Forum on Harmful Tax Practices (FHTP) under the OECD in 2020, it was determined that the regime required modification in order for the SEZ to be compliant with international obligations.

The FHTP noted in its review that Jamaica had certain activities operating in the SEZs, which would have to comply with substance requirements.

These substance requirements specify that preferential treatment or tax benefits must only be given to core income-generating activities performed by the taxpayer in the jurisdiction, which is usually evidenced by two specific stipulations – an adequate number of full-time employees and sufficient operational expenditure to undertake the core income-earning activities.

“It should be noted that the SEZ policy objective was always to increase the productive capacity of the economy, as development of the regime was targeted at activities with economic substance that would generate substantial employment and provide knowledge transfer and linkages with our local business,” Dr. Dunn stated.

He noted that this requirement, while already existing as a part of the SEZs’ administration, needs to be explicitly stated in the legislation.

Dr. Dunn added that the proposed amendments will insert these substantial requirements into the legislation to stipulate that only companies from which core income is generated may be allowed to operate in the zone.

Additionally, intellectual property activities have been deemed to create increased potential for harm, since there are no special requirements to govern these engagements.

“As such, Jamaica has opted to move these activities from being carried out within the Zones until [the country] creates a fulsome intellectual property regime related to the activities in these zones. There are currently no entities in the zone which will be negatively affected by this provision,” Dr. Dunn said.

However, if such an entity is discovered, a provision has been made in the legislation to allow for continued operation until March 31, 2023.

“Further, the amendments seek, expressly, to clarify that the rate of taxation from distribution, by way of dividends paid out of profits, is zero. This seeks to concretise the administrative and policy arrangement currently in effect,” Dr. Dunn stated.

SEZs are areas created within a country to facilitate rapid economic growth by leveraging tax incentives as a way of attracting foreign investment and technological advancement.

Debate on the Bill was suspended and will continue at another sitting of the Lower House.

Source: JIS