Transfer pricing documentation requirements in Algeria

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

The Supplementary Finance Act 2010 refers to the obligation on companies under the supervision of the large companies’ directorate [Large enterprises falling within the jurisdiction of this directorate include: — Companies with revenue of DZD 100 million or more; — Oil companies; — Members of major foreign groups; and — Members of groups if one of the members satisfies the first requirement.] to annex documentation to their corporate tax return clarifying their transfer pricing policy with regard to non-resident or resident related parties. Although the implementing regulations have not yet been released, we expect them to provide for methods such as the comparable uncontrolled price method, the resale price method, the cost plus method, the profit split method and the transactional net margin method to be used to determine arm’s length prices. While we have, as yet, no experience of the tax authority’s approach to the new provisions, we expect that it will require the taxpayer to justify inter-company prices.

2. What is the content of the documentation that must be prepared?

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

All transactions with associated enterprises, including those located in Algeria. The Supplementary Finance Act 2010 provides some examples of situations where profits may be transferred to non-resident and resident related parties, such as where the sale price is increased or the acquisition price decreased, where excessive royalties are paid or disproportionate consideration is paid for services rendered, where interest-free loans or low-interest loans are made, or where the interest provided for by a loan agreement is waived.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

The definition is similar to the OECD’s article 9 definition of associated enterprises. Article 141bis of the Algerian code defines an “associated enterprise” as an enterprise operating in Algeria or outside Algeria which participates directly or indirectly in the management, control or capital of another enterprise operating in Algeria or outside Algeria. It should be noted that the Algerian tax code extends the application of transfer pricing beyond cross-border transactions to transactions between entities operating in Algeria.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

Not applicable. The Decree of application of article 141bis of the Direct Tax Code has been published in the official journal dated 20 January 2013. The latter describes the documentation to be produced by the affiliated firms with the purpose of to justify the transfer price. Such documentation shall contain general (such as financial information, general and administrative costs, costs of research and development information) and specific (such as copies of all contracts between the concerned companies) information.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

From a practical standpoint, the tax authorities may require any information that may support the declared transaction price.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

There is no provision setting out the benchmark or method to be used. The source providing the benchmark is more relevant and more important than the scope of the study (regional / global). In other words, database figures or data provided by a government agency are more likely to be accepted than internal market forecast studies.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

Strictly speaking the document should be provided in Arabic, but a French version or certified translation will be accepted.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

According to article 169bis of the Algerian tax procedure code, transfer pricing documentation should be annexed to the corporate tax return that must be filed by 30 April of each year. In the absence of implementing regulations, this provision has not yet been put into practice by the taxpayers or the tax authorities. However, where the documentation has to be provided within the context of a tax audit, pursuant to article 20ter of the Algerian tax procedure code, the deadline is 30 days from the notice.

If the taxpayer fails to provide missing or correct incomplete transfer pricing documentation within 30 days of notice, its taxable base will be reassessed and the tax authority will impose a penalty of 25% of the benefit obtained from the transfers.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

As stated in answer one above, the taxpayer should support its position with evidence. Where the tax authority rejects the taxpayer’ documents, this will lead to a reassessment of the taxable base and the taxpayer will remain obliged to provide the evidence within the contentious / litigation process.

No, the taxpayer is still entitled to apply for the mutual agreement procedure. However, in practice, this procedure is not used.

Picture of Samir Sayah
Samir Sayah
Partner Africa Practice – Corporate, M&A
Mourad Nabil Abdessemed
Head of tax department