Transfer pricing documentation requirements in Morocco

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)?

Article 7 of Finance Act 40-08 for the budgetary year 2009 introduced an obligation for businesses which are taxable in Morocco to supply the tax authority with documents and information relating to transactions undertaken with connected businesses established outside of Morocco. This obligation is now contained in article 214 (III) of the Moroccan General Tax Code (“GTC”).

Nonetheless, such documents and information need only be remitted to the tax authority on its express request. There is no specific obligation to keep documentation at the disposal of the Moroccan tax authority. Nevertheless, considering the short period allowed to the taxpayer for sending such documentation and the importance of the required documents, Moroccan businesses which have relationships of dependency with businesses established outside of Morocco, and enter into transactions with them, are advised to prepare such documentation in advance.

Under article 214 (III) of the Moroccan GTC, the obligation applies to all businesses which are taxable in Morocco and enter into transactions with connected businesses situated outside of Morocco.

The legislation is directed to businesses only, with no mention of any threshold based on turnover or balance sheet asset value.

The transfer pricing documentation requirements for associated companies only concern the transactions performed between a Moroccan company and its affiliated companies located abroad. However, as in Morocco, the concept of transfer of profits is also applicable between associated companies located in Morocco, we recommend, to justify in the transfer pricing documentation the prices applied between those associated companies located in Morocco, also.

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

Article 214 (III) of the Moroccan GTC stipulates that the authority may request all documents and information relating to the following matters:

  • The nature of the relationship connecting the business which is taxable in Morocco with those situated outside of Morocco;
  • The nature of the services provided or the products sold;
  • The method by which the price of transactions effected between those countries is determined, and the data supporting this;
  • The regimes and tax rates applicable to the businesses situated outside of Morocco.

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

In the absence of detailed supplementary provisions, the effect of the GTC is that all transactions carried out with connected businesses situated outside of Morocco must be documented. There is no threshold in terms of transaction value, under either the Moroccan GTC or the tax authority’s commentary on the Finance Act for the 2009 budgetary year.

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

Article 213 (II) of the Moroccan GTC refers to businesses which have relationships of direct or indirect dependency with businesses situated outside of Morocco.

This definition has been refined by the Moroccan tax authority in its Circular Note published on 24 May 2011.

In fact, the concept of dependency is conceived by the Moroccan tax authority in terms of relationships between:

  • Parent companies and their subsidiaries;
  • Non-resident companies and their establishments in Morocco;
  • Companies and their branches.

According to the Moroccan authority, a subsidiary is dependent on its parent both in legal terms (by virtue of the number of shares held by the parent company, or where, either directly or through a third party intermediary, the parent exercises decision-making power over the subsidiary) and also in economic terms (by virtue of the close links governing the business activity carried out, constituting dependency in terms of the supply of raw materials or spare parts, or the use of a brand or patents held by the parent company).

Furthermore, the Moroccan tax authority makes reference to the indirect links of dependency which exist, in its view, between subsidiaries within the same group (especially financial dependency arising by virtue of reciprocal shareholdings).

Finally, reference is made to de facto situations resulting from a monopoly or quasi-monopoly position or a common interest (especially where the management personnel of one company has an influence on the management of other companies, by virtue of their shareholdings in those other companies).

The definition of dependent businesses in Moroccan law is thus very wide in scope, and the Moroccan tax authority considers that transfer pricing control applies both to transactions between parent companies and subsidiaries (i.e. where there is a direct connection) and to transactions between sister companies (i.e. where there is an indirect connection).

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.

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?

The Moroccan GTC does not contain any right on the part of the tax authority to require foreign entities to provide specific information relating to the transfer prices applied between the Moroccan company and the foreign company.

Nevertheless, by virtue of article 214 (III) of the Moroccan GTC, the Moroccan tax authority may require a company established in Morocco to supply information relating to the regimes and tax rates applicable to businesses situated outside of Morocco with which they have effected transactions.

Furthermore, article 214 (II) establishes a right on the part of the Moroccan tax authority to request information from the tax authorities of States with which Morocco has entered into a double taxation convention. Nevertheless, the Circular Note referred to above stipulates in this regard that such requests for information may only be made in the circumstances set out in the conventions made between Morocco and the State in question.

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

The Moroccan tax authority has the right to adjust the profits of businesses which have made indirect transfers of profit.

Nonetheless, the Moroccan GTC does not provide that the companies are required to supply benchmark studies to justify the prices. Indeed, the article 214 (III) only provides that companies that are taxable in Morocco can be requested to justify the method of determination of the prices.

Furthermore, the Moroccan tax authority’s commentary remains relatively brief in relation to the appropriate method for determining transfer prices between two companies in the same group. It does not go beyond stating the principle that the price should be at arm’s length.

In the event of an inspection, the only reference to comparables is in the authority’s power to adjust the business’s tax base by reference to the prices applied by “similar businesses” or “by means of direct valuation” on the basis of the information available to it.

Difficulties may thus arise to the extent that, in practice, the authority does not always have access to relevant comparables. In some cases, the Moroccan tax authority has gone as far as to refuse to take into account comparables which have been provided by the business under inspection.

It is advisable, however, for businesses which are established in Morocco, and which may have relationships of the relevant kind with businesses situated outside of Morocco, to keep a file of documents containing comparables from businesses in the same sector, and evidencing the international practices of the group.

Furthermore, it should be noted that the Kingdom of Morocco is not currently a member of the OECD, even though references to OECD commentaries are to be found in the circulars published by the Moroccan tax authority.

f) Also, as long as Morocco is no more than a special observer on OECD bodies, the implementation of OECD recommendations is not absolute. In the event of a conflict, the Moroccan tax administration will not consider itself bound by the stated positions of OECD members.What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

In practice, documents presented to the tax authority must be written in one of the two admitted languages by the Kingdom, namely French or Classical Arabic. The majority of documents relating to Moroccan taxation are written in French.

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)?

Under article 214 (III) of the Moroccan GTC, documents relating to transfer prices must be sent at the request of the authority (in the form of a letter giving notice) within 30 days of receipt of that request.

In the event of a breach of the provisions relating to the authority’s right to the documentation, a fine of MAD 2,000 (approximately EUR 180) is provided for, as well as a late payment penalty of MAD 100 (approximately EUR 9) per day, up to a maximum of MAD 1,000 (approximately EUR 90).

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

Article 214 (III) of the Moroccan GTC provides that in the absence of a response or in the event that the documentation is incomplete, the relationship of dependency is presumed to be established.

Thus, documentation which is incomplete or which is not submitted will not, in the true sense, reverse the burden of proof in relation to the arm’s length nature of the transaction, but will definitively establish that the businesses in question are dependent.

Where the relationship of dependency is established in this way, the tax authority will then be able to invoke article 213 (II) of the GTC, and thus adjust taxable profit by bringing in the profits it considers to have been indirectly transferred by means of increases or reductions in purchase prices or sales prices.

In such a case, the remuneration and costs paid by the Moroccan entity will be subject to general corporation tax at the rate of 30%.

The following penalties and late payment interest may be added to that tax:

  • An increase of 15% for failure to file or late filing of returns;
  • A penalty of 10% and an increase of 5% for the first month of delay, followed by 0.5% for every further month or part thereof.

On this point, we should note that the Kingdom of Morocco has made its reservations known on the subject of introducing a mutual agreement procedure. Morocco has reserved the right not to include article 9 paragraph 2 of the OECD model tax convention in its conventions.

Consequently, whether or not penalties for absent or insufficient documentation are imposed, it is unlikely that the Moroccan tax authority will adjust the reconstituted profit for the amount of transferred profits already taxed abroad.

Only a few of the existing double tax conventions expressly provide for this possibility. The conventions entered into with the following States can be given by way of example: Austria, Bulgaria, Denmark, United Arab Emirates, Poland, Portugal, Romania and Senegal.

Picture of Marc Veuillot
Marc Veuillot
Managing Partner