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?
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.