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Review and adjustments

Review and audit

What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?

Compliance with the transfer pricing rules is assessed by the tax authorities under the general tax audits procedure. Tax audits are governed by the rules set out in Book II (Tax Procedures) of the General Tax Code.

In case of a tax audit, the taxpayer will be notified of the verification at least 15 days before the date of the audit (Article 212(I) of the General Tax Code).

The audit must be initiated no more than five working days from the date set for the start of the audit. The audit cannot last more than three months for companies with a turnover of less than Dh50 million, or six months for companies with a turnover of more than Dh50 million.

The inspector will notify the taxpayer of the reasons for the adjustment within three months of the audit ending. The taxpayer can submit comments within 30 days of the date of receipt of the notification.

More specifically, under Article 214(III) of the General Tax Code documents relating to transfer prices for transactions with companies located outside Morocco 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. This request may intervene within the audit process.

The burden of proof, which for transfer pricing purposes rests with the administration, is light. Article 213(II) of the General Tax Code provides that indirectly transferred profits are determined in comparison with those of similar companies or by direct assessment on the basis of information available to the administration.

The tax administration often takes refuge behind this article and the principle of professional secrecy in order to avoid communicating the comparable used.

Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?

Apart from the rules set out in Article 214(III) of the General Tax Code (the obligation to transmit information within 30 days at the request of the tax administration), no specific rules govern transfer pricing audits. Transfer pricing audits must be conducted in line with the tax procedure rules set out in the General Tax Code.

Penalties

What penalties may be imposed for non-compliance with transfer pricing rules?

When dependence between a Moroccan company and another company is established, the tax authority can invoke Article 213(II) of the General Tax Code, and thus adjust taxable profit by bringing in the profits in the amounts it considers to have been indirectly transferred by means of increases or reductions in purchase prices or sales prices (or any other means).

In such case, the additional profit will be subject to general corporation tax at a progressive rate of up to 31%.

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; and
  • 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.

Adjustments

What rules and restrictions govern transfer pricing adjustments by the tax authorities?

The Moroccan tax administration has complete freedom to adjust the results of related companies when the administrative side has demonstrated that profits have been indirectly transferred outside Morocco or between two entities located in Morocco.

It is therefore essential for a taxpayer to document its transfer pricing policy (by drafting a transfer pricing report) in order to limit the tax risk related to transfer pricing issues.

Challenge

How can parties challenge adjustment decisions by the tax authorities?

The upstream preparation of both transfer pricing documentation and a benchmark will definitely make the challenge more difficult for the tax administration.

In addition, it is still possible to furnish technical studies within the opposition procedure to counter the arguments of the tax administration. These studies may allow a favourable opinion to be obtained from the local tax commission or the National Tax Commission, which will hear the case following the two rounds of the preliminary opposition procedure.

Mutual agreement procedures

What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?

Morocco has made its reservations known in regard to introducing a mutual agreement procedure. It has reserved the right not to include Article 9(2) of the OECD Model Tax Convention in its law.

Consequently, no matter whether penalties for absent or insufficient documentation are imposed, it is unlikely that the Moroccan tax administration will adjust the reconstituted profit for the amount of transferred profit already taxed abroad.

Only a few existing double tax conventions expressly provide for this possibility – for example, those entered into with Austria, Bulgaria, Denmark, United Arab Emirates, Poland, Portugal, Romania and Senegal. 

There is no specific published procedure on relief from double taxation. Therefore, a general claim would have to be introduced in front of the central Moroccan tax administration located in Rabat (with minimal chance of success).

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