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Transfer pricing methods

Available methods

Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?

The Moroccan tax authority’s commentary remains relatively brief as regards 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 practice, four of the five methods recommended by the OECD (the comparable uncontrolled price, the resale minus, the cost plus and the transactional net margin methods) are globally understood and accepted by the tax authorities.

Preferred methods and restrictions

Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?

There are no specific rules for selecting a transfer pricing method. However, the methods used by taxpayers often relate to the result of a functional analysis (eg, cost plus for manufacturing entities or services providers).

From its side, the Moroccan tax administration tends to favour the comparable uncontrolled price method and the ratios analysis (similar to the transactional net margin method) in case of a tax audit.

Comparability analysis

What rules, standards and best practices should be considered when undertaking a comparability analysis?

There are no defined standards in the Moroccan approach. Nevertheless, it is recommended to carry out regional benchmarking (target region: Morocco, Maghreb or Africa) in accordance with the OECD Transfer Pricing Guidelines. This approach may strongly reinforce the position of the taxpayer in negotiations with the Moroccan tax authorities.

Special considerations

Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?

As mentioned above, the selection of a relevant transfer pricing method should be in line with the tax profiles of the companies involved in a specific transaction (eg, resale minus for limited risk distributor/cost plus for routine services providers).

The Moroccan tax administration sometimes bases its tax reassessment on the non-respect of profitability ratios (which is similar to using the transactional net margin method).

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