Indeed, Article 214 –III-A of the CGI has been amended, stipulating for certain companies (1*) the obligation to communicate to the Tax Administration, by electronic means, two files constituting the basis of justification for the transfer pricing policy. These are the main file, describing the transfer pricing policy practiced within the group on a global scale, and the specific file, also known as the local file, dedicated to the description of the transfer pricing policy of each company related to the group.
From this reinforcement of the legal framework, and considering the leeway in terms of interpretation provided by the study of transfer prices for the tax authorities and taxpayers, it can be legitimately understood that tax audits will focus more and more on the systematic challenge of transfer prices. The concerned Moroccan company therefore has every interest, to justify and defend its transfer pricing policy, in anticipating the development of documentation of its transfer prices, notably the local file.
Without claiming to be exhaustive, we present below some important points that should be taken into consideration when developing the local file. This is not about presenting the structure of the file, which OECD publications deal with extensively, but rather practical recommendations to consider in order to have coherent documentation rich in relevant information that can preemptively address any potential queries from the tax authorities:
- Prepare information on the transfer pricing method Article 214-III-B of the CGI specifies the information that can be requested by the Tax Administration. This information relates to:
- The nature of the relationships linking the taxable company in Morocco to the one located outside Morocco.
- The nature of the services rendered or the products marketed.
- The method of determining the prices of the operations carried out between the said companies and the elements that justify it.
- The regimes and tax rates of companies located outside Morocco. The content of the two aforementioned files as recommended by the OECD has the merit of presenting this information in a structuring manner. After having listed and described all the transactions carried out by the company (sale of goods and/or services, management fees, royalties, etc.), it is necessary to associate with each transaction, first of all, the description of the process leading to the choice of the selected method while comparing the different methods and the reasons justifying the adopted method. Then, a specific economic study for each transaction is to be undertaken to justify the arm's length principle of transfer prices.
It is reminded that the effective implementation of these two files remains dependent on the publication of the application decree. Nevertheless, having them could be seen, in the event of a tax audit, as a presumption of the company's transparency and the normality of the practiced prices. It can even be admitted, in the absence of a prior agreement on transfer prices, that the two files remain undoubtedly the best tangible proof to defend its transfer pricing policy.
- Ensure consistency between controlled transactions and the adopted transfer pricing method The method to be retained must be justified and consistent with the functions performed, the risks assumed, and the compensation in line with the arm's length principle ("the comparables"). It must also take into account the real economic position of the company within the group. Indeed, following the functional analysis, the company identified as the "principal entrepreneur," that is, carrying out most of the economic value creation, it is essential to consider that the level of compensation for assets must be all the higher as the risks are significant and the functions performed are high value-added. Consequently, it must be admitted that the major part of the profit (or loss), after deducting the remuneration of all the entities of the group, returns to the principal entrepreneur. Read the BDO Global report on transfer pricing.