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Global transfer pricing guide

Transfer pricing - Morocco

01 Oct 2023

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Introduction to transfer pricing in Morocco
Transfer pricing rules
  • The 2019 Moroccan Finance Bill introduced the obligation for companies with related (whether direct or indirect) foreign companies, to provide tax authorities with documentation supporting the arm’s length nature of their transfer pricing policy.
  • The transfer pricing (TP) documentation must contain the following elements:
    • Information on all related companies' activities, the overall transfer pricing policy of the group and the worldwide repartition of profits and activities
    • Specific information about transactions that the company subject to tax control carries out with related companies. 
  • The transfer pricing documentation should be provided, within 30 days of a request by a tax inspector during a tax audit.
  • The 2021 Moroccan Finance Bill completed the tax provisions applicable to transfer pricing documentation by instituting the following measures
    • Limitation of the scope of application of the TP obligation to large companies with a declared turnover or an amount of gross assets appearing on the balance sheet greater than or equal to 50 MMAD.
    • Institution of a sanction, in case of failure to produce a TP documentation, of 0,5% of the amount of the transactions concerned by the documentation, with a minimum amount of MAD 200 000 per concerned financial year. 
  • Also, the 2020 Finance Bill introduced the CbCR obligations starting from 2021.
  • The CbCR reporting obligation has entered in force for financial years beginning on or after 1st January 2021. In that respect, the taxpayer has to file the CbCR within 12 months after the tax year-end.
  • For example, the CbCR notification for FY’s ending December 31st 2021, should be submitted before 31st December 2022.
  • Moreover, the CbCR obligation applies to Moroccan companies that have met some of the conditions set out by the MTC including, without limitation, companies subject to CIT in Morocco fulfilling one of the following conditions:
    • If it is owned directly or indirectly by a company located in a country which does not require the filing of CbCR and which would be required to file such reports if it were in Morocco pursuant to the condition set by the MTC;
    • If it is owned directly or indirectly by a company located in a country with which Morocco has not concluded a tax information exchange agreement.
    • Or, if it has been designated for this purpose by the group and has informed the tax administration of such designation.
OECD guidance
  • The detailed content of the documentation will be specified by a decree.
  • In addition, Morocco has recently joined the OECD, BEPS inclusive framework, which requires member countries to comply with certain minimum standards on transparency and information exchange, including BEPS Action 13 which covers transfer pricing documentation and country-by-country reporting (CbCR).
  • It is therefore likely that the content of the Moroccan transfer pricing documentation will be aligned with that of the documentation provided for in BEPS Action 13. Morocco is also likely to implement the CbCR declaration.
  • In this sense, the documentation content requirements would be relatively broad, and in line with the elements usually required in other countries.
Transfer pricing methods
  • As the application decree is not yet published and which should present in-depth the TP methods and their application; we refer to the methods presented by OECD.
  • Transactional methods:
    • Comparable Price Method (CUP);
    • Resale price minus method (RPM);
    • Cost plus method.
  • Transactional methods based on profits:
    • Profit Split Method (PSM);
    • Transactional net margin method / Comparable Profit Method (TNMM).
Transfer pricing documentation
Preparation of transfer pricing documentation
  • In Morocco, there are 3 types of TP documentation: (i) Master file (ii) local file, and (iii) CbCR.
  • Large companies with a declared turnover or an amount of gross assets appearing on the balance sheet greater than or equal to 50 MMAD are obliged to prepare a TP documentation containing the following elements:
    • Information on all related companies' activities, the overall transfer pricing policy of the group and the worldwide repartition of profits and activities [Master File] 
    • Specific information about transactions that the company subject to tax control carries out with related companies [Local File].
Some risk factors for challenge
  • Limited risk distributor and contract services are high-risk schemes.
  • Persistent losses in any entity.
  • Transactions with low tax jurisdictions resident and non-resident related parties.
  • Business restructurings, or changes in TP model can trigger a challenge from the tax authorities.
  • Significant Management fees expenses payments.
Penalties
  • In case of failure to produce a TP documentation, of 0,5% of the amount of the transactions concerned by the documentation, with a minimum amount of MAD 200.000 per concerned financial year
Economic analysis and how to demonstrate an arm’s length result
  • Since the application decree is not yet published, we refer to the economic analysis as presented by the OECD Guidelines. The purpose of the economic analysis is to determine the arm's length interval in which the company operating margin should fall taking into consideration the functions and risks assumed.
  • This arm's length range is obtained following a comparability study to identify the prices applied by independent companies operating in similar sector.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • The APA program has been introduced in 2015 covering unilateral, bilateral and multilateral agreements, for countries which have double tax treaty with Morocco.
  • The APA aims to avoid any transfer pricing disputes, by determining in advance a set of criteria to apply, within a specified period, for specific cross-border controlled transactions, to ensure their compliance with the arm’s length principle.
  • The APA application should be filed at least six months before the beginning of the fiscal year of the period covered by the APA.
  • In addition, companies subject to CIT in Morocco and having directly or indirectly dependencies with companies located outside Morocco may request the tax authorities to enter into an Advanced Pricing Agreements (APAs) valid for four fiscal years.
  • The agreement on the transfer pricing method allows the company concerned to benefit from the following guarantees:
    • The guarantee that the prices charged in its intra-group industrial, commercial or financial relations would not be subject to an adjustment for indirectly transferred profits.
    • The guarantee that the agreement applies to all future transactions carried out during the period of the agreement.
  • The tax authorities can only question the transfer pricing method agreed upon with a company in accordance with the provisions of Article 234 bis of the Moroccan Tax Code in the following cases:
    • The misrepresentation of facts, concealment of information, errors or omissions attributable to the company.
    • Non-compliance with the agreed method and the obligations contained in the agreement by the company or the use of fraudulent maneuvers.
Exemptions
  • Small companies not reaching the threshold of 50 MMAD turnover or gross assets appearing on the balance sheet greater than or equal to 50 MMAD

For further information on transfer pricing in Morocco please contact:

Mohamed Réda LAHMINI
T + (212) 6 61 36 14 95
E Reda.LAHMINI@ma.gt.com

Jaouad ZAITOUNI
T +(212) 6 62 77 42 00
E Jaouad.ZAITOUNI@ma.gt.com

Soufiane LAAZIZI
T +(212) 6 61 83 52 17
E Soufiane.LAAZIZI@ma.gt.com

 

 

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