MOROCCO - Advance Price Agreements in Morocco: How to proceed

July 2019

The Moroccan Tax authorities have issued a decree detailing how requests for Prior Agreements on Transfer Pricing (APAs) should be made, and in this article we summarise the requirements.

Applying for an APA

Under article 234 bis of the Moroccan Local Tax Code (CGI), companies that have a dependence link with companies located outside Morocco and that wish to conclude an APA must submit an application to the Tax authorities. However, such companies may hold preliminary meetings with the Tax Authorities before filing an APA application, in order to present their vision of the prior agreement.

A. Preliminary meetings

The purpose of these meetings is to discuss with the Tax Authorities the conditions under which an APA could be requested and drafted.

The objectives of the preliminary meetings are, in particular, to:

Provide an opportunity to negotiate a prior agreement (unilateral, bilateral or multilateral);
Discuss the type and scope of information needed for the analysis of the company’s transfer pricing policy;
Discuss the proposed timetable of the work, as well as any questions relating to the method of examining the request.

B. Content of a request

The APA request must be filed at least six months before the beginning of the first fiscal year covered by the agreement. This request should specify, in particular:

The associated companies in relation to the applicant company;
The operations covered by the agreement;
The fiscal years covered by the agreement;
The proposed transfer pricing method and its basic assumptions.

The objective of the above-mentioned elements is to have a starting point that is the subject of discussions between the parties. Thus, the proposed method and assumptions may be modified during the negotiation of the prior agreement.

For this purpose, it should be emphasised that:

The applicant company may indicate in its application that it wishes to conclude a unilateral, bilateral or multilateral APA. In this case, it must indicate the parties concerned with the agreement. In this respect, it should be noted that these parties may be one or more foreign Tax Authorities that have concluded international tax treaties with Morocco containing a provision on the mutual agreement procedure for the settlement of disputes.
The transactions covered by the requested agreement must be cross-border and may concern goods, services and intangibles and may target one or more transactions.
The taxpayer is required to propose an initial period for an APA that takes into account, among other things, the activity, transactions involved, facts, circumstances and outcome of the case. However, this period may not exceed 4 years.
The applicant company is required to briefly describe in its application:
- The basic assumptions on which it is based, to justify the application of the proposed transfer pricing methodology;
- The most appropriate transfer pricing method proposed for the activity in question.
The application must be signed by a duly accredited representative of the company.

C. Documents accompanying the request

In order to provide the Tax authorities with all the information necessary to make an informed decision on a APA request, the following documents must be supplied:

The general framework for the exercise of the activities of associated companies:

The organisational structure of all associated companies and their legal links, as well as the distribution of the capital of these companies;
The company's business strategy (business plan);
The financial and tax documents of associated companies certified by the competent authorities, covering the last four financial years;
The accounting standards applied by associates that have a direct impact on the transfer pricing method;
The activities of associated companies.

A general description of the functions performed, assets used and risks assumed by the associated companies;
A detailed description of the intangible assets held by associated companies;
A description of the economic market and the field(s) of activity of the companies and all controlled transactions;
Contractual agreements between the associated companies;
Cost allocation agreements between associated companies;
Prior transfer pricing agreements entered into between the requesting company and other foreign authorities, and the tax consultations established by the latter;
The identification, analysis and selection of comparables, as well as the justifications and possible adjustments of comparability;
The proposed transfer pricing methodology and its detailed assumptions and adjustment conditions.

Drafting and concluding the prior agreement

A. Drafting the APA

The draft of an APA requires close and regular cooperation between the requesting company and the Tax Authorities.

To this end, technical meetings are organised to enable the company to present the documents necessary for assessing the transactions concerned and to justify the method it intends to use.

The teams in charge of the APA may conduct an on-site visit to the applicant company's facility to better understand the nature of the company's activities. In this regard, it may meet with staff members to obtain clarification of certain points and collect additional information in order to consider the request. It may also request other accounting or economic analyses.

B. Concluding the APA

Since each APA is unique, the requirements regarding the terms of the agreement will be dealt with on a case-by-case basis. Nevertheless, the terms of the agreement must specify, in particular:

The period covered by the agreement and its date of entry into force;
A precise description of the operations covered by the agreement;
A description of the method used to determine the transfer price;
The mechanism for monitoring the agreement, as well as the information and data to be included in the annual follow-up report;
The basic assumptions for determining the transfer price;
Provisions for revision and cancellation of the agreement.

It should be noted that the agreement must be signed by the authorised persons.

The follow-up report

Given that the monitoring of an APA depends on several parameters, in particular on the situation of the requesting company, the elements of the follow-up reports will be determined during the negotiation of the agreement. However, the company that has concluded an APA must file an annual follow-up report with the Tax Authorities, which must contain at least the following elements:

A detailed statement of the calculation of the transfer prices provided for in the agreement;
A summary statement of any changes made to the conditions of exercise concerning the transactions covered by the agreement;
A copy of the organisational structure of all associated companies and their legal entities, as well as the distribution of the capital of these companies, detailing any changes;
A copy of the annual activity report of the associated companies.

The taxpayer is also required to file, under the conditions determined under the terms of the agreement, conventional documents in order to ensure the compliance of the methods used in the agreement.

It should be noted that in the event of failure to produce the annual report and annexed documents, the agreement may be cancelled with effect from the financial year in respect of which the required information has not been submitted to the Tax Authorities.

Salaheddine Nadif
snadif@bdo.ma