The 2021 Finance Law strengthened the Moroccan regulatory framework for transfer pricing documentation. These new requirements follow Morocco’s accession to the OECD BEPS Inclusive Framework and aim to ensure greater fiscal transparency for intra-group transactions.
In this article, we specifically cover the following points:
- First, the current legal and regulatory framework for transfer pricing in Morocco;
- Second, the tax measures adopted under the 2021 Finance Law regarding transfer pricing documentation;
- Third, the transfer pricing methods accepted by Moroccan tax authorities;
- Finally, recent developments including Decree No. 2-22-1020 on intra-group documentation.
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General Framework for Transfer Pricing Documentation in Morocco
Morocco has undertaken significant regulatory efforts to comply with international standards and obligations. The 2021 Finance Law introduced new provisions on transfer pricing, building on Morocco’s accession to the OECD BEPS (Base Erosion and Profit Shifting) Inclusive Framework in March 2019.
These provisions complement the existing tax rules on transfer pricing and align Moroccan legislation with the recommendations of BEPS Action 13, which sets the international standard for transfer pricing documentation.
As a reminder, these measures apply to Moroccan companies that have dependency relationships with foreign companies. They also apply to branches of foreign companies in Morocco.
The 2021 Finance Law provides clarifications on the following points:
- First, the scope of the obligation to prepare transfer pricing documentation;
- Second, the content of transfer pricing documentation;
- Finally, the introduction of penalties for failure to produce transfer pricing documentation.
Who Must Prepare Transfer Pricing Documentation?
The obligation to prepare transfer pricing documentation in Morocco applies to companies that meet the following conditions:
- They carry out cross-border transactions with related companies located abroad;
- Their reported turnover (excluding VAT) is equal to or greater than 50 million MAD;
- Or their total gross assets on the balance sheet at the close of the fiscal year are equal to or greater than this same threshold.
In addition, Decree No. 2-22-1020 introduces a materiality threshold of 1 million MAD excluding VAT per transaction category to determine which transactions must be documented in detail.
Reminder of Previous Provisions
It should be recalled that Article 214 of the General Tax Code requires Moroccan companies with dependency relationships with foreign companies to prepare transfer pricing documentation. This obligation has been in effect since 1 January 2020.
The purpose of this documentation is to demonstrate that intra-group transactions are conducted at arm’s length. The arm’s length principle, which is fundamental to transfer pricing, requires that prices charged between related companies be comparable to those that would be agreed between independent companies under similar circumstances.
Furthermore, under the law, this documentation must contain:
- First, information on the overall activities of related companies,
- Second, information on the global transfer pricing policy applied,
- Third, information on the worldwide allocation of profits and activities;
- Finally, specific information on transactions carried out by the company with its related counterparts located abroad.
In the event of a tax audit, the company must submit the documentation within 30 days of the auditor’s request. Furthermore, Decree No. 2-22-1020 requires automatic submission of all documents to the tax authorities within seven months following the close of the fiscal year.
What Must Transfer Pricing Documentation in Morocco Contain?
The 2021 Finance Law specified in Article 214-III of the General Tax Code that companies must provide the tax authorities with a file containing two distinct components.
The Master File
The master file provides an overview of the multinational group. It must contain:
- The legal organisational structure of the group and the geographic location of entities;
- A description of the value chain and main revenue sources;
- A description of the activities of all related companies;
- The global transfer pricing policy applied by the group;
- The worldwide allocation of profits and activities;
- A detailed analysis of the functions performed by each entity, risks borne and assets used, particularly intangible assets (patents, licences, technologies).
The Local File
The local file contains specific information on transactions carried out by the audited company with Group companies. It must include:
- A detailed description of the local company and its business strategy;
- Intra-group transactions carried out, their nature and amount;
- The functional analysis of the local company (functions, risks, assets);
- The transfer pricing method selected and its justification;
- Comparability studies performed;
- Financial data used for the analysis.
It should be noted that the 2021 Finance Law limited the scope of this documentation requirement to companies that:
- Have reported turnover (excluding VAT) equal to or greater than fifty (50) million dirhams;
- Or have total gross assets on the balance sheet at the close of the relevant fiscal year equal to or greater than the above threshold.
Transfer Pricing Methods Accepted in Morocco
The Moroccan tax authorities recognise the transfer pricing methods recommended by the OECD. The choice of the most appropriate method depends on the nature of the transaction and the availability of comparable data.
Traditional Transaction Methods
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Comparable Uncontrolled Price (CUP) Method: this directly compares the price charged in a controlled transaction to the price charged in a comparable transaction between independent parties. It is the most direct method when reliable comparables exist.
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Resale Price Method (Resale Minus): this determines the transfer price by subtracting an appropriate gross margin from the resale price to an independent third party. It is particularly suited to distribution activities.
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Cost Plus Method: the transfer price is calculated by adding an arm’s length margin to the costs incurred by the supplier in the intra-group transaction.
Transactional Profit Methods
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Transactional Net Margin Method (TNMM): this evaluates the net margin earned by the tested party on a controlled transaction and compares it to net margins earned by independent companies in similar activities. It is the most commonly used method in practice.
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Profit Split Method: this allocates the combined profits of related companies according to the respective contribution of each party. It is used when transactions are highly integrated.
In the absence of financial databases dedicated to Moroccan companies, practitioners search for comparable entities using financial statements available at the Commercial Registry or in international databases.
Penalties for Failure to Produce Transfer Pricing Documentation
Article 214 of the General Tax Code stipulates that failure to produce the documentation results in a penalty of:
- 0.5% of the amount of transactions covered by the documents not produced,
- with a minimum amount of MAD 200,000 per fiscal year concerned.
Under Article 210, if these documents are not submitted within the prescribed time limits:
- the dependency relationship between the companies concerned is presumed established by the tax authorities,
- these companies lose the right to present the missing documents before the appeals commissions.
These penalties are significant and can accumulate over multiple fiscal years when audits cover several periods.
Decree No. 2-22-1020 and Recent Developments
Decree No. 2-22-1020, published in the Official Bulletin, represents a major step forward by codifying with unprecedented precision the obligations of companies regarding transfer pricing documentation. This decree aligns with OECD standards and extends the BEPS guidelines.
Key Provisions of the Decree
- Automatic submission: documents must be submitted to the tax authorities within seven months following the close of the fiscal year, without waiting for a request from the administration;
- Materiality threshold: a threshold of 1 million MAD excluding VAT per transaction category is introduced to determine which transactions must be documented;
- Detailed content: the decree specifies the mandatory information for both the master file and the local file with an unprecedented level of detail.
Country-by-Country Reporting
Under BEPS Action 13, Morocco is also committed to implementing country-by-country reporting for multinational groups whose consolidated turnover exceeds a certain threshold. This reporting provides an overview of the worldwide distribution of revenues, taxes paid and economic activity of the group in each jurisdiction.
DGI Enforcement Trends
The Direction Generale des Impots (DGI) has been intensifying its transfer pricing audits in recent years. Tax auditors are increasingly well-trained in transfer pricing matters and have access to more sophisticated analytical tools. Companies must anticipate these audits by preparing robust and up-to-date documentation.
Upsilon Consulting’s Offering
We assist our clients in preparing transfer pricing documentation tailored to the Moroccan context.
Our approach is based on the following pillars:
Diagnostic of the Group’s Subsidiaries’ Business Model
Understanding the business model
We identify the business model adopted by the group and the functions performed by the Moroccan subsidiaries. We also collect the information needed to understand the various intra-group transactions.
Compliance with international transfer pricing guidelines
We prepare documentation that complies with the OECD transfer pricing guidelines. We analyse the conformity of the business model adopted with the international guidelines established by the OECD on transfer pricing.
Compliance with Moroccan tax authority practices
The documentation includes specific information requested by the Moroccan tax authorities during audits.
Functional Analysis and Risk Allocation
We carry out the functional risk analysis based on information provided by our clients’ management.
In this step, we focus on the nature of flows and link them to the functions and associated risks assumed by the Moroccan subsidiary and the assets and resources used.
Following this analysis, we can prepare a description of the functions and risks of the local subsidiaries, which will enable us to justify the transfer pricing policy currently applied.
The Upsilon team assists you throughout the data collection and validation process. We compile a file that can also serve as a basis for defence in the event of a tax audit.
Identification of Comparable Methods and Assessment Based on the Arm’s Length Principle
During this step, we conduct an in-depth study of the transfer pricing policy:
- First, assessment of the appropriate transfer pricing methods to use in our analysis of intra-group transactions carried out by the Moroccan subsidiary. In the absence of financial databases for Moroccan companies, we search for comparable entities based on financial statements available at the Commercial Registry;
- Second, detailed verification of the selected comparable companies and assessment of the arm’s length margin. Once we confirm effective comparability, we carry out a statistical analysis of their financial information. The objective is to determine the arm’s length range based on profit ratios.
If you have any questions or need assistance: Contact us.
Frequently Asked Questions
Which companies must prepare transfer pricing documentation in Morocco?
Transfer pricing documentation is mandatory for companies with cross-border transactions with related companies located abroad, whose reported turnover (excluding VAT) or total gross assets on the balance sheet is equal to or greater than 50 million MAD. A materiality threshold of 1 million MAD excluding VAT per transaction category also applies under Decree No. 2-22-1020.
What are the penalties for failing to produce transfer pricing documentation in Morocco?
The penalty is 0.5% of the amount of transactions covered by the missing documentation, with a minimum of MAD 200,000 per fiscal year concerned. Additionally, the non-arm’s length relationship between the companies is presumed confirmed, and the companies lose the right to present the missing documents before the appeals commissions.
What transfer pricing methods are accepted by Moroccan tax authorities?
The Moroccan tax authorities generally accept the transfer pricing methods aligned with the OECD Guidelines, including the Comparable Uncontrolled Price (CUP) method, the Resale Price method, the Cost Plus method, the Transactional Net Margin Method (TNMM), and the Profit Split method. The choice of the most appropriate method depends on the nature of the intra-group transactions and the availability of reliable comparable data. In practice, given the limited availability of financial databases for Moroccan companies, comparable entities are often identified through financial statements filed at the Commercial Registry, and the arm’s length range is determined through statistical analysis of profit ratios.
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