Transfer pricing is an important tax consideration for Moroccan companies belonging to international groups.
When a Moroccan company carries out transactions with its parent company, a subsidiary or another related entity located abroad, the terms applied to these transactions must be justifiable under the arm’s length principle.
Management fees, service agreements, purchases of goods, royalties, intercompany financing and cost recharges are among the most common transactions concerned.
For foreign groups operating in Morocco, transfer pricing should therefore be considered from the outset, rather than only when a tax audit occurs.
Transfer pricing refers to the prices and financial conditions applied to transactions between related companies.
For a Moroccan company belonging to an international group, these transactions may include:
Transactions between companies belonging to the same group are not problematic in themselves.
The key issue is whether the terms applied can be supported as being consistent with those that would have been agreed between independent parties under comparable circumstances.
The arm’s length principle is at the heart of transfer pricing analysis.
It involves determining whether the remuneration of an intercompany transaction is consistent with what independent companies would have agreed under comparable circumstances.
The analysis therefore goes beyond the amount shown on an invoice.
Several factors should be considered, including:
This functional analysis helps determine the most appropriate transfer pricing method.
Certain transactions may present greater tax risks and therefore require appropriate documentation.
A Moroccan subsidiary may receive services from its parent company or from other entities within the group.
The company should be able to demonstrate the actual provision of the services, their benefit to the Moroccan entity and the consistency of the allocation and invoicing method used.
A contract and an invoice alone may not always provide sufficient support.It is therefore advisable to retain evidence demonstrating the nature and reality of the services provided.
Loans, shareholder current accounts and other forms of financing between related companies may raise several issues, including the applicable interest rate, tax deductibility, withholding tax and Moroccan foreign exchange regulations.
Payments relating to trademarks, software, licences, know-how and other intangible assets should also be properly documented and supported.
For industrial and trading groups, the prices applied to intercompany purchases and sales may directly affect the taxable margin reported in Morocco.
The appropriate method depends on the nature of the transaction and the information available.
Common transfer pricing methods include :
There is no single method suitable for every situation.
For example, a Moroccan company providing routine support services to its parent company may require a different approach from that applicable to a distributor, manufacturer or company exploiting significant intangible assets.
Many Moroccan subsidiaries of international groups provide support or service activities to other group companies.Their remuneration may therefore be determined according to a: cost base + margin model.
Although this approach may appear straightforward, several questions need to be addressed:
Applying an arbitrary margin of 5%, 10% or 15% without appropriate analysis may create a tax risk.
The margin should be consistent with the functions performed, risks assumed and economic circumstances of the company.
An effective transfer pricing policy should not exist only on paper.
The company should be able to reconcile its transfer pricing policy with its actual operations, invoicing and accounting records.
Relevant supporting documentation may include:
Depending on the company’s circumstances and the thresholds provided by Moroccan tax legislation, specific transfer pricing documentation requirements may also apply.
Contracts are important, but they must reflect the economic reality of the transactions.
If an agreement states that the parent company provides strategic services to its Moroccan subsidiary, the company should be able to demonstrate that those services were actually performed.
Similarly, if the Moroccan company assumes more functions or risks in practice than those described in the agreement, its remuneration may need to be reconsidered.
Consistency between contracts, invoices, accounting records and the actual conduct of the parties is therefore essential.
A single intercompany payment may raise several Moroccan tax issues.
For example, management fees paid by a Moroccan company to a foreign parent company may require an analysis of:
It is therefore advisable to analyse an intercompany transaction as a whole rather than addressing each compliance requirement separately.
Payments made by a Moroccan company to a foreign entity must also comply with Moroccan foreign exchange regulations.
The nature of the payment, contractual documentation, invoices and supporting documents may be relevant when transferring funds abroad.
A properly structured intercompany policy should therefore consider both Moroccan tax rules and the foreign exchange requirements applicable to cross-border payments.
Moroccan tax legislation provides for an Advance Pricing Agreement (APA) mechanism for companies having a dependency relationship with entities located outside Morocco.
An APA makes it possible, subject to the applicable conditions and procedure, to agree in advance with the Moroccan tax authorities on the method used to determine the prices of the relevant transactions.
This mechanism can be particularly relevant for significant, recurring or complex intercompany transactions.
INDICAC has published a dedicated article on Advance Pricing Agreements in Morocco.
Ideally, transfer pricing should be reviewed before intercompany transactions become significant.
A review may be particularly relevant:
For a newly established subsidiary, defining the transfer pricing policy from the beginning is generally easier than having to justify several years of transactions retrospectively.
INDICAC assists Moroccan companies and subsidiaries of international groups with the analysis of their intercompany transactions and cross-border tax matters.
Our assistance may include:
A transfer pricing review can help assess whether your agreements, invoicing, accounting records and Moroccan tax treatment are properly aligned.
INDICAC – Audit | Accounting | Tax | Advisory
Contact us: contact@indicac.ma
