March 15, 2021
Dominican Republic issues draft amendments to transfer pricing regulations
The draft amendments would modify articles in the current transfer pricing regulations that would require taxpayers to file the country-by-country report, master file and local file. Taxpayers should prepare now for the new requirements.
On March 1, 2021, the Dominican Republic's Tax Administration (DGII) issued draft amendments to Articles 5, 7, 10 and 18 of the transfer pricing regulations established by Decree No. 78-14 of March 14, 2014 (draft amendments to the regulations). The amendments to the transfer pricing regulations would be effective for tax years beginning January 1, 2021.
On October 2018, the Dominican Republic joined the Organisation for Economic Co-operation and Development's Inclusive Framework of the Base Erosion and Profit Shifting (BEPS) Project. As a result, the Dominican Republic committed to implementing the minimum BEPS standards in matters of tax transparency, one of them being the implementation of Action 13 (Transfer Pricing Documentation).
The draft amendments to Article 5 would establish (1) provisions related to the comparability analysis, (2) the economically relevant characteristics in the delineation of transactions with related parties and (3) steps to be followed in the analysis of risks borne by the parties. When the economically relevant characteristics differ from the written contractual terms and the taxpayer's other documentation, the amendments would require the delineation of the transaction to be carried out based on the parties' conduct.
The amendments to Article 7 would modify the provisions of the profit split method by adding two approaches — a contribution analysis and a residual analysis. These approaches are also recognized in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
The draft amendments to Article 10 would define when an international intermediary exists.
The draft amendments would modify Article 18 to adopt the three levels of documentation provided by BEPS Action 13:
Country-by-country report (CbC). Taxpayers would have to file the CbC report if they (1) are part of a multinational enterprise (MNE) group, (2) earned, in the immediately preceding tax year, consolidated revenue for accounting purposes equal to or greater than the threshold amount to be defined in a general rule (not yet issued), (3) are the ultimate parent entity (UPE), and (4) reside in the Dominican Republic for tax purposes. They would have to file the CbC report from tax year 2021 and thereafter. Additionally, any entity that is a member of a MNE group that is resident for tax purposes in the Dominican Republic could file this report in the Dominican Republic and make the corresponding notifications under the conditions established by the general rule, provided that no CbC report regulations exist in the UPE's country of residence.
Master file. Taxpayers that are considered related parties under the transfer pricing regulations would have to submit the master file in electronic format within 180 days of the transfer pricing information return filing date. The master file would have to contain information on the organizational structure, business, intangible assets, financial activities and existing advanced pricing agreements, among other things.
Local file. The local file would have to contain specific information on the taxpayer and its intercompany transactions, the amounts of such transactions, functional and economic analyses conducted in the determination of its transfer prices and financial information, among other things.
Taxpayers excluded from filing local and master files
The draft would exclude the following taxpayers from the obligation to prepare the master file and local file:
The DGII is expected to issue a general rule that would establish the due dates for submitting the CbC report, the threshold for the CbC report filing requirement, and the cases in which entities would have to make the corresponding notifications, among other things.
Currently, taxpayers must file the transfer pricing information return (or DIOR) annually, with the corporate tax return (IR-2). Taxpayers must file the DIOR within 180 days of the tax year's closing date. Under the draft amendments, the due date for the return would be within 120 days after the tax year-end.
The draft amendments would require the master file and local file to be submitted in digital format within 180 days of the filing of the DIOR.
The draft amendments to Articles 5, 7, 10 and 18 are open to public comments from interested parties. The public comment period is 25 business days and ends on April 5, 2021.