April 26, 2021
Dominican Republic issues amendments to transfer pricing regulations
The amendments modify current transfer pricing regulations and require taxpayers to file the country-by-country report and notification, master file and local file.
On April 21, 2021 the Dominican Republic's Tax Administration (DGII) issued Decree 256-21 (the Decree), which modifies Articles 5, 7, 10 and 18 of the transfer pricing regulations established by Decree No. 78-14 of March14, 2014. The Decree is effective January 1, 2021.
In 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 BEPS minimum standards in matters of tax transparency, one of them being the implementation of Action 13 (Transfer Pricing Documentation).
The amendments to Article 5 establish: (i) provisions related to the comparability analysis; (ii) the economically relevant characteristics in the delineation of transactions with related parties; and (iii) 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 require the delineation of the transaction to be carried out based on the parties' conduct.
The amendments to Article 7 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 amendments to Article 10 define when an international intermediary exists.
The amendments to Article 18 adopt the three levels of documentation provided by BEPS Action 13:
Country-by-country (CbC) report. Taxpayers must file the CbC report if they: (i) are part of a multinational enterprise (MNE) group; (ii) 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); (iii) are the ultimate parent entity (UPE); and (iv) reside in the Dominican Republic for tax purposes. They must file the CbC report from tax year 2022 in 2023 and thereafter. Additionally, any entity that is a member of an MNE group that is resident for tax purposes in the Dominican Republic may 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 item 1, Article 2 of Decree No. 78-14 must submit the master file in electronic format within 180 days of the transfer pricing information return filing date. The master file must contain information on the organizational structure, business, intangible assets, financial activities and existing advanced pricing agreements, among other things.
Local file. The local file must 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. The local file must be submitted in electronic format within 180 days of the filing date of the transfer pricing information return.
Taxpayers excluded from filing local and master files
The following taxpayers are excluded 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.
Taxpayers must file the transfer pricing information return (or DIOR) annually, with the corporate tax return (IR-2). Before these modifications, taxpayers had to file the DIOR within 180 days of the tax year's closing date. Under the modifications, the due date for the return would be within 120 days after the tax year-end, applicable from tax year 2022 and onwards.
The modifications also require the master file and local file to be submitted in digital format within 180 days of the filing of the DIOR.