How does Morocco address intercompany flows and transfer pricing aspects?

The Moroccan tax administration is quite aggressive about intercompany / cross border flows during tax audits. This is why it is key to be prepared, through the establishment of a local file / benchmark to justify the transaction price with related parties. A documentation prepared based on OECD models and principles is admitted locally.

Advance transfer pricing agreements (with a similar procedure and effects to the best international standards / practices) are available, though only a few companies have initiated this procedure due to a reluctance to disclose information about the margin to the tax authorities. However, this procedure remains interesting, especially regarding companies that have all of their transactions (sales and / or purchases) with related parties.

In addition, services provided to a Moroccan subsidiary (or client) will generally be subject to a 10% withholding tax in Morocco, even if a double tax treaty applies, due to the broad interpretation of “royalties” from the Moroccan tax administration. Particular attention should be paid when drafting these agreements, in order to include a gross-up clause as necessary.

In addition to the tax aspects, intercompany flows and especially management fees, the agreement must comply with the Moroccan foreign exchange regulations. Standard services / technical assistance contracts can generally be implemented (and corresponding invoices duly paid) only after being formally approved by the Moroccan administration (Office des Changes in French).

What are the best ways to challenge incorrect taxation from the state?

Generally, a tax audit may lead the tax administration to challenge the company’s tax position – e.g. regarding intercompany flows – on the grounds of transfer pricing regulations, where the procedure is similar to those existing in most European jurisdictions (including an on-site audit first and then a written procedure). Most tax audits in Morocco are closed after a deal is negotiated and set out in a settlement agreement.

This option is interesting in order to close the tax audit quickly, but it has two significant disadvantages: the tax authorities can audit the company each four years on the same topics, and the amount of taxes paid often relate to assessments that lack a legal basis.

Initiating court proceedings against the tax administration implies providing guarantees to the state up to the amount of taxes resulting from the tax audit assessments, which can be rather discouraging. However, once this impediment is overcome, the benefits of the court procedure are very interesting and include mainly the following:

• Decisions of the administrative court and the administrative court of appeal can be obtained quite quickly (less than two years for the first instance and appeal decisions);
• The judges are not tax experts and usually rely on an expert’s report, which generally is written by a business-friendly CPA;
• The court acknowledges procedural errors during the on-site audit and the poor argumentation of the tax authorities and will cancel additional taxation.

Are there any recent developments in Morocco about taxation of online service providers (such as the GAFAM) ?

Morocco is not an OECD member, but is part of all the discussions about the BEPS framework and is currently implementing the best tax governance practices recommended by the OECD. As a result, Morocco, which has the largest tax treaty network of Africa, benefits from the provisions of the multilateral document, which enhances the state taxation rights against online service providers.

However, it should be noted that, for the moment, the Moroccan tax administration is not very focused on assessments of a permanent establishment (PE), which means that online service providers generally do not declare a PE in Morocco. Many of them do not yet conduct activity in the country, mostly for regulatory reasons (licences requirements, foreign exchange regulations issues, etc.).

That being said, in 2024, Morocco implemented a huge VAT reform that includes a change of territoriality rules regarding numeric services purchased on foreign online platforms. Whereas standard services are only taxable (to VAT) when they are used in Morocco (regardless of the country of residence of the beneficiary), numeric services (which are not defined) are taxable based on a single criteria: the country of residence of the beneficiary.

Based on this new principle, numeric services provided to a Moroccan tax resident will be taxable in Morocco. Following this reform, many numeric service providers are now required to register in Morocco for VAT purposes, which may also lead to higher PE exposure from them.