Practice and legislation on Transfer Pricing in Dominican Republic
Wanda M. Montero
Oslo, Norway
Outline
0Some Tourism Industry Facts0Some All Inclusive Hotels Facts0Legal Framework0Sector Audits Strategy
0 Tax Base0 Procedure0 Results
0Future of Transfer Pricing
Source of Capital MNEs
Bermudas
Dinamarca
Costa Rica
Italia
Bahamas
Alemania
Islas Cayman
Francia
Colombia
Suiza
Canadá
Venezuela
México
Reino Unido
Paises Bajos
España
Islas Vírgenes Británicas
Estados Unidos
Panamá
1.0%1.1%1.1%1.2%1.3%
1.5%1.7%1.8%1.9%1.9%1.9%
2.2%3.3%
4.0%4.5%
12.8%12.9%
13.5%16.8%
Sector Audits
Tourism Industry Facts
0Dominican Republic is the 4th Tourism exporter in Latin America and the Caribbean (Surpassed by Brazil, Mexico and Argentina)
0The Foreign Direct Investment is around 1/4 of the total FDI
0As a percentage of the GDP, the tourism industry represent about 10% of the GDP
Tourism Industry Facts
2007 2008 2009 2010 2011
10.710.1
9.5 9.2 9.1
Tourism Value Added as a percentage of GDP
All Inclusive Hotels Facts093% of companies its capital comes from foreign
investments0Tax incentives regime (Import IVA, Local taxes, IVA, etc)0At least 80% of the hotel room are sell to a related party
located in a tax heaven.0The unit income (per room price) lower than the unit cost. 0Per room rate lower than the one published in many booking
webpage and Tour Operator catalog.
All Inclusive Hotels: The Business
Legal Framework
2006
2012
0Faculty of the Tax Administration
0APA’s0 Interest payed and cost
distributed between related parties
0Related Party definition 0Comparability Analysis
Criteria0Methods0Adjustment to comparable
transaction0APA0Safe Harbours0Documentation 0Others
1992
• Arm’s Length Principle
Sector Audit Strategy
Tax Base: based on the hotel rate at which the guest or final consumer overseas pay per night;
Sector Audit Strategy
Procedure:1. Find the Per night rate pay by tourist oversea, in a 7
nights packages, discounting the transportation.2. The rates were segmented according to the
category of the hotel, location and season0 5 categories were identified in each zone.
ASONAHORES submitted these categories. 0 2 Seasons were identified, high and low season.0 3 different region, A, B, and C. A for the expensive
one, C for the cheapest.
Sector Audit Strategy
Procedure:3. 10% of mandatory Tip and 16% of IVA was
discounted. 4. The margin of 20 and 25%, as a markup was
discounted. This margin is it supposed to be the profit margin the tourism intermediaries get for the commercialization service.
Sector Audit StrategyResults:
Tax PeriodQuantit
y2005 12006 12007 162008 32009 322010 20
Total 73
Audits by fiscal year 2005-2010
Audited Periods Taxpayers1 period 52 periods 143 periods 124 periods 1
Total 33
Fiscal period audited 2005-2010
Sector Audits Strategy
Results:Judgments from the Supreme Administrative Court, sustains and confirms the action as legal and correct, in both form and substance, and therefore, confirming the amounts of the estimates contained in the resolutions of determination of tax.
Future of TP
0 Around 70% of the audited hotels agreed to rectify their Tax Returns for the period 2007-2010 and 2011 in few cases
0 Since last year, taxpayers began to submit their Transfer Pricing documentation for the 2011 fiscal period.
0 Further Modifications were introduced to the Tax Law this month, eliminating the Sector APA’s, instead were included the unilateral and bilateral APA’s and Safe Harbours.
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