Transfer Pricing Regulations in the Dominican Republic
As of March 6, 2014, Dominican taxpayers are required to report and value their transactions with both domestic and foreign related parties and/or with companies covered by Special Regimes that enjoy tax benefits and/or are located in territories considered tax havens, through the Informative Declaration of Related-Party Transactions (DIOR), as established in Article 18, Paragraph IV, of Decree 78-14, published by the Tax Administration—DGII (General Directorate of Internal Taxes).
Related-Party Rules in the Dominican Republic
According to Article 2 of Transfer Pricing Regulation 78-14, related parties are considered to be individuals, legal entities, or organizations for which any of the following conditions apply, provided that one of them is a resident of the Dominican Republic.
§ When one of the parties participates directly or indirectly in the management, control, or capital of the other.
§ When the same individuals, legal entities, or other entities participate directly or indirectly in the management, control, or capital of such parties;
§ When a natural person, legal entity, or organization has permanent establishments abroad, with respect to such establishments;
§ When a permanent establishment located in the country has a parent company resident abroad with respect to another permanent establishment of the same; or a natural person, legal entity, or entity related to it;
§ When a resident individual, legal entity, or organization holds exclusive rights as an agent, distributor, or concessionaire of another for the sale or purchase of goods, services, or rights;
§ When a resident individual, legal entity, or organization receives, gives, or transfers fifty percent or more of its production to another;
§ When an entity assumes the expenses of another entity for the operation and generation of income, or the losses of another entity related to market risks, production or investment risks, and financial risks.
Formal Obligations: Informative Affidavits
Taxpayers subject to transfer pricing legislation in the Dominican Republic are resident individuals, legal entities, or organizations that conduct transactions with:
1. Related parties abroad;
2. Resident related parties;
3. Individuals, companies, or corporations that are resident or domiciled, incorporated, or located in countries or territories with preferential tax regimes, low or no taxation, or tax havens, whether or not the latter are resident.
Annual Information Return (DIOR)
Article 18 of Decree 78-14 establishes that taxpayers must file an annual information return. The return must be filed within 180 days after the end of the fiscal year through the Virtual Office.
Furthermore, in accordance with Article 18, paragraph V, of Decree 78-14, taxpayers who have conducted transactions with related parties and are exempt from preparing a Transfer Pricing Study must file the DIOR with the information requested in paragraph VI of the aforementioned article.
Transfer Pricing Study
Article 18, paragraph IV, of Decree 78-14 establishes that taxpayers subject to the transfer pricing regime must, at the time of filing the Informative Return on Transactions with Related Parties, have available a study or report on the valuation process for the transfer prices agreed upon in transactions with their related parties, to be made available to the DGII upon request.
The most important elements that this transfer pricing study must contain are: the organizational structure of the group and its constituent entities, identification of the related parties with whom transactions were recorded, transaction amounts, a description of functions, assets, and risks assumed by the taxpayer, an analysis of pricing methods, and pricing determinations and results, among others.
Deadline for Filing Annual Tax Returns.
Taxpayers subject to the transfer pricing regime in the Dominican Republic must have a transfer pricing study available at the time of filing the DIOR, that is, 180 days after the end of the fiscal year.
Penalties for Noncompliance
For taxpayers who fail to comply with transfer pricing reporting requirements, the Tax Code (Law No. 11-92) establishes penalties in the form of general and specific fines, such as:
- If the taxpayer submits false or incomplete information, pursuant to Law 495-06, a fine of 5 to 35 minimum wages is imposed, as well as a penalty of 0.25% of the income reported in the previous fiscal year in cases of noncompliance.
- If a tax adjustment to the prices is confirmed, the penalties provided for in Article No. 250 will be imposed, consisting of a monetary penalty of up to twice the amount of the unpaid tax, without prejudice to the penalty of business closure, if applicable.