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.

THANK YOU!