Page 1 of 6 Transfer Pricing Country Summary Algeria June 25, 2018
Page 2 of 6 Legislation Existence of Transfer Pricing Laws/Guidelines Even though Algeria has no specific set of transfer pricing rules, the anti-avoidance rules enshrined in the Tax code applies the arm s length principle. By virtue of Article 141 bis 2013 ( Code des Impôts Directs et Tax Assimilees, known as CID), when an enterprise operating in Algeria, or out of Algeria, is directly or indirectly involved in the management, control or capital of another enterprise(s) operating in or out of Algeria or the same person(s) participates directly or indirectly in the management, control or capital of an enterprise(s) operating in or out of Algeria, and in both cases, the commercial and financial relationship of the two enterprises differ from those between independent enterprises, profits which would have accrued to the enterprise operating in Algeria, but, by reason of the conditions have not so accrued are included to the profits of that enterprise and taxed accordingly. The rules largely apply the Article 9 of the OECD Model Tax Convention. Thus, profits indirectly transferred through: An increase or decrease in the purchase or sale price; Excessive payments of royalties or payments made in exchange for nothing; Interest-free grants or low rate interest loans; A waiver of interest payments as stipulated in loan agreements; The attribution of advantages disproportionate to the services supplied; and, All other means are reassessed, reinstated to the Algerian entity and taxed accordingly. Where this is the case, and the taxpayer fails to respond to inquiries during a tax audit, the tax authority is obliged to use any evidence in their possession or by a comparison of the income of similar enterprises operating in the open market to determine the tax base of the taxpayer. Definition of Related Party No specific threshold is provided. Involvement in the capital, control and management of enterprises operating in and out of Algeria determines application of the anti-avoidance rules. Transfer Pricing Scrutiny
Page 3 of 6 The Finance legislation, 2010 (Lois de Finance complementaire) supplementing the Finance Law further increased transfer pricing scrutiny. The law clarifies the Algerian tax authority s idea of documentation expected from tax payers in order to substantiate the TP policy of their company. This documentation requirement applies to every sector in the economy, with the requirements specifically listed for companies under the Direction des Grandes Entreprises (Major Company Directorate or DGE). Transfer Pricing Penalties In Algeria, a non-response to a notice for submission of Transfer pricing documentation may trigger a penalty of 25% over the taxable amount, calculated on the bases of the reassessment resulting from the tax audit. Thus, insufficient documentation to substantiate the transfer price carries a penalty of 25%. The tax authorities may also consider insufficient documentation as an attempt of fraud or tax avoidance by the taxpayer. Late filing, failure to file or filing incorrect tax returns is heavily penalized. In 2018, there has been an increase in the penalty for failing to file a return, in the amount of DZD 10 million, for foreign companies with temporary operations in Algeria. Advance Pricing Agreement (APA) There is currently no provision for Advanced Pricing Agreement in the Algerian anti avoidance rules. The possibility for an option for a Tax consolidation regime does not constitute a pricing agreement with the tax administration. However, Algerian tax authorities introduced a tax-ruling regime in Executive Order No. 12-334, dated 8 September 2012. This regime, which is designed to provide greater certainty for tax payers and enhance monitoring capabilities for the tax administration allows a taxpayer to request a ruling that sets out the formal position of the tax administration on the taxpayer s particular situation. Such ruling regime would be effective as from the date of the executive order. The procedure could in theory cover transfer pricing, and valid only for certain categories of companies. Effectively, this procedure has streamlined a deadline of four months to receive an answer to a ruling request. Documentation and Disclosure Requirements Tax Return Disclosures In order to reduce Tax compliance risks, Transfer Pricing documentation ought to be prepared for disclosure. The tax authorities may require any document that supports the declared transfer price - for example, the balance sheet and a summary of the profit and loss account. Failure to provide a required transfer pricing documentation within 30days may trigger a penalty of 25% over the reassessed amount.
Page 4 of 6 The annual tax return and transfer pricing documentation should be filed no later than 30 April, together with a detailed statement of proceeds paid to third parties with respect to subcontracted services, hiring of personnel and equipment, leases, and technical assistance services. The final tax payment deadline (including VAT, IBS instalments, WHTs, PIT, and payroll taxes) is on the 20th of the month following submission of the tax return, instead of with the tax return, due April 30. The appropriate financial statements to substantiate the returns are due after the close of the tax year (follows a Calendar year) together with the statutory return. Level of Documentation Companies operating under DGE must provide, in addition to their tax return documentation, other documentations substantiating the transfer pricing policies used in respect of transactions with affiliated enterprises. The Code des Procédures Fiscales (Tax Procedure code) supplementing the 2010 LFC (Loi de Finances Complémentaire) reiterates the necessity of providing Transfer pricing documentation upon request. The required documentation must include the following: Company's organisational structure and information/documents stipulating the nature of the relationship between the Algerian company and the foreign company(s); A description of the group transfer pricing policy and the kind of transactions that take place between the related entities; The methodology used in determining intercompany transfer price; The activities performed by the companies located outside Algeria; as connected through industrial, commercial or financial transactions, as well as the tax treatment reserved for such types of transactions; Copies of annual audit reports, together with the audited financial statements related to the reported fiscal year; The list of key owned intangible assets, such as licences, trademarks, trade names and knowhow; and, The financial information about overheads and administrative costs and research and development costs. Despite the fact that there is no standard Transfer pricing documentation requirement for all companies, besides companies operating under DGE, preparation and submission of Transfer pricing supporting documentation must be furnished on request, otherwise the taxpayer would be exposed to penalties. Record Keeping There is no guidance on records preservation for TP purposes in the code. However, it is advisable for a taxpayer to preserve its TP documentations for as long as possible. The tax authorities may require a tax
Page 5 of 6 declaration, reinstatement and clarification at any time. A taxpayers faced with such request has only 30days to provide the requested records. Language for Documentation In Algeria, Transfer Pricing and tax return documentations are prepared and submitted in Arabic; but a French version or a certified translation is also acceptable by the Tax authorities. Small and Medium Sized Enterprises (SMEs) There is no special guidance of a tax regime applicable to Small and Medium sized enterprises in the Tax code. According to the language of the Algerian Tax code, transfer pricing mostly affects transactions between big sized companies involved in cross border trade. No doubt reference is repeatedly made on the documentation to be provided by enterprises operating under the DGE. Deadline to Prepare Documentation There is no official deadline set for preparing Transfer Pricing documentation. However, the tax return documentation must be prepared during a tax audit. Deadline to Submit Documentation Documentation must be submitted within 30days after a request by the DGI. Statute Of Limitations There is no statute of limitation applicable for Transfer pricing purposes in the Algerian Direct Tax code (CID) Transfer Pricing Methods The code lacks guidance on the transfer pricing methodology for determining the arm s length transfer price. However, since the Algerian anti-avoidance (Transfer Pricing) rules arm s length principle is in line with the OECD TP guidelines, it will be no mistake to conclude that the arm s length transfer price might be determined through one of the OECD Transfer Pricing methods. Further, and as above stated, the tax administration may reassesses and reinstate intercompany transfer price during a TP audit by comparing similar business transactions in the open market to that of the selected party, in order to determine the arm s length price.
Page 6 of 6 Comparables There is no mention in the Tax Act in regards to specific comparables to be provided by the taxpayer during filing its tax return or during audit. To the tax authorities, the source of comparables used in determining the arm s length transfer price is more important than the scope of the comparables. Thus, the tax authorities will most likely accept a global/regional contemporary database that provides reliable and reasonable comparables.