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13.4.1. Main Rules

Transfer Pricing rules were introduced in the tax code of Cape Verde in 2015.

Commercial transactions between related-parties should be subject to identical terms and conditions similar to those that would be accepted and agreed between independent entities (arm's length principle). For related-party transactions (i.e., transactions between parties with a special relationship), the tax authorities are empowered to make adjustments in the taxable profits that are necessary to reflect the transactions on an arm's-length basis.

Definition of Related Parties

A special relationship is deemed to exist if one entity has the capacity, directly or indirectly, to influence the management decisions of another entity. This capacity is deemed to exist in the following relationships:

  • Between one entity and its shareholders, or their spouses, ascendants or descendants, if they possess, directly or indirectly, 20% of the capital or voting rights of the entity;
  • Between two entities in which the same shareholders, their spouses, ascendants or descendants hold, directly or indirectly,  participation of not less than 20% of the capital or voting rights;
  • Between any entities bound by dominance relations;
  • Between a non-resident entity and its Cape Verdean permanent establishment; and
  • Between a resident entity and an entity located in a territory with a favourable tax regime according to the tax laws of Cape Verde.

Taxpayers are required to maintain information and documentation regarding their transfer pricing policies.

Applicable TP Methods

The following TP methods are applicable to transactions between related-parties:

  • Comparable uncontrolled price (CUP) method;
  • Resale price method;
  • Cost-plus method;
  • Transactional net margin method (TNMM); and
  • Profit split method.

The best method rule applies for the determination of the arm’s length price for domestic and cross-border transactions and the taxpayer needs to explain each case with reasons for the use of a particular method/ methods and the reasons for rejection of the other methods.