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13.4.1. Main Rules

The Dominican Republic first introduced transfer pricing rules in January 2007. The rules were subsequently amended several times, with the most recent amendments and/or clarifications introduced through Decree 78-14 of 14 March 2014, Decree 256-21 of 20 April 2021, and Notification 10-20 of 22 January 2020 (identifying a White List of countries and territories).

The transfer pricing regulations apply to transactions between the following parties:

  • Resident and non-resident related parties;
  • Resident and resident related parties; and
  • Resident and individual, or physical or legal persons or entities domiciled, incorporated or located in territories with preferential tax regimes, low or no taxation, or tax havens (see Sec. 13.5.).

Transfer pricing adjustments apply to any commercial or financial transactions between the above-mentioned parties, which result in lower taxation or tax deferrals. The tax authorities are empowered to challenge the declaration made by the taxpayer where they are of the opinion that the transactions/values:

  • Differ substantially from transactions between independent parties under similar conditions; and
  • Do not correspond to the economic reality of the operations involved.

Definition of Related Parties

Persons are considered as related parties if:

  • One of the parties participates directly or indirectly in the management, control, or capital of the other. Direct or indirect management and control is deemed to exist where one party has the power to influence or determine the key decisions of the other party;
  • The same individuals, companies, or entities participate directly or indirectly in the management, control, or capital of the said parties;
  • A resident natural person or company has a permanent establishment abroad (the TP rules apply then to the relationship between the resident person and the foreign permanent establishment);
  • A foreign company having a permanent establishment in the Dominican Republic also has a permanent establishment abroad (the transfer pricing rules apply then to the relationship between the two permanent establishments);
  • A resident person acts as the exclusive agent, distributor, or concessionaire for the sale of goods, services, or rights of another person, excluding when the following three conditions are cumulatively fulfilled:
    • the exclusive distribution contract is duly registered under applicable Dominican laws;
    • the principal does not participate in any way in the profits of the exclusive agent/distributor; and
    • it is proven that the general policy of the principal is to use exclusive agents/distributors for the provision of its goods and services;
  • A resident person receives from or transfers to another person 50% or more of its production; or
  • One of the parties assumes the responsibility of any loss or expense of the other party.

The Dominican Republic has notified a White List of countries that are deemed not to be favorable tax jurisdictions or tax havens (see Sec. 13.5.). Transactions with a person resident or established in the White List jurisdictions are covered by the transfer pricing rules only if the parties are deemed to be related under the above tests. In contrast, transactions with a person resident or established in jurisdictions not included in the White List are deemed to be conducted between related parties regardless of the actual relationship between the parties.

Applicable TP Methods

The following transfer pricing methods apply to transactions between related parties:

  • Comparable Uncontrolled Price ('CUP') Method;
  • Resale Price Method;
  • Cost Plus Method;
  • Transactional Net Margin Method; and
  • Profit Split Method.

In addition, a Transparent Market Concept method or sixth method is mandated in the context of import and export of products, including in particular commodities, which are traded on transparent markets. In the case of imports, the quotation price on the relevant exchanges on the day of the bill of lading is used. For exports, the quotation price on the day of the customs declaration is used.

Effective 1 January 2021, the profit split method is to be used based on either a contribution analysis or a residual analysis.

There is no hierarchy of methods under domestic laws. The most appropriate method rule applies for the determination of the transfer pricing method, based on the following criteria:

  • Nature of transactions;
  • Availability and reliability of data;
  • Level of comparability; and
  • The nature and reliability of assumptions.

Use and Availability of Comparables

The use of comparables depends on the facts and circumstances of the transactions. The OECD transfer pricing guidelines are considered as a reference to the extent they are consistent with the domestic law.

A fresh benchmarking study is preferred every year. Taxpayers may use internal or external comparables for determining the arm’s length price. While applying a comparability factor, the results of the controlled transaction are compared with the results of the uncontrolled transaction for the same tax year. There are no specific benchmarking requirements concerning comparables. Foreign comparables can be used in case local comparables cannot be derived from available data, and the same is also accepted by the tax authorities.

Effective 1 January 2021, new rules are introduced for undertaking comparability analysis in line with the OECD transfer pricing guidelines which include:

  • Contractual terms;
  • Functions performed, assets used, and risk assumed;
  • Characteristics of goods, services, or intangible property used or transferred;
  • Commercial and economic circumstances; and
  • Business strategies.