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  • Mohamed Derbel - Transfer Pricing: Tunisia could have saved Tunisian-Tunisian groups from a new heavy obligation!

Mohamed Derbel - Transfer Pricing: Tunisia could have saved Tunisian-Tunisian groups from a new heavy obligation!

12 February 2020

On January 1, 2020, the new Transfer pricing regulations came into effect. Several burning questions require urgent answers and several obligations await Tunisian Groups! What about this regulation? Why was it adopted? could we have avoided it? Here are the answers to these questions and many others awaiting clarification from the Tunisian tax authorities.

What is Transfer Pricing?

Who says "Transfer pricing" according to OECD standards "Organization for economic cooperation and development", says prices applicable in cross-border transactions between dependent companies, that is to say in financial, commercial and economic operations between dependent companies located in at least two different countries.

Why does the OECD want to regulate the prices of these transactions?

In 2013, As part of an international project led by the OECD and the G20 called BEPS: "Base Erosion and Profit Shifting" in French " Erosion de la base d'imposition et le transfert de bénéfices " 15 actions were decided to enable governments to fight tax evasion and ensure that the profits of a business are not transferred from a country with heavy taxation to another country where the taxation is clement.

When it is an international group with subsidiaries in several countries, the heaviness of the taxation in one of the countries could push it to "move" the result to be released from this country to another where it will pay less through the adjustment of the prices invoiced between subsidiaries. This profit transfer technique allows its authors to pay less taxes and thus generate more profits.

The research undertaken since 2013 confirms the magnitude of the effects of this practice and the losses of tax revenue it can generate, which are estimated between 4% and 10% of the tax on profits of companies globally, or $ 100-240 billion a year. Hence the BEPS project and the need to regulate transaction prices.

Why Tunisia is concerned?

One of the criticisms of Tunisia’s tax policy by the FATF “Financial Action Task Force” and the EU “European Union” is the non-cooperation in the fight against fraud and tax evasion . This cost us a classification in a grey list from which Tunisia was withdrawn on 12/03/2019 after having changed the Tax regime in particular for exports which will now be abolished from 2021 and the adoption of the minimum standards of the OECD including a commitment to comply with international standards on "Transfer Pricing".

What about the OECD minimum standards that Tunisia had adopted?

This is the minimum to be respected in order to be considered as a cooperative country in the fight against fraud and tax evasion. This adoption of minimum standards is a commitment to comply with 4 actions among the 15 of the BEPS projects, namely:


Action number

Title of the action

Action N°5

Harmful Tax Practices


Action N°6

Prevention of Tax treaty abuse


Action N°13


Transfer pricing documentation and country-by-country reporting


Action N°14


Mutual agreement procedure



What’s the problem then?

This alignment of Tunisia with international standards in terms of transparency and fair taxation was unfortunately not limited to the minimum required to leave the EU grey list, but it went further to the point that it is today become a problem for Tunisian-Tunisian groups.

In fact, when Tunisia had voted in the finance law 2019 the provisions relating to the application from 1/01/2020 of action 13 relating to the documentation of transfer prices and country declarations by country, it has placed this obligation on companies dealing at arm's length with companies located outside Tunisia but believing that it is doing well, it seems, the documentary requirement for transfer prices has also been extended to dependent companies even if they are established only in Tunisia.

In other words, Tunisian companies with a turnover including all taxes greater than or equal to 20 million dinars and which belong to the same group or which are under the control of the same person, are required to respect the international standards of the OECD to fix the prices which must be applied on their financial, commercial and economic operations made in Tunisia. In addition to this documentary obligation, these companies are required to make an online annual Transfer pricing declaration .

A very heavy obligation for our Tunisian groups who are required from January 1, 2020 to justify the prices they will have to apply on their intra-group operations. A very high set-up cost which could have been avoided if the obligation to document "Transfer prices" had been limited to its initial scope set by the OECD, which means cross-border transactions between companies dependent, one of which is in Tunisia and the other in another country.

Did Tunisia have a Transfer Pricing mechanism before 2019?

The question of “Transfer pricing” is not recent in Tunisia, it has always existed in particular with the finance law for 2010. Indeed, when it is established in the tax services the existence of commercial or financial transactions between a company and other dependent companies, which for the determination of their value, obey rules which differ in their conditions from those which govern the relations between independent companies, the Tax Administration is entitled to reinstate the reduction in profits from these transactions in the tax result when it is established that these transactions have conducted to pay less Taxes.

What has changed then?

With the tax regulations in force until 12/31/2019, the tax administration could only correct the applicable "transfer prices" between dependent Tunisian companies if it proves that there has been a tax reduction. This means that the burden of proof lies with the tax authorities. From January 1, 2020, the burden of proof has been reversed, that is to say that it is up to the company to justify its “Transfer Price” policy and no need to justify the “Reduction in the 'tax' to adjust the prices applied. A radical change that puts more obligations on the company, which will have to document in accordance with international standards that the prices it applies are "arm's length " prices.

How can we prove that transaction prices are “arm's length” prices?

To prove that the price of a transaction between two dependent companies is a price of "arm's length ", that is to say a normal price which does not consider the fact that the two companies are dependent, is a delicate technical exercise where each transaction must be dissected through a functional analysis allowing to know where the creation of value is.

Functional analysis is very important as it provides information making it possible to identify all the important characteristics of a controlled transaction, in particular the essential functions, the main assets used and the economically significant risks assumed.

Once the transaction is accurately delineated, the process of determining the most appropriate method and identifying relevant comparable data can begin.

What are the Transfer pricing methods?

International standards of the OECD have set 5 methods for determining the arm's length price to be applied to a transaction between dependent companies. Three traditional transaction methods and two  transactional profit-based methods:

How to choose one of these methods?

The method selection process must consider:

• Strengths and weaknesses of the methods;

• The consistency of the method envisaged with the nature of the controlled transaction examined, determined in particular by a functional analysis;

• The availability of reliable information (in particular on independent comparables) necessary to apply the selected method and / or other methods;

• The degree of comparability of controlled transactions and independent transactions.

Where to find the comparables of tested transactions?

There are two main types of comparables: Internal comparables and external comparables. There is no hierarchy between internal comparables and external comparables. However, in practice, the application of the principle of "arm's length " relies much more on external comparables than internal.

External comparables are present when there is a comparable transaction between two independent companies, neither of which is a party to the controlled transaction.

Commercial databases are the most common source of information on external comparables. Except that unfortunately in Tunisia we have no commercial base like many other developing countries.

This obviously complicates the comparability analysis, which can only be done using international commercial databases, the cost of which is high, and whose Micro and Macroeconomic data are never similar to those of Tunisia.

Will the Tunisian tax administration accept external comparables from international databases?

To date we await the common note on the application of "Transfer Pricing" in Tunisia and the positions of the tax administration on certain extremely important issues such as:

• The transaction thresholds from which documentation and in particular the comparability study is mandatory?

• How long are comparability studies valid?

• The acceptability of comparables from international bases?

• Mandatory adjustments to the results of external comparables from international databases?

• The simplified procedures that the Tunisian tax administration will put in place to avoid making companies bear the study costs?

• Acceptable commercial bases in Tunisia?

• The provision to Tunisian groups of a national database for comparability studies (under the anonymity of the companies obviously consulted)?

• The criteria to be used to justify the exercise of decision-making power if the participation is less than 50% of the capital or voting rights?


Several burning questions urgently require clear and precise answers but also several obligations borne by Tunisian-Tunisian groups which could have been avoided.

The shot can always be corrected without touching anything to the international commitments made by Tunisia in the fight against fraud and tax evasion. It suffices to return, for Tunisian-Tunisian groups, to the old regulation which already enshrines the principle of comparability and the principle of the normal rule of management while conditioning the recovery in terms of transfer pricing to the reduction of the global tax payable by the two dependent companies.

Will we have the courage to do it and the will to lighten obligations on our companies?

Mohamed Derbel
CPA-Partner- BDO Tunisie
BDO Expert in «Transfer Pricing»