DGI response 05/03/2021: answers to questions raised by CGEM, TAX COMMISSION and CUSTOMS
A- SOCIAL SOLIDARITY CONTRIBUTION (CSS)
1- The circular note relating to the LF 2021 specifies, with regard to the Social Solidarity Contribution, that for wage income, the base is made up of gross income minus the amount of compulsory charges and contributions and the payable income tax. This is the same wording that was used in 2013 except that the circular commenting on the provisions of the 2013 FL included a reference that specified:
“Deductions borne by the employee for the constitution of pension or retirement and contributions to provident and social security organizations, under the regulations in force, a collective agreement or a group contract subscribed by the employer However, for pension insurance contracts, the employee’s free payments are not deductible”.
This reference was not taken up by the 2021 circular note, which also did not include the clarification relating to the bonuses acquired in 2020 and paid in 2021.
Our members would like to obtain clarification on this subject to avoid any controversial application of the measure or interpretation.
A- SOCIAL SOLIDARITY CONTRIBUTION (CSS)
It should be noted that in terms of salary and similar income, the methods for calculating the said contribution are identical to those developed in circular note no. 721 relating to the tax provisions of the FL for the year 2013.
Premiums acquired in 2020 and paid in 2021 are not subject to the social solidarity contribution. However, premiums acquired in 2021 and paid in 2022 remain subject to said contribution.
2- Is the complementary health insurance to the AMO considered as a compulsory social charge to be taken into account in the calculation of the CSS?
With regard to contributions for supplementary health insurance to the AMO, they are only allowed to be deducted from the calculation basis of the CSS when the contributions are of a compulsory nature.
3- Can the CIMR pension be combined with a supplementary Group pension, if applicable?
4- Should the severance pay received (exempt from IR) be taken into consideration in the CSS calculation basis?
The contribution applies to wage income and similar income defined in article 56 of the CGI, such as salaries, wages, allowances, pensions or life annuities, etc. Also, these revenues are subject to the said contribution, even in the presence of an express exemption in terms of IR.
5- With regard to legal entities, does the CSS also apply to the taxable result calculated in the event of a merger at the level of the companies absorbed with a view to determining the amount of deferred tax to be paid in the event of of subsequent disposal or withdrawal of assets at the level of the acquiring company?
Pursuant to article 268 of the CGI, for companies, the CSS on profits and income is calculated on the basis of the same amount of the net profit referred to in article 19-l-A of the CGI used for the calculation of the tax. on companies and which is equal to or greater than one million (1,000,000) dirhams, for the last closed financial year. Thus, the tax base of the aforementioned contribution is equal to the amount of taxable net taxable profit to which the rates of the corporate tax scale referred to in article 19-l-A of the CGI apply, it being understood that the part of the profits whose amount of tax is deferred, pursuant to the provisions of article 162-II of the CGI, is not taken into account for the determination of the basis of the said contribution.
6- Article 267 of the CGI provides for the exclusion from the scope of the CSS of service companies benefiting from the tax regime provided for CFC. However, Decree-Law No. 2-20-665 of 09/30/2020 reorganizing CFC classifies companies as “financial” and “non-financial”. These include providers of ancillary services, providers of technical and administrative services and trading companies. Can we specify in the light of this decree-law the companies concerned by this exclusion?
In accordance with the provisions of Article 267 of the CGI, service companies benefiting from the tax regime provided for the financial center “Casablanca Finance City” are excluded from the scope of the social solidarity contribution on profits and income. Thus, all service companies with CFC status and benefiting from the tax advantages provided for the financial center “Casablanca Finance City” are excluded from the said contribution. Consequently, service companies with CFC status but not benefiting from the tax advantages of the CFC financial center remain subject to this contribution, such as the financial companies referred to in paragraphs 1 and 2 of article 4 of decree-law no. ° 2-20-665 of 12 safar 1442 (September 30, 2020) reorganizing “Casablanca Finance City”, namely:
– credit institutions having this quality, in accordance with the legislation in force;
– insurance and reinsurance companies and insurance and reinsurance brokerage companies having this quality, in accordance with the legislation in force.
B- TRANSFER PRICE
1- Does the request for communication relating to transfer pricing documentation only concern transactions carried out from the fiscal year beginning on January 1, 2021 or even for controlled fiscal years (prior to 2021)?
It is recalled that the transfer price control system had been instituted by L.F. n° 80-18 for the year 2019 which had supplemented the provisions of articles 210 and 214-III of the CGI, in order to establish the obligation for companies having direct or indirect ties of dependence with companies located outside Morocco, to spontaneously make available to the tax authorities the documentation to justify their transfer pricing policy and this, on the start date of the transfer accounting verification operation. Article 7-V-ll of the aforementioned L.F. n° 80-18 provides that the provisions of articles 210 and 214-lll-A of the general tax code, as supplemented, are applicable to verification procedures initiated from January 1, 2020. With regard to the 2021 FL, it should be noted that the measures introduced are intended solely to improve the aforementioned tax system for controlling transfer prices, the effective date of which has already been specified by article 7-V-ll of the LF 2019. The modifications introduced by the LF 2021 aim in particular:
– the limitation of the scope of the obligation to present transfer pricing documentation to large companies;
– and the imposition of a sanction for failure to produce transfer pricing documentation.
Consequently, in the absence of a specific effective date for the measures introduced by the LF 2021, these measures will apply to verification procedures initiated from January 1, 2020.
In this respect, it should be noted that the production of the aforementioned transfer pricing documentation remains, however, linked to the terms and conditions which will be set by regulation (text in preparation).
2- Does the penalty of 0.5% of the amount of the transactions concerned by the documents not produced to justify the transfer pricing policy apply to transactions carried out as of January 1, 2021 or to transactions covered by an audit current tax as of the said date?
As specified above, the measure relating to the penalty for failure to produce transfer pricing documentation applies to verification procedures initiated on or after January 1, 2020, after publication of the regulatory text setting the terms and conditions for the presentation of said documentation.
3- Regarding the limitation of the scope of the obligation to present transfer pricing documentation to companies of a certain size, what about companies below turnover/total assets for which the obligation was provided for by law before 2021?
The 2021 FL supplemented the provisions of article 214-lll-A of the CGI with a provision limiting the scope of the obligation to produce the main file and the local file to large companies whose turnover is greater than or equal to fifty (50) million dirhams or whose gross assets appearing on the balance sheet at the end of the financial year concerned is greater than or equal to fifty (50) million dirhams.
Concerning companies whose turnover or whose gross assets are less than (50) million dirhams, article 214-lll-B of the CGI provides that the tax authorities may ask them to communicate information and related documents:
– the nature of the relations linking the company taxable in Morocco to that located outside Morocco;
– the nature of the services rendered or the products marketed.
– the method for determining the prices of the transactions carried out between the said companies and the elements which justify it;
– the regimes and tax rates of companies located outside Morocco.
The request for communication must be made in the forms of notification referred to in article 219 of the CGI and the company concerned has a period of thirty (30) days following the date of receipt of the aforementioned request to communicate to the administration the information and documents requested. In the absence of communication of the aforementioned documentation within the deadlines or when the documents communicated are incomplete, insufficient or erroneous, the link of dependence between the companies concerned is assumed to be established.
C- CFC STATUS
1- What is the tax treatment of the distribution of dividends by financial companies having opted in 2020 for the new regime provided for by the FL 2020 and which are excluded in 2021 from the CFC regime? Being reminded that the legal fact generating a distribution of dividends and therefore of the income of the shareholder is the decision of the AGO.
It is recalled that the measure introduced by Finance Law No. 65-20 for the 2021 budget year at the level of Article 6-1 (B-4° and Cl°) of the CGI is intended solely to clarify that companies financial services referred to in paragraphs 1 and 2 of article 4 of decree-law n° 2-20-665 of 12 safar 1442 (30 September 2020) reorganizing “Casablanca Finance City”, are excluded from the tax regime of CFC. Thus, these companies are excluded from all the advantages of CFC, including the advantage relating to the exemption of dividends and other income from similar participations paid, made available or registered in an account.
2- Is the specific IR rate of 20% still applicable to financial companies excluded from the corporate tax regime?
The same question arises concerning the exemption from registration fees for deeds of incorporation and capital increase of these companies.
It should be recalled that article 6-1 of the finance law for the 2021 budget year amended the provisions of article 6-1 (B-4° and C-1°) of the CGI with a view to establishing the exclusion from the CFC tax regime of certain financial companies with this status. These are credit institutions, insurance and reinsurance companies and insurance brokerage companies having this quality, in accordance with the legislation in force.
In terms of income tax, the salaries, emoluments and wages paid to employees who work on behalf of companies with “Casablanca Finance City” status remain subject for their gross amount to the final rate of 20% for a period of 10 years from from the date employees take up their duties, with the possibility of irrevocably opting for taxation according to the scale rates.
3- The tax treatment of financial companies with CFC status should be clarified with regard to the limitation of the duration of application of the old CFC tax regime to the end of 2022, namely: should the provisions of the LF be understood 2021 that financial companies are excluded from the CFC tax regime regardless of the date of obtaining CFC status (before or after 2020)?
Regarding the limitation of the duration of application of the old CFC tax regime to the end of 2022, it is recalled that Article 6-V-2 of Finance Law No. 70-19 for the 2020 budget year had maintained the application of the old CFC tax regime in force before January 1, 2020 to service companies that obtained CFC status before that date, without a time limit. Article 6-IV-l of Finance Law No. 65-20 for the 2021 budget year limited the duration of application of the old CFC tax regime to December 31, 2022. As such, it is point out that the financial companies referred to in paragraphs 1 and 2 of article 4 of the aforementioned decree-law no. 2-20-665 are automatically excluded from CFC tax benefits, even if they have obtained CFC status.
D- FICTITIOUS INVOICES
1- Clarification of the new provision provided for in Article 146 relating to supporting documents: What is meant by “supplier who does not meet the reporting and payment obligations”? How can a client company identify these suppliers? What is the effective date of this provision?
It is recalled that the measure introduced by the LF 2021 aims to specify that the deduction of an invoice is not allowed when the administration notes the
two following failures:
– the issuance of an invoice by or on behalf of a supplier who does not meet the reporting and payment obligations provided for by the CGI;
– and the non-existence of an effective activity.
These two failures thus constitute cumulative conditions for rejecting in terms of IS, IR and VAT, the deduction of the convenience invoice whose object relates to a fictitious operation of delivery of goods or goods or to a provision of services or work which is not actually carried out.
A supplier who does not meet the declaration and payment obligations is one who does not respect his declaration obligations (DRF, declaration of turnover, etc.) and payment of duties due (IS, VAT, IR-salary ,…)
To ensure that its supplier complies with the aforementioned obligations, the client company may ask it to produce a certificate of tax regularity (dematerialized certificate available on SIMPL). It should be noted in this respect that the failure of the supplier alone does not constitute a sufficient condition for the rejection of the deduction of an invoice. This failure must be combined with the non-existence of an effective activity.
2- The circular note specifies that the questioning of the deductibility of fictitious invoices is not conditional on the publication by the tax authorities of the list of defaulting suppliers.
What about taxpayers in good faith whose real supplier has issued an invoice with a false identity, and what about the responsibility of financial directors, accountants, chartered accountants who only translate into the accounts the transactions for which the supporting documents are simply transmitted or communicated by the head of the company?
As specified above, the non-deductibility of an invoice is conditioned by the combination of the following two failures:
the issuance of an invoice by or on behalf of a supplier who does not meet the reporting and payment obligations provided for by the CGI; and the non-existence of an effective activity.
The objective of this measure is twofold:
-fight against the practice of issuing fictitious invoices used to justify operations not actually carried out.
– Do not allow taxpayers who actually carry out taxable transactions to escape tax by presenting invoices drawn up in the name of other people,
-Avoid overestimating invoices justifying fixed assets financed by leasing
It should be noted, in this respect, that in parallel with this measure, the 2021 finance law has strengthened the means of combating tax evasion by modifying and supplementing the provisions of article 192 of the CGI relating to criminal sanctions by the provisions following:
– the application of penal sanctions when a person allows others to evade his status as a taxpayer or the payment of tax or in order to obtain undue deductions or reimbursements;
– the institution of the application of the said sanctions in the event of the issuance of fictitious invoices, in addition to the other cases already referred to in article 192-I of the CGI.
3- The circular note specifies that the questioning of the deduction of an invoice is subject to two cumulative conditions: the supplier does not meet its declaration and payment obligations and the non-existence of an effective activity. The fiscal years concerned by the application of these provisions should be specified in the event of a tax audit.
The new tax system relating to the non-deductibility of fictitious invoices provided for by the LF 2021 applies to accounting verification procedures initiated from January 1, 2021.
E- CURRENT ACCOUNT ADVANCES
1- The LF for the year 2021 has put in place an incentive framework for business financing by instituting exemption from registration fees, acts recording advances in partners’ current accounts as well as acts relating to obligations and acknowledgments of debt referred to in Article 129-V-9° of the CGI.
Circular note no. 731 specifies that the above-mentioned acts nevertheless remain subject to the formality of registration against the mention “Free”.
What is the modus operandi of this formality:
– When current account advances are made on an ongoing basis according to the company’s cash flow needs, without being programmed in advance, should each flow be recorded?
– Can the formality be carried out periodically or at the end of the year on the basis of all the flows recorded? or only the framework agreement must be subject to this formality?
– What about when there is an agreement between the parties but without mention of the amount?
– What about the penalties in the event of non-compliance with the registration formality, or late registration?
It should be specified that obligations and acknowledgment of debts, including current account advances, are only subject to the formality of registration if they are recorded by notarial deed or under private signature. This formality is completed within 30 days which begins to run from the date of the act.
In the event of failure to comply with the registration obligation, the provisions of article 228 of the CGI apply. In this case, the increases are only applicable to the theoretical rights.
When current account advances are made on an ongoing basis according to the company’s cash flow needs, it is only the flows recorded by deed that must be presented for the registration formality.
In addition, it should be specified that in the event of the existence of an agreement between the parties, without mention of the amount, the latter is subject, in the event of voluntary presentation to the formality, to the fixed fee provided for innominate acts.
2- Do you not think that the formality of registration against mention “Free”‘, which has become compulsory for these advance or loan contracts, constitutes a waste of public resources (through its management cost), insofar as Doesn’t it bring anything to the state?
This proposal, which consists in reducing the obligations of taxpayers, will be studied after the first year of entry into force of this new provision.
F- EXEMPTION FROM IR
1- Exemption of wages paid for the first recruitment of young people.
Article 247-XXXIII of the CGI introduced an exemption from income tax for 36 months on wages paid to employees on the occasion of their first recruitment, starting from the date of said recruitment:
The circular note specified that the first recruitment corresponds to the date of registration with the CNSS and specified that people who had ANAPEC-IDMAJ contracts are not considered as people who have already been recruited.
In our opinion, taking into consideration only registration with the CNSS to decide on the first recruitment is biased.
– A student who has completed one or more paid internships during his university course, can he be considered as a person who has already been recruited?
A student who has completed one or more paid internships during his university course may claim the said exemption insofar as he has been registered with the CNSS as an intern and that the contract signed previously in the internship agreement with universities or schools or end-of-study project, expressly stipulates that it was a work placement period.
2- Are employees with experience abroad and recruited for the first time in Morocco eligible?
Regarding employees with experience abroad, it should be noted that they benefit from the exemption from the IR, during their first recruitment in Morocco, subject to compliance with the conditions provided for in Article 247. -XXXIII of the CGI.
3-Are employees who benefited from fixed-term contracts only prior to January 1, 2021 also eligible?
Once the employee has already been recruited under a fixed-term employment contract, he cannot claim the benefit of the exemption in question.
4- The circular note provides that the employee must present to his employer any document certifying that he has never been identified as insured with the CNSS by an employer. The nature of the document in question should be specified.
To certify that he has never been identified as insured with the CNSS by an employer, the employee can present his new employer with a certificate of non-registration with the CNSS.
5- Exemption of wages paid to employees who have involuntarily lost their jobs due to the repercussions of the spread of the Coronavirus pandemic (Covid-19): The circular note specifies that for the benefit of this exemption, the employer must require new employee to produce any document attesting to the loss of employment between March 1 and September 30, 2020 due to the repercussions of the health crisis. It is necessary to specify the conditions to be fulfilled by document and to make the parallel with the procedure defined by the CNSS to benefit from the indemnity for loss of employment.
To benefit from this exemption, the employer must require the new employee to produce any document:
– attesting to the loss of employment between March 1 and September 30, 2020 due to the repercussions of the health crisis (letter of dismissal, report from the work inspector, etc.);
– and justifying the benefit of the indemnity for job loss.
6- The exemption concerns the gross monthly salary capped at 10,000 MAD: Is this the exemption ceiling – ie the exemption applies up to 10,000 MAD and the surplus is taxable? or is it the ceiling for eligibility even for this exemption – ie employees with more than 10,000 MAD are not exempt? It should also be confirmed that the exemption applies regardless of the form of the contract (CDD, CDI, etc.).
The gross monthly salary of 10,000 dirhams exempt from income tax, under the provisions of article 247 bis-V of the CGI, constitutes a ceiling beyond which the employee is no longer eligible for said benefit. This exemption applies regardless of the form of the employment contract (CDD, CDI).
H- REGIME FOR THE RESTRUCTURING OF PUBLIC ESTABLISHMENTS AND ENTERPRISES
1- The LF provided for the regime of fiscal neutrality in terms of IS, whereas in terms of VAT, only the transfer of the right to deduction was provided for these operations. The exemption from VAT and the absence of regularization of VAT, under these operations were not expressly provided for by the LF 2021, and the circular note did not deal with them either.
What about the treatment of the VAT applicable to these operations if necessary? and regularization?
It should be recalled that the transfer of the right to deduction provided for in article 105-4° of the CGI, finds its justification in the fact that the continuity of the activity subject to value added tax is ensured in the case of restructuring operations of public establishments and enterprises. To this end, under the principle of continuity of operation, movable property forming part of the assets of the said establishments and enterprises, should not be treated for tax purposes under the second-hand property regime; provided for by article 125 bis of the CGI, and in the same sense the immovable property belonging to the said heritage will not be subject to the regularization provided for in article 102 of the CGI. Thus, the tax neutrality in terms of VAT of the restructuring operations of public establishments has been enshrined in the provisions of the 2021 finance law.
I- OTHER ISSUES
1- The suspension of the verification period following the request for information from foreign tax authorities. Is on-site verification also suspended for the verification inspector? How to materialize the resumption by the inspector of the verification?
Under the provisions of article 212-I of the CGI, the audit of accounts cannot last more than 3 or 6 months depending on the turnover declared to the CPC for the years subject to audit.
However, the suspensions due to the sending of requests for information to the tax authorities of the States having concluded with Morocco conventions or agreements allowing an exchange of information for tax purposes, within the limit of 180 days from the date of dispatch of said requests.
As such, the inspector is required to inform the taxpayer of the date of dispatch of the aforementioned request for information, within a maximum period of 15 days from the date of this dispatch.
The starting point of the period of suspension of verification operations is the date on which the aforementioned request for information is sent.
The period of suspension of the verification is stopped on the date:
– either upon receipt of the requested information;
– either at the end of 180 days following the date on which the aforementioned requests for information were sent.
Thus, during the period of suspension of verification operations, the on-site verification is also suspended and the taxpayer is informed by
the checker of the check resumption.
Certified Chartered Accountant DPLE – Chartered Accountant Tangier Tetouan Morocco
Statutory Auditor – Statutory Auditor
Fes Avenue, Corner Ibn Toufail
Tangier, Morocco, 90000.