1. Audits to Hotel Companies in the Dominican Republic
Experience of Countries in Multinational Companies Audits and Transfer Pricing
Audits to Hotel Companies in the Dominican Republic
Dominican republic (DGII)
June 2014

2. Content Study of Sector Workplan APAs Harmful tax planning
Tax legislation and its modifications
Audit process
Workplan
Determination of rates
Setting Agreements
APAs

3. Study of the Sector Economic Growth i Public Rates declared TA
Tax income VAT and IT
Public Rates declared TA
Zone Development
Tax losses
Operative income
operative costs
Financing

4. Transfer pricing regimes
Article 281
1992
2006
-2012
Concept of “Free Market”
Sectorial APA in IT services
Prices w/Comparability
Agreements between DGII and Sector
Tax basis for ITBIS (IVA) and IT
APAs Individuals and Safe Harbors

5. Tax Planning for Business “all included"
Tax havens or low taxation countries
Hotel
Tour Operators
Retail agents
Marketing agent
Tourist

6. Functions Assets Risks Functional analysis
To offer service all included
To manage or to operate the hotel
Functions
Buildings (buildings, vehicles, furniture, etc)
Inventory for the service provision
Assets
Exchange rate
Quality of Service
Market
Country
Risks

7. Audit process Were verified: The contracts The invoicing
In 2009, the DGII has led a process of audits of e rooms sales operations.
Were verified:
The contracts
The invoicing
The occupation

8. Determining the arm's length price
Public rate
Marketing Margin
(20%-25%)
IVA (16%) + Legal tip (10%)
Arm’s length rate

9. Results

10. Results For the 2007 to 2010 tax periods, 73 audits were completed
Courts decisions resulted in favor of the TA
Around U.S. $500 million of adjustments were determined
A Framework Agreement /Safe Harbours and Unilateral Agreements are considered

11. Formalization of APAs

12. Characteristics and Content of the Framework Agreement
Different rates according to the category and the geographic location of the taxpayer. a.
Category 1
Category 2A
Category 2B
Category 3A
Category 3B
Zone A
Zone B

13. Characteristics and Content of the Framework Agreement
VAT Taxable income b.
Income determination
Net Margin Method on Operative Costs and Expenses
Gross Margin Method on Costs and Expenses
Fixed rate by category and zone
VAT

14. rates for the Cost Method
Determination of the
rates for the Cost Method
Independently of the selection of either method on costs, the rate will be calculated the following way:
Total Costs and/or Expenses of AI
Total stay
Profit margin
Declared rate
Annual report
Financial statements
Annual return
12.5%
20%

15. Fixed rate by Category and
Different rates are established according to the category and the geographic location of the taxpayer.
Category 1 2A 2B 3A 3B
Area A 40
50%
60 % 75
110
Area B 37
46%
55% 68
100
Determining the arm's length price

16. Taxable income for the income tax
Methodology for IT c
Taxable income for the income tax
Gross income
TET = 2%
Income tax basis

17. Information to provide
Annual report for AI operations
Description of operations
Amount and type of rooms
Total occupation (stay) per month
Amount of gratuities
Rates policies and marketing conditions
Detail of the related and independent income
APA validity period
3 years (2013, 2014 and 2015) renewed with TA consent

19. Thanks you!