Group taxation is not permitted in the Dominican Republic.
Per the Dominican Tax Code (DTC), related-party transactions carried out between Dominican companies, regardless of whether the companies are foreign-owned or not, or with companies located in areas of low or no taxation, must be carried out in accordance with the prices agreed in the transfer of goods or services between independent parties.
These provisions shall also apply to transactions carried out by Dominican companies with related companies located in the country that is benefiting from a favourable tax regime.
The tax authorities, following the procedures in the current tax laws in the exercise of its powers of determination, verification, or investigation, may challenge the values declared by taxpayers if such values:
- do not correspond to the economic reality of the operation involved, or
- differ substantially from independent companies under similar conditions.
Persons are considered related parties or related persons or entities, resident or not in the Dominican Republic, when among them there is a financial dependency or capital of both is mostly owned by one of them, following (but not limited to) these criteria:
- One party participates, directly or indirectly, in the management, control, or capital of the other.
- The same natural persons, companies, or firms participate, directly or indirectly, in the management, control, or capital of such parties.
- An individual, company, or companies have the ability to influence the business decisions of the company.
- When participation is defined in terms of the share capital or control of voting rights, a direct or indirect participation of at least 25% will be necessary in either case.
Regarding the advance pricing agreement (APA) regime, an APA may be requested from the tax authorities that sets the values of the transactions carried out between related parties if made prior to completion. Please note the following:
- The APA may be approved, denied, or modified by the tax authorities with customer acceptance and is valid within 36 months after approval.
- Subsequent agreements may be valid for up to 36 months; in cases in which it has expired and no new agreement exists, the existing agreement shall continue in effect until it is approved before a new APA.
- The tax authorities may challenge the taxpayers’ declared values included within the APA when they do not correspond with the criteria agreed in the APA and apply the penalties established in the DTC.
- For economic sectors, whose business has particular ties or high linkage between the parties, the tax authorities may determine a minimum price or profit margin. Once such price or margin is set, according to the sector, the companies covered by the scheme will act as independent companies. The price or minimum tax profit margin of the taxpayer may be calculated taking into account the total income, the assets used in the business operations during the fiscal year, the total amount of costs and expenses, and/or other sector variables.
Finally, taxpayers must file an annual Informative Tax Return of transactions between related parties, which shall contain detailed information of each transaction, the related party's identification, transfer pricing method, etc.
According to the thin capitalisation rule, the maximum debt-to-equity ratio allowed to taxpayers is 3:1; over this threshold, the deduction of interest expense is limited.
Controlled foreign companies (CFCs)
The Dominican Republic does not have provisions for CFCs.