DOMINICAN REPUBLIC Law and Practice Contributed by: Luis Miguel Pereyra, Pereyra & Asociados
5.3 Capital Gains of Non-Residents Pursuant to the terms of Article 289 of the Tax Code, the transfer of assets (including stocks) is in principle subject to capital gains tax-related provisions. Fur - thermore, pursuant to such provisions, for the pur - poses of capital gains tax, assets and rights located or used in the Dominican Republic are considered to have been transferred when the shares in the com - pany that holds such assets have been transferred (when such company is incorporated abroad). According to the foregoing, if a foreign individual or entity has assets or rights located or used in the Dominican Republic, upon the transfer by its share - holders of its shares in said entity, capital gain tax might be levied pursuant to such transfer. Such capi - tal gains are calculated based on the transfer value, considering the “transaction price” for the shares of the company holding the assets or rights, and the pro - portional value of such assets or rights vis-à-vis the company’s entire patrimony. Note that, in principle, for capital gains tax to apply, it does not matter whether the transfer is onerous in nature or “free of charge”, or if it occurs directly in the local branch or subsidiary – or indirectly through a change of control (change of the ultimate beneficiary). 5.4 Tax Implications of Change of Control Capital gains tax may apply upon a change of control in the local branch of a foreign entity or a local sub - sidiary. 5.5 Formula-Based Income Attribution Formulas are not used to determine the income of foreign-owned local affiliates selling goods or provid - ing services. Rather, there are guidelines to follow in relation to transfer pricing regulations, the obligation for differentiated accounting of parent and related entities, economic groups and the power of the tax authority to allocate income tax, deductions and cred - its, among other things, if it deems this necessary to prevent tax evasion. 5.6 Deductibility of Intra-Group Management and Administrative Charges The general rule is that deductible expenses are those incurred in relation to obtaining, maintaining and pre -
Forum on Transparency and Exchange of Information for Tax Purposes since 2013, and the tax authority’s institutional strategic plan for 2014–17 aimed to bring the authority’s operations more in line with the OECD’s best practice guidelines, prioritising improvement of the service and the quality of information provided to taxpayers. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures There has been a notorious shift towards more exact - ing enforcement of transfer pricing provisions, includ - ing reviewing past transactions (up to three years ago) and compliance with standards. There is no reliable information as to the use of tax treaties and mutual agreement procedures in transfer pricing disputes, as the transactions usually remain confidential. However, the tax authorities issued Norma General 10-22, estab- lishing a mutual agreement procedure for dispute resolution regarding double taxation and tax evasion. The impact of this norma is yet to be determined, but it will likely become a significant tool given the trend of increasing enquiries and disputes. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments Compensating adjustments might be made after transfer pricing claims are settled, considering cer - tain general guidelines. For example, income tax might be adjusted through income tax credits, while VAT might be adjusted via VAT-relevant credits or an added value tax credit, as appropriate. Compensating adjustments may require rectification of the relevant tax return, depending on the tax period in which the dispute arose. 5.2 Local Branches and Local Subsidiaries Generally, there is no difference in taxation between local branches of non-local corporations and local subsidiaries of non-local corporations. However, local branches of non-local corporations might be more closely monitored in relation to remittances to its par - ent entity or other related entities.
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