Interview: Abdelmejid Faiz
What is your assessment of the fiscal environment?
ABDELMEJID FAIZ: Morocco gradually reduced its nominal tax rate in the 2000s, while also introducing a series of exemptions for several sectors. Concurrent to these incentives, the administration embarked on a process of modernisation and dematerialisation of almost all administrative procedures. As a result, the quality of our tax environment is rather attractive. However, the international context has changed for developing countries that have made taxation a mechanism for attracting foreign investment. The growing international consensus is that these tax incentive practices need to be abandoned.
The essential function of a tax system is to be consistent, effective, legible, stable, fair and neutral. These are crucial to ensuring its acceptability with the taxpayer, its fostering of free competition with business and its promotion of investment. Unfortunately, it is clear that our tax system has become incomprehensible, and a source of distortion and injustice. The plethora of exemptions and exclusions, a multitude of rates for both companies and individuals, and the means of liquidation or tax levies have complicated the system. These exclusions or exemptions, which are not limited in time and do not benefit all investors in the same way, distort free competition and create feelings of injustice for taxpayers who often flee to the informal economy.
What are the advantages for multinationals of an advanced transfer pricing agreement?
FAIZ: The primary incentive for a multinational to sign a preliminary agreement is that the tax authorities cannot challenge the transfer pricing policy of a company under the agreement. The intangible nature of the agreement is important for many multinationals as it protects them from reassessments of the validity of their transfer pricing policy via tax audits, which could lead to outsized adjustments. For some operators, a unilateral agreement with a single tax authority does not necessarily protect them from the risk of rejection by the tax authorities of the other involved states because of the intra-group nature of transactions covered by the agreement. Although Moroccan legislation does allow for the creation of bilateral agreements, given the complexity of the procedure, most operators fail to secure one. However, in some cases taxpayers remain somewhat cautious. This is mainly due to the novelty of the mechanism, which will lead some operators to wait for feedback before embarking on another long and often expensive procedure, but also because such procedures imply full transparency from operators who are frequently reluctant to disclose sensitive and confidential information relating to their activities.
How would you characterise the taxation of real estate investment trusts (REITs)?
FAIZ: The 2017, 2018 and 2019 finance laws meant to establish an incentive framework to promote the creation of REITs. The combined provisions of the individual finance laws have introduced an improved tax transparency framework for these instruments which can benefit from a total exemption from corporate income taxation, and their stakeholders subject to the same tax are entitled to 60% tax abatement on distributed profits. The 2018 Finance Law expressly rejected any abatements in order to introduce a system of total tax transparency consisting of the exemption of REITs in return for the taxation of stakeholders under common law conditions. However, the legislator has reconsidered this decision following pressure from operators who feared not being able to move towards the costly creation of complex regulated instruments such as REITs in the absence of sufficient tax incentives on distributed profits, especially since the draft accounting rules specific to these instruments do not recognise depreciation of investment property held by these entities. Despite this salutary legislative evolution, a number of uncertainties still surround the tax framework of REITs, with many regulatory texts yet to be published.
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