- In an attempt to improve the fulfillment rate of tax obligations that relate to transactions that are affected by special relationships (i.e. connections between parties relating to capital ownership, control or blood relationships), the Minister of Finance has issued regulation No. 172 of 2023 on ***** ("Regulation"), which is set to come into force on 29 December 2023.
- Overall, the Regulation features provisions that address the following areas: 1) Definition of special relationships; 2) Implementation of the arm’s length principle; 3) Documenting the application of the arm’s length principle; 4) Compliance testing of the application of the arm’s length principle; 5) Linkage adjustments; 6) Joint approval procedures; 7) Transfer pricing agreements; 8) Submissions of documents and decision letters; 9) Transitional provisions.
- Special relationships relating to capital ownership will be deemed to exist if the following conditions are satisfied: 1) A taxpayer is engaged in direct or indirect capital participation amounting to at least 25% in another taxpayer; 2) There is a relationship between taxpayers that involves capital participation of at least 25% in two or more taxpayers or a relationship between two or more taxpayers.
- In addition, special relationships may be established commercially, financially or through formal declarations, including group memberships. Special relationships are also recognized within the context of family relationships, whether by blood or consanguinity, in a straight line of descent or to the side to the extent of one degree of separation.
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