The applicable tax laws and regulations foresee that they are not deductible from the gross income any expenditures paid to a taxpayer (enterprise or private person) based in a non-cooperative state or in a state subject to a privileged tax regime. This provision is not in force if the taxpayer proves that these costs are related to actual and ordinary transactions and that have not been realised in order to transfer profits for tax avoidance (and tax evasion).

It is underlined that the burden of proof is on the taxpayer side (and not to the tax authority), in order the cost to be recognized as tax deductible.

One of the most important examined points is the substance of the foreign entity, whether or not it has the capability to objective carry out business activity in the country that it is based.  This means in a few words that he has to have a proven seat of business, to employ staff and generally to prove that his activity is about a normal business.