There is no provision regarding group taxation in Madagascar, except for the following:
For entities subject to the actual tax regime, a parent-subsidiary regime option is established by which the net dividends received by the parent company from its subsidiary are excluded from the tax base of the parent company. However, a share of fees and expenses, uniformly fixed at 5% of the amount of dividends paid, must be reintroduced into the tax base.
There is a provision in the tax law allowing the tax authority to claim a tax adjustment in cases where the transactions between a Madagascar entity and a foreign entity controlling or controlled by the Madagascar entity are not concluded at fair market value.
The following transfer pricing methodologies are acceptable:
- Methods of comparable prices on the free market.
- Resale price method.
- Cost plus method.
- Transactional method on net margin.
- Transactional method on profit split.
Effectiveness of services and fair market value must be justified by appropriate documentation.
Under Malagasy tax law, deductible inter-company financial interest cannot exceed the interest calculated on twice the share capital at the rate of the Central Bank of Madagascar plus two points (the rate of the Central Bank of Madagascar is 9.5%).
Inter-company loan agreements must be submitted according to registration formalities within two months from the execution date. Failure of submission of an inter-company loan agreement according to registration formalities implies non-deductibility of interest on the inter-company loan.
Dividends received by a shareholder holding more than 75% share capital from its subsidiary are excluded from business revenue subject to income tax.
Controlled foreign companies (CFCs)
There is no special provision in relation to CFCs in Madagascar.