When an Algerian company holds 90% or more of the shares of one or more Algerian companies, the group may choose to be taxed as a single entity. Hence, IBS is payable only by the parent company. Under this system, the profits and losses of all controlled subsidiaries in Algeria are consolidated. The consolidated group may also benefit from other tax advantages, such as exemption from VAT and TAP on the inter-group transactions.
An arm’s-length approach to transfer pricing applies. All entities registered with the tax department responsible for large-sized companies (Direction des Grandes Enterprises or DGE), in addition to the other foreign companies established in Algeria, must submit their transfer pricing documentation along with their annual tax returns (before 30 April of each year). Please note that for the FY19 annual tax return and as a result of the COVID-19 crisis, the deadline has been postponed to 31 May 2020 for companies under the DGE and to 30 June 2020 for the rest of the companies. Failing this, and should the documentation to support one’s transfer pricing practices not be provided within 30 days after a first request is made by the Algerian tax administration, a fine of 25% of the deemed transferred benefits on top of the late payment penalties of 25% are applicable.
Please note that, since 2017, related companies should keep management accounts in order to justify their transfer pricing policies, which should be provided upon tax administration request. Moreover, since 2018, related companies are required to present the consolidated accounts, upon request of the tax administration, if these entities keep consolidated accounts.
As of 2019, companies obligated to submit transfer pricing documentation are required, upon a tax audit, to provide the auditors with additional documents in order to enable them to assess the reality of controlled transactions.
Article 2 of the FL 2019 provides a new provision that limits the deduction of financial interest paid to shareholders within the frame of their business relationships with the Algerian company.
As a reminder, Article 141 of the CIDTA provides full deductibility of interests on loans paid to shareholders concerning trading operations. However, the use of this type of financing allows companies to deduct interests on debt that may be artificial, or even to deduct interests instead of capital increases.
In this context, the new provision provides the deductibility of these charges to the average effective interest rates communicated by Bank of Algeria, with a double condition that the capital has to be fully paid-up and the sums available to the company should not exceed 50% of the capital. This measure is inspired by the so-called 'thin capitalisation measures' under Base Erosion and Profit Shifting (BEPS) Action 4.
According to this provision, the financial interests paid to the shareholders of the company established in Algeria are deductible from the IBS tax base. However, they remain within the limit of the amount that could have been obtained by applying the average rate communicated by Bank of Algeria. This measure makes it possible to avoid over-indebtedness of the company and negatively impacting the taxable income of the company.
Controlled foreign companies (CFCs)
There are no CFC rules in Algeria.