Algeria

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, CIT 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 on the inter-group transactions.

Transfer pricing

Companies concerned

Companies established in Algeria that depend on or control companies located in or outside Algeria are required to adhere to the transfer pricing requirements in Algeria when they meet one of the following conditions:

• Realisation of annual turnover before taxes or ownership of gross assets equal to or greater than DZD 1 billion.
• Ownership, directly or through an intermediary, of more than 50% of the capital or 40% of voting rights of a company established or not in Algeria whose annual turnover before taxes or gross assets are equal to or greater than DZD 1 billion.
• Capital or voting rights being held by 50% or 40%, respectively, directly or indirectly, by a company whose annual turnover before taxes or gross assets are equal to or greater than DZD 1 billion.

The transfer pricing requirements include:

• Transfer pricing e-filling declaration submitted through the Algerian tax system ‘Jibayatic’.
• Establishment of transfer pricing documentation, to be presented in the event of a tax audit. 

Penalties

Failure to adhere to the transfer pricing requirements in Algeria result in the following penalties: 

Transfer pricing e-filling submission

Failure to submit, or incomplete or inaccurate submission of, the annual transfer pricing e-filling declaration within the stipulated timeframe shall give rise to a tax fine of DZD 15 million.

Transfer pricing documentation

In case the company fails to submit the transfer pricing documentation or in case the company provides the relevant authorities with an incomplete documentation, the tax auditors may send a formal notice requiring the company to submit a complete documentation within 15 days.

Once this period has elapsed, Article 194-7 of the DTC provides for a tax penalty of 2% of the amount of the transactions concerned by the transfer pricing documentation per fiscal year, without this penalty being less than DZD 10 million per financial year.

Transactions with low-tax jurisdictions (tax haven) resident related parties

Article 189 of the DTC specifies that the link of dependence or control does not have to be sought when transfers are made to companies established in a foreign state or territory whose tax regime applied in this state or territory is qualified as privileged, which is defined by article 141 quinquies of the DTC.

Thin capitalisation

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 Direct Tax Code (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 CIT 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.