There is a specific taxation of groups within the CEMAC area.
Where a joint stock company and a private limited company own either registered stock in a joint stock company or shares in a private limited company, the net proceeds of the share in the second company paid to the first during the financial year shall be deducted from the total net profit of the latter, less a percentage for costs and charges. This percentage is fixed at 10% of the total amount of the proceeds. This system shall apply when all of the following conditions are met:
- The stocks or shares owned by the parent establishment represent at least 50% of the capital of the subsidiary firm.
- The parent and subsidiary firms have their registered office in a CEMAC state (i.e. Cameroon, Central African Republic, Chad, Gabon, Equatorial Guinea, and Republic of Congo).
- The stocks or shares allotted at the time of issue are still registered in the name of the participating company that undertakes to retain them for at least two consecutive years in registered form.
The Tax Code acknowledges that dependent or controlled companies may transfer benefits indirectly to their company abroad it is dependent on or to the company abroad it is controlled by.
In order to calculate the real benefit, the indirectly transferred benefits (by means of increase of purchase price or decrease of sales price to the controlling company or by any other means) are incorporated into the result established by the accounts.
If the tax administration does not have enough precise elements to determine the benefit, it will establish the taxable benefit by way of comparison to companies normally operated in Chad.
The Tax Code provides further, in accordance with CEMAC regulation, that interest paid to shareholders on sums that they lend over and above their share capital is deductible at the rate for loans allowed by the central bank increased by two percentage points. This deduction is only possible if the amounts lent do not exceed 50% of the share capital.
Transfer pricing documentation requirements
From January 2023, Article 1000 XIV of the General Tax Code requires a category of taxpayers who are resident in Chad to submit spontaneously and annually to the tax authorities, during the filing of the fiscal and statistic declaration, a light transfer pricing documentation (LTPD) together with the full transfer pricing documentation (FTPD). The LTPD is to be filled in a form by the concerned taxpayers, while the FTPD is a documentation containing all the required information.
For 2023, both the LTPD and the FTPD must be filed by 1 May 2023 (30 April being a Sunday). However, a deadline submission extension can be granted by the tax administration without exceeding two months.
Companies concerned by the LTPD and the FTPD are enterprises registered in Chad:
- having an annual turnover before tax or gross assets on the balance sheet equal to or greater than XAF 500,000,000
- being under the dependence of or having control over companies located outside of Chad, or
- making transfers with companies established in a territory with a privileged tax regime.
By reference to the OECD Transfer Pricing Guidelines for multinational enterprises and tax administrations, and the Circular ref 02 /MFBCP/SE/SG/DGI/ 2023, an FTPD should includen especially:
- a general presentation of the group and the Chadian company
- an industrial analysis
- a description of audited transactions
- a functional analysis
- a financial analysis
- a presentation and selection of transfer pricing methods, and
- an economic analysis.
Branches and PEs are within the scope of the said requirement.
Late filing of the transfer pricing documentation is subject to fines as follows:
- XAF 10 million for the first month late.
- XAF 20 million for the second month late.
- XAF 25 million for the third month late.
- XAF 5 million per month late for the months following the third month.
Lack of filing the transfer pricing documentation entails the non-deductibility of expenses relating to intra-group transactions (i.e. foreign technical assistance, management fees, royalties, interest) and the payment of fines amounting to 5% of the amount of intra-group transactions with a minimum of XAF 50 million.
Moreover, the lack of filing, late filing, and insufficiency of information required for transfer pricing documentation leads to the payment of a fine of XAF 100,000 per each piece of information not provided, each piece of missing information, and each piece of inaccurate information.
The thin capitalisation rules apply to companies subject to corporate tax and to advance of funds or receivables granted by shareholders.
The deductibility of interest paid to shareholders is limited by two rules:
- Interest rate limitation: Interest incurred on advances of funds granted by all shareholders is tax deductible up to the rate of the Central Africa Community Bank plus 2.
- Equity ratio: The amount of advance of funds does not exceed 1.5 times the equity. This equity ratio applies only to shareholders that control the management of the entity.
Controlled foreign companies (CFCs)
There are no provisions relating to CFCs in Chad.