Madagascar

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.

Transfer pricing

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.

Companies subject to the transfer pricing documentation reporting obligation are those carrying out intra-group transactions with a value greater than or equal to MGA 450 million meeting the following criteria:

• Associated companies with a turnover excluding tax or having total assets greater than or equal to MGA 40 billion.
• Associated companies that are owned by or that own a subsidiary with a group turnover or having group assets greater than or equal to MGA 240 billion.

Electronic file of transfer pricing documentation must be filed 90 days from the due date of the Communication Statement.

Thin capitalisation

Under Malagasy tax law, deductible inter-company financial interest cannot exceed the interest calculated on twice the net equity at the rate of the Central Bank of Madagascar plus two points (the rate of the Central Bank of Madagascar is 9.5%). Such limitation is also applicable to interest paid to any company indirectly linked to the company but belonging to the same group.

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 exclusion

95% of 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.