The increasing vigilance of States in monitoring inter-company transactions is more and more seen as an essential means of securing tax revenues. It is in this logic that the Cameroonian Tax Legislator, in addition to the obligation to produce transfer pricing documentation discussed in our last month article, also requires international companies to file an annual TP declaration. Introduced in Cameroon by the 2014 Finance Law, the annual TP declaration requirement was revised by the 2020 Finance Law. To identify the said obligation, reference should be made to Section 18b of the General Tax Code (GTC), circulars implementing the 2014 and 2020 Finance Laws and Circular N° 006/MINFI/SG/DGI/DER of 28th April 2014 specifying the criteria for attributing taxpayers to competent Tax Centers. The annual declaration obligation essentially targets a certain category of taxpayers clearly specified by the regulations. It consists in providing the Tax Authorities with a set of information enabling them to better control inter-company financial flows in order to effectively combat tax evasion and fraud. It therefore seems sensible to question the real content of such an obligation. Answering this question inevitably leads to determine the persons concerned (I) and to unveil the relevant legal requirements (II).
- Persons subject to the obligation to file an annual TP return
To determine which taxpayers are obliged to file an annual TP declaration, two criteria must be met cumulatively. These are the tax registration with the Large Tax Unit (DGE) and the existence of a dependency link or control. This is set in section 18b paragraph 1 of the GTC which provides that enterprises falling under the Large Tax Unit that are controlled by or which control others shall be required to file an annual return on transfer pricing. Belonging to the Large Tax Unit (DGE) and the dependency links or control must be assessed in the light of the legislation in force. As regards the belonging to the DGE, one should refer to circular N°006/MINFI/SG/DGI/DR of 28 April 2014 specifying the criteria for attributing taxpayers to tax centers. According to this text, the belonging to the (DGE) depends on either the turnover or the nature of the activity. In fact, the DGE is competent to handle taxpayers with an annual turnover of at least three (03) billions. Also, irrespective of their turnover, the DGE is entailed to manage companies operating in the upstream oil and gas sector, mobile telephony, banking of first order and mining sector, excluding craft miners. As for the control or dependency relationship, it is provided for in section 19a of the GTC which states that « dependency or control relationships shall be deemed to exist between two enterprises: where one holds directly or by proxy 25% of the share capital or actually exercises the decision-making powers in the other or where both are placed, under the control of the same person.” In regard to the above, it appears that related entities under the above-mentioned conditions may be exempted from TP declaration obligation if they are registered with a tax center other than the DGE. The same applies to affiliated companies registered with the DGE whenever their shareholding is less than 25%. In contrary, where the cumulative conditions of section 18b are met, related entities must file their returns in accordance with the relevant legal requirements.
2. Legal requirements for annual TP return
Taxpayers subject to the annual TP declaration obligation must design such declarations in accordance with the provisions of the regulations in force. To this end, they must comply with the modalities of the said declaration and the information required, in order to avoid sanctions. With regard to the modalities, the aforementioned section 18b paragraph 1 of the GTC specifies that the declaration must be made using the form provided by the tax authorities, by electronic means, no later than the 15th March each year. As far as the information to be included in the declaration is concerned, it is almost the same as the one required for TP documentation. There are two types of information according to section 18b paragraph 2 of the GTC. The first category of the information relates to the group, in particular the statement of the shares held by each entity in the group; general description of the corporate activity; a general description of the TP policy and a list of intangible assets including the name of the company owing them and its territory of residence for tax purposes. The second category of information deals with the local company subject to the obligation to declare. It includes a description of the business performed in Cameroon, including any change that occurred during the year; a summary of the operations realized mentioning the nature and the amount of the transactions, the name and tax residence of the related companies, as well as the various beneficial owners of the associated payments; a statement of loans and borrowings; a summarized statement of transactions carried out for consideration or with non-monetary consideration; a summarized statement of transactions which are subject to an advance TP agreement or a tax ruling concluded between the related enterprise concerned by the transaction and the tax authorities of a foreign State or territory. It is important to stress that failure to comply with the reporting obligation is punishable by the law. Sanctions differ depending on whether the taxpayer fails to file the TP return or files it after the deadline. Failure to file the TP return gives rise to a fixed fine of up to five million (5,000,000) CFA Francs under section M 104 of the Manual of Tax Procedure (MTP). Late TP declaration leads to a fine of five million (5,000,000) CFA Francs as provided by section M99 of the MTP.
In conclusion, the obligation to file an annual TP declaration is only incumbent on the related companies that fall within the remit of the DGE considering their turnover or the nature of their activities, and which meet the requirements in terms of shareholdings or control. The information required by the Tax Authorities concerns both the group and the local company. This information must be provided in the format and by the deadlines laid down by the regulations in force. Failure to comply with these requirements will result to the taxpayers being subject to penalties depending on the nature of the breach. The severity of these penalties reflects the strong determination of the Cameroonian Tax Authorities, in line with the ideals advocated by OECD to effectively fight tax fraud and tax evasion.
Author: Yannick Ndoum, Tax & Legal Consultant; Supervisor: Albert Désiré Zang, Managing Partner