Generating wealth, or more technically, creating value, appears to be the fundamental purpose
of businesses. This is why they employ various mechanisms to ensure better profitability of their
activities. In this perspective, companies very often opt for methods aimed at internally boosting sales,
or externally acquiring other companies. In the latter case, these are corporate restructuring operations,
the tax regime of which has been supplemented by the 2024 Finance Act. These operations generally
involve a transfer of the assets and liabilities of the acquired company. While such a transfer does not
pose issues when the divested company is profitable, it can, conversely, result in tax frictions in the
event of a deficit. By deficits, it is meant, as per the 2024 Finance Act, losses stemming from the
transmission of liabilities, particularly when the transferred debts exceed the received assets or when
the acquiring company incurs significant costs to restructure the transferred activity. In order to better
control these losses that may reduce the corporate income tax (CIT) base, the Cameroonian tax
legislature, through the aforementioned Finance Act, has clarified the regime applicable to them. In
this regard, it has defined, through the introduction of a second paragraph in Section 7 C, first indent
of the General Tax Code (GTC), the rules for their deductibility. These expenses may be non-
deductible or deductible under certain conditions.
Through the 2024 Finance Act, the Cameroonian tax legislature clearly lays down the
principle that losses or deficits resulting from the transmission of liabilities of the absorbed company
are not deductible from the taxable profit for the determination of Corporate Income Tax (CIT) of the
acquiring company. Indeed, this rule stems from the analysis of the provisions of Section 7 C, first
indent, second paragraph of the General Tax Code. Consequently, these deficits, although resulting
from a restructuring operation, are not considered deductible for the determination of the CIT of the
acquiring company. The non-deductibility thus established then has the immediate consequence of
reinstating the improperly deducted losses in the assessable profit, with the impact of a CIT
reassessment.
However, it should be noted that the non-deductibility of losses is subject to two conditions set
by the 2024 Finance Act. The first condition is that the losses or deficits must result from restructuring
operations leading to the dissolution of the company whose liabilities are transferred. According to the
circular of the 2024 Finance Act, this refers to restructurings resulting in the universal transfer of the
patrimony of the absorbed and dissolved company. Only mergers and acquisitions operations are
targeted. Surprisingly, the circular expressly and curiously excludes losses or deficits resulting from
spin-off operations. As for the second condition of the non-deductibility of losses, the GTC requires
that the acquiring company must have renounced the continuation of the activity of the dissolved
company and proceeded to change the said activity. The change of activities, according to the
aforementioned circular, refers to the abandonment or transfer, even partially, of one or more activities
of the said company. It must lead, for the fiscal year of its occurrence or the following fiscal year, to a
decrease of more than 50% in the turnover of the acquiring company compared to the previous fiscal
year. It should be clarified that the burden of proof of the non-change of activities lies with the
acquiring company, which must demonstrate that its losses are not the result of any change of activities
of the absorbed company.
While it is true that non-deductibility is the principle for losses resulting from the transfer of
liabilities due to restructuring, a reverse analysis of the provisions that establish it makes it possible to
infer that in case of continuation of the activity, the said losses are deductible from the profits of the
acquiring company.
In conclusion, the 2024 Finance Act establishes the principle of non-deductibility of deficits
resulting from corporate restructuring operations. However, this is only admitted when the
restructuring leads to the dissolution of the company whose liabilities are transferred and the change of
the activity exercised by the dissolved company. In the event of continuity of the activity, the losses
are deductible. With this measure, the legislature undoubtedly aims to combat the schemes of
unscrupulous taxpayers who, through carefully crafted legal arrangements, take advantage of the
significant losses resulting from the consolidation of assets through restructuring to reduce their
taxable income and thus escape taxation to the greatest extent possible. However, the exclusion of
spin-off operations through the circular to implement the 2024 Finance Act is a serious inconsistency,
as the tax authority’s definition is contrary to that provided for in the OHADA Uniform Act on
company law and economic interest groups. This will be discussed in our next article.
Author: Jean Didier Ozoto Senior Tax & Legal consultant; supervisor: Albert Désiré Zang, Managing
Partner