In our last month’s article regarding the tax regime for the indirect transfer of shares in
Cameroon, we demonstrated that the said regime rests on complex, vague, and incomplete criteria,
often leading to legal uncertainty and disadvantaging international investors. According to Section 42
of the General Tax Code (GTC), the indirect transfer of shares is defined as: “(…) any transfer
executed in Cameroon or abroad between two foreign companies under the same consolidation scope,
when one of the entities of this scope wholly or partially owns the capital of a Cameroonian
company.” Such an indirect transfer involves three distinct entities. For instance, consider a scenario
where a company A based in the United States acquires shares from a company B located in France,
which in turn holds shares in a company C situated in Cameroon; the transfer of shares of the French
entity resulting in the transfer of shares of the Cameroonian entity. While it is true that the OECD
supports the taxation of the indirect transfer of shares and that such taxation may be underpinned by
the principle of fiscal realism; it remains that every transfer, whether direct or indirect, is
fundamentally a civil law concept that the tax legislature should have considered. In civil law, a
transfer refers to the conveyance of a real or personal right from the transferor to the transferee,
whether for a fee or gratuitously. Consequently, the position of the tax legislature, based on the
aforementioned scenario, is that by transferring their shares, the shareholders of the French entity are
also transferring those of the Cameroonian entity, of which they are not the owners. Viewed from this
perspective, the question arises as to whether there is, in fact, a transfer in the indirect transfer of
shares as understood by the tax legislature. This inquiry is of significant importance as the tax
implications hinge on the legal classification.
It is clear without ambiguity that the indirect transfer of shares, as interpreted by the
Cameroonian tax legislature, does not genuinely constitute a transfer in the strict sense of civil and
corporate law. From the point of view of civil law, three fundamental arguments support our position.
First, the shareholders of company B in France (the transferors of shares abroad), according to the
scenario mentioned in the introduction, do not own the shares of the Cameroonian entity allegedly
transferred indirectly. It is universally accepted in law that a person cannot transfer more rights than he
possesses. This principle is reiterated in Section 1599 of the Civil Code, which states: “the sale of
another’s property is null (…).” Therefore, only the owner of the shares of the Cameroonian company,
in this case, the French legal entity (company B), can transfer the ownership of those shares. It is
essential to distinguish between the foreign legal entity that owns the shares of the Cameroonian entity
and its shareholders, who own the shares of the French entity transferred abroad. Thus, it is evident
that one cannot speak of a transfer, even if indirect, simply because the foreign transferors do not own
the shares of the Cameroonian company. Secondly, the indirect transfer of shares does not result in the
transfer of ownership to the transferee. In fact, the ownership of the shares does not pass from the
transferor to the transferee. This is because the apportioning of the share capital prior to the alleged
indirect transfer remains unchanged after the operation. The reason is straightforward: it is the foreign
legal entity that is a shareholder of the Cameroonian entity, not the new shareholders of that legal
entity. Therefore, it would be inappropriate to characterize this as an indirect transfer of shares.
Finally, the Cameroonian entity, possessing a legal personality distinct from that of the foreign entity
(the French company) whose shares are being transferred, cannot be affected by the contract of
indirect transfer of shares to which it is not a party. This aligns with the principle of privity of
contracts established by Section 1165 of the Civil Code, which states that contracts only produce
effects concerning the parties involved and cannot have effects on third parties except in cases
explicitly enumerated, which does not include indirect transfers of shares. The preceding analysis,
viewed through the lens of civil law, sufficiently demonstrates that the indirect transfer of shares is
based on weak legal grounds. The same conclusion applies to corporate law.
The review of the provisions of the OHADA Uniform Act
concerning commercial companies and economic interest group presents further reasons against the
fiscal thesis of indirect transfers of shares. Indeed, OHADA corporate law establishes a range of
consequences inherent to the transfer of shares. Since an indirect transfer of shares is fundamentally a
share transfer, it must necessarily lead to these consequences. Unfortunately, viewed from a fiscal
perspective, the indirect transfer of shares does not lead to at least three of these expected outcomes:
the amendment of the company’s Articles of Association through an Extraordinary General Meeting of
shareholders, the registration of changes in the Trade and Personal Property Register, and the updating
of the nominative share register. Given that the indirect transfer of shares executed abroad between
companies A and B in our scenario does not trigger these formalities for the Cameroonian entity C,
one can reasonably conclude that there is no genuine share transfer.
In short, whether indirect or not, the transfer of shares remains a concept governed by the civil
law of contracts. As such, it should imperatively give rise to the transfer of the indirectly alleged
transferred shares, by the owner to the transferee, in accordance with Civil Law. Meantime, it must
give rise to the amendment of the Cameroonian entity’s Articles of Association, as well as its Trade
register, in line with the OHADA Company law. Unfortunately, the indirect transfer of shares as
provided for by the current tax legislation does not meet these mandatory conditions. Given that it
does not entail the transfer of the shares of the Cameroonian entity, it cannot be considered a transfer
of shares. It is nothing more than a legal incongruity that is likely to create antagonism between tax
payers and tax authorities. As a consequence, it will be beneficial to reform the tax legislation with
the aim of tax-exempting indirect transfer of shares.
Author: Jean Didier Ozoto, Tax & Legal Consultant Supervisor: Albert Désiré Zang, Managing Partner