An overview of transfer pricing in Côte d’Ivoire

The fiscal legislator has instituted a new fiscal obligation through the establishment of Article 15 of the Tax Schedule to the Law No. 2016-1116 of December 8, 2016, concerning the state’s budget for FY 2017. Those concerned by the declarative obligation on transfer pricing are companies established in Côte d’Ivoire which have links, most notably of a capitalistic nature, with companies located outside of Côte d’Ivoire, and with which they perform transactions.

Companies are considered to be associated or having ties of dependence, when:

• One directly or indirectly through intermediaries – holds stakes in a given company’s capital or exerts decision making power;

• Both companies share a common third-party shareholder;

• Both companies belong to the same group of companies.

The threshold through which the ownership of shares begins to reflect a level of dependency or association, and which would trigger their obligation to declare transfer pricing practices, remains unclear. Given the lack of detail provided by the General Tax Code, legal councils may refer to Common Law – or the Organisation for the Harmonisation of Business Law in Africa Uniform Act on corporate Law and of Economic Interest Grouping which states that, “to have control over a company shall mean to effectively hold decision-making power within it.” It then clarifies that “a moral […] person is presumed to have control over a company when:

• They hold, directly or indirectly or through an intermediary, more than half the voting rights;

• They hold more than half the voting rights by virtue of an agreement or agreements with other entities.”

As ties of dependency do not constitute an exclusive criterion in the sense of belonging to a multinational group, tax authorities consider the existence of a link of dependence may result from a factual situation, independently of all legal or capitalistic links between the companies concerned. The existence of such a factual dependency is thus characterised by the capacity of a company to impose upon the other party economic conditions in their business relationship, which would not be possible if they were to be independent entities.

We can note that the tax authorities seek to proceed by way of circumstantial evidence to determine the existence of factual dependency, with regard to transfer pricing, in an effort to find a strong link between economic operators that may be appreciated through frequent recourse to factors, such as:

• Ownership of incorporeal rights;

• The interest of each entity to structure tax evasion devises;

• The presence of contractual obligations, derogatory to common law;

• Privileged business relationships between two companies, etc.

Factual dependency has its basis in the tax treaties concluded by the state of Côte d’Ivoire, which defines associated companies as “companies that are, by means of their commercial or financial relationships, linked by, agreed on or imposed means, and that differ from those that would be agreed upon by independent entities.”

Given the weight of the fiscal repercussions, in case of non-disclosure of transfer pricing practices by companies that are included within these obligations, it is regrettable that the fiscal administration did not give a more precise definition of this concept. Undoubtedly, factual or economic dependency will contribute to situations of insecurity with regard to fiscal matters.

When we look closely, more than two-thirds of companies operating in Côte d’Ivoire within the formal sector, and that exert sub-contracting activities with multinational groups, may also be required to take part in this process concerning transfer pricing obligations.