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Flash info Algeria | The Finance Law for 2012

19/01/2012

As anticipated in our update of 18 October 2011, the content of the Finance Law for 2012(1)draws very much on the recommendations made in the report of the tripartite working group made up of the professional associations, the unions and the tax administration, and seems to be the result of prior consultation.

One of the key measures in the new Law is the introduction of further guarantees of legal certainty for taxpayers.

Below we will address the provisions relating to tax procedures (part I) and those relating to the commercial taxation regime (part II).

I. Tax procedures

1. Introduction of an advance ruling procedure

Drawing on French law, the advance ruling procedure should help to improve relations between the administration and taxpayers.

Prior to enactment of the Finance Law for 2012, the administration regularly made rulings at the request of taxpayers.

There was no legal framework for this practice, however, and no provision making rulings of the tax administration legally binding on the various departments.

Nonetheless, as a general rule the positions adopted by the central tax administration were followed by the departments. Accordingly, article 47 of the Finance Law for 2012 introduces a formal procedure, contained in the new article 174 bis of the Tax Procedures Code.

A taxpayer may seek a ruling from the administration subject as follows:

  • the request must be made in writing and must be precise and complete;
  • the taxpayer must act in good faith; and
  • the ruling must relate solely to the application of a provision of tax law to a factual situation.

The administration must make its ruling within a 4-month period. Where no response is given, the administration's silence amounts to acceptance of the taxpayer's request.

Where the request is accepted, the position taken by the administration will be binding on it, provided that it pre-dates the last date for filing a return or, where no return is required to be filed, the collection date which falls to be treated as the date of voluntary payment.

Where the request is rejected, the taxpayer has two months in which to re-apply to the administration for the request to be reviewed, such reviews being based on internal consultation. The administration will deal with the matter in accordance with the same rules and timescales that apply to the initial request.

Detailed provision as to the advance ruling is to be made through implementing regulations. In the meantime, several questions arise:

  • what will amount to good faith?
  • are taxpayers entitled to apply for a ruling concerning a contract which is yet to be made?
  • will rulings be precise and complete?
2. Introduction of pre-action procedure for inspections concerning the validity of accounts

Article 31 of the Finance Law for 2012 introduces a pre-action procedure with a view to limiting the volume of litigation.

It amends article 20-6 of the Tax Procedures Code by introducing a right on the part of the taxpayer to seek an arbitration in respect of issues of fact or law. A notice is then sent to the taxpayer, inviting him to participate in a contested procedure to determine the validity of the accounts. The arbitration is conducted before the Director for Large Businesses, the Provincial Director of Taxes, the Head of the Tax Centre or the Head of the Inspection and Audit Department.

The Law does not state, however, whether argument is oral or in writing. Equally, details of the arbitration procedure are not given.

3. Changed inspection periods

The Finance Law has reduced the period allowed for on-site examination of accounting books and records.

Henceforth, the period is 3 months for service businesses whose annual turnover does not exceed 1,000,000 DA in any of the financial years to which the inspection relates, and for other businesses whose annual turnover does not exceed 2,000,000 DA in any such year. The period is 6 months for businesses in both categories, where turnover does not exceed 5,000,000 DA or 10,000,000 DA respectively. Otherwise the period is 9 months. The previous time limits, based on the same turnover thresholds, were 4, 6 and 9 months.

In addition, the Finance Law for 2012 provides for a written declaration that on-site examination of books and records has ended, which the taxpayer is invited to countersign.

II. Business taxes regime

1. Changes to the procedure for repayment of VAT credits

The Finance Law makes two alterations to the procedure for repayment of VAT credits.

Firstly, the requirement to submit a settled assessment notice or schedule of payments has been lifted. Production of the assessment notice itself is now sufficient.

Secondly, the amount of the VAT credit is altered. The Finance Law for 2012 provides that the tax credit is repayable only if its amount as at the end of the calendar quarter is at least 1,000,000 DA. However, annual repayment applications submitted by partially exempted taxpayers are not subject to any such limit. The previous requirements were that the value of the transaction on which the VAT was due be more than 100,000 DA, and that the tax credit as at the end of a period of three consecutive months be at least 30,000 DA.

2. Income remaining unallocated after 3 years no longer taxable as distributions

Under paragraph 8 of article 46 of the Direct Taxes Code, unallocated income which had not been incorporated into capital within 3 years was treated as if it had been distributed and thus as income from securities. Under the administration's previous practice, which is no longer followed, this rule was treated as extending to the profits of permanent establishments. Such profits, which could not be incorporated into capital, were thus subject to deduction at source on distributed profits.

Under article 4 of the Finance Law for 2012, unallocated income falling within the previous version of paragraph 8 is no longer to be equated with income from securities, cementing the abandonment of administration's former practice.

3. Assimilation of the chargeable event for TAP purposes with that applicable to VAT

Until now, the Direct Taxes Code has been less than explicit as to the chargeable event for the purposes of TAP (business tax). In practice, the tax was treated as chargeable at the point of receipt.

The Code is no longer silent on this point, as the Finance Law for 2012 inserts a new article 221bis(2), under the heading "Chargeable Event", which assimilates the chargeable event for the purposes of TAP with that applicable to VAT.

Accordingly, the principle is that for sales of goods the chargeable event is legal or actual delivery, and for construction work and services it is receipt of all or part of the price.

It should be noted that there are several points of uncertainty surrounding the assimilation with VAT. In fact, the new article 221 bis only restates the principles applicable to VAT, without explicitly restating the exceptions. Accordingly, in respect of public contracts relating to a supply of goods, receipt of payment constitutes the chargeable event for VAT purposes, whereas under article 221 bis, the chargeable event for TAP purposes would appear to be legal or actual delivery of the goods.

1. Finance Law for 2012, published in the Official Journal of 29 December 2011.

.Part I, Chapter III, Subchapter 2 of the Direct Taxes Code ("Chargeable Event").

Authors

Picture of Samir Sayah
Samir Sayah
Partner Africa Practice – Corporate, M&A
Algiers
Abdessemed-Mourad-Nabil
Mourad Nabil Abdessemed
Associate
Algiers