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Tax Connect Flash

The changing landscape of taxation in Africa: time for large companies to adapt

19/06/2019

The example of Côte d’Ivoire is striking. Côte d’Ivoire has one of Africa’s most dynamic economies. In 2018, the country’s growth rate was more than 7%, and its tax revenues hit a record high of more than 2,000 billion CFA francs (around 3.4 billion dollars). Even so, domestic resource mobilisation remains strategic.

International taxation – a growing source of revenue for the States

50 billion dollars per year: this is the estimated lost revenue for Africa due to fraud and tax evasion. Côte d’Ivoire, like some 20 other African countries, therefore joined the Organisation for Economic Cooperation and Development’s inclusive framework for access to tools to combat these practices.

Many international tax measures were thus recently adopted: additional tax charges for sums paid to tax havens and obligation to provide information to the authorities about the nature and price of transactions carried out within a group (transfer pricing), country-by-country reporting, etc.

Headed for a paradigm shift in tax management for companies in Africa?

This may seem like a dull topic for novices, but it’s important to realise that all this translates into a significant “tax compliance” charge with punishments for non-compliance that are sometimes very severe.

Businesses belonging to foreign or African groups must now reconsider their approach to taxation in Africa. Are the Group’s tax practices compliant with the new rules and consistent from one country to another? Are there really advantages to setting up a holding company in Mauritius? How can management fees be invoiced to group subsidiaries even though their deduction is often disputed during a tax audit?

Given the circumstances, some groups have chosen to increase their resources on the continent to limit the tax cost of intra-group invoicing. Shared service centres or regional holding companies are being established, particularly in Côte d’Ivoire, where they benefit from favourable tax conditions.

To support companies in their investment and location strategy, the African states must guarantee real, more balanced legal stability as well as relations with the tax authorities rather than tax benefits.

Authors

Deana D'Almeida
Deana D'Almeida
Partner
Paris