Transfer pricing


Transfer pricing

in French-Speaking Africa

Tax revenues have a growing influence on economic development and growth prospects in Africa. They have reached an amount of $527.3 billion in 2012. One of the major challenges facing African states to boost these revenues is to ensure that the price charged by multinational groups in their intra-group transactions complies with the arm's length principle and that the objective of the latter is not to transfer taxable profits out of the continent.

Pursuant to the Act of May 31, 1933 codified in Article 57 of the French General Tax Code, most French-speaking African states have enacted, many years ago, general provisions aimed at fighting these indirect profits transfers. However, we have been witnessing recently the enhancement of transfer pricing control provisions in French-speaking Africa (I) particularly the introduction of a documentary requirement on transfer pricing that has been deployed recently in West Africa (II).

Reinforcement of transfer pricing control provisions in French-speaking Africa…

From a historical point a view, local tax administrations in French-speaking Africa were used to handling the cross border flows between related entities mainly via withholding taxes and the limitation on holding/ technical assistance costs deductibility. As such, many of these countries have set up cap mechanisms for these costs tax deductibility.

Henceforth, the clear intention of these states is to be able to take a broader view of the overall intra-group flows:

  • The goods flows (from the group entities’ operating activities)
  • The service flows (technical assistance, holding costs, rental…)
  • The intangible flows (trademark fee, patents, …)
  • The financial flows (intra-group loans, current account, warranty…), by subjecting their taxable profits to the local corporate income tax.
International groups should be able to justify the prices used with companies based in Africa and with which one of the group entities has in practice legal and/or de facto dependency.

To that end, strengthened/specific provisions on transfer pricing have been established by some of these countries including Cameroon (in 2007), Gabon (in 2009), Algeria (in 2010), Congo (in 2011), Senegal (in 2012) and Guinea Conakry (in 2014) aimed at fighting the difference between intra-group transactions prices and the arm’s length price. Awareness-raising campaigns and skills ramp up on this technical subject as well as tax audits of tax administrations are being conducted.

Therefore and in order to secure their transfer pricing policy, these groups should conduct, besides an exhaustive quantitative and qualitative inventory on the African entity’s intra-group flows:

  • A functional analysis to define the functional profile of this entity, i.e. performed functions, assumed risks and held assets;
  • An economic analysis aimed at selecting a transfer pricing method that allows justifying the competitiveness of the transfer pricing policy applied by the group. Without going into much detail, the methods recommended by the OECD gather (i) the transaction-based methods (comparable uncontrolled price, resale minus and cost plus) and (ii) the transactional profit methods (profit and net margin split).

In this context, it is necessary to identify comparable independent entities (benchmark) using various public databases, the comparison of the results achieved by these entities with those achieved by the group entities allows demonstrating that the adopted policy is arm’s length compliant.

So far, in the absence of pan-African databases that allow carrying out these benchmarks, we advocate referring to existing databases in other regions such as the Amadeus pan-European base.

… particularly the introduction of a documentary requirement on transfer pricing (focus on West Africa)

This documentary requirement obliges the involved entity to produce a written documentation that supports the transfer pricing determination approach which should be made available to the local tax administration in case of a tax audit and/or even be disclosed to the tax administration as part of the annual reporting requirement (case of Gabon for example). In what follows we highlight this recent trend in West Africa.

The Senegalese documentary requirement applicable on January 1, 2013

Under Article 638 and s of the Senegalese “CGI” (General Tax Code), a new rule inspired from the French tax administration instruction of December 23, 2010 commenting on the regulation implemented in France as of January 1, 2010 (codified in article L.13 AA of the tax procedure book) has been enacted.
Falls within the scope of this requirement any legal person based in Senegal whose annual turnover is greater than 5 billion CFA F (€7,6 M)or equal to; or that holds or is held by another entity satisfying the previous conditions. As the circular concerning the implementation of this law has not been published yet and if we refer to the French tax administration interpretations, any group of which one of the entities, wherever may it be based, generating an annual turnover of at least €7,6 M would be subject to this requirement for its Senegalese entity. The scope of this requirement would be much enlarged compared to the French provisions also dealing with international SMEs.

Incorporating the OECD’s guiding principles on transfer pricing, the Senegalese provisions describes the documentation to be introduced including both general information on the group (Master file) and specific information about Senegalese entity.

Regarding the coercive measures that will allow the Senegalese tax administration to get such documentation as part of a tax audit, the audited Senegalese entity will have up to 15 days after receipt to produce or complete that documentation.

The Guinean documentary requirement applicable on January 1, 2014

The 2014 finance law introduced a documentary requirement on transfer pricing having the same scope as the Senegalese one, except that the requirement trigger threshold shall be higher and set at GNF 175 000 000 000 (€18,2 M).
In return, the text does not define the content of the expected documentation, we recommend therefore referring to the guiding principles set out by the OECD.

An Ivorian documentary requirement applicable on January 1, 2015?

Having had a discussion with the Ivorian Tax Legislation Department, the transfer pricing is a problem area of major concern. Let us hope that a documentary requirement could be issued under the Ivorian finance law for 2015.


Nowadays, 2/3 of world trades are intra-group flows. French-speaking African states wish to take the fair share of their tax revenues relating to these flows. Investors in the continent, it is important to be prepared for it before your next tax audit and to be able to justify your transfer pricing by a written documentation when appropriate.