One way to reduce your tax liability is to set up a subsidiary in Cameroon and use a transfer price for your goods and services. A transfer price is the amount that one division of a company charges another division for an internal transaction. By setting a low transfer price, you can shift your profits from a high-tax country to a low-tax country, such as Cameroon, where the corporate tax rate is only 30%. This way, you can avoid paying higher taxes in your home country and increase your net income.
If you are doing business in Cameroon, you need to be aware of the rules and regulations regarding transfer pricing. Transfer pricing is the practice of setting the prices of goods or services that are exchanged between different units of the same company. For example, if a subsidiary in Cameroon sells raw materials to its parent company in France, the price of those materials is a transfer price.
Why does transfer pricing matter? Because it can affect the amount of taxes that a company pays in each country where it operates. If the transfer price is too low, the subsidiary in Cameroon will report less income and pay less taxes, while the parent company in France will report more income and pay more taxes. If the transfer price is too high, the opposite will happen. This can create an incentive for companies to manipulate their transfer prices to reduce their overall tax burden.
To prevent this, Cameroon’s tax authorities have issued guidelines on how to determine and document transfer prices. The main principle is that transfer prices should be consistent with the market prices that would be charged by unrelated parties in similar transactions. This is called the arm’s length principle. Companies that engage in transfer pricing must follow this principle and keep records of how they calculate their transfer prices. They must also provide this information to the tax authorities if they are audited or requested to do so.
Failure to comply with these rules can result in penalties, adjustments, and disputes with the tax authorities. Therefore, it is important for companies to have a clear and consistent transfer pricing policy and to document it properly. This will help them avoid any potential problems and ensure that they pay their fair share of taxes in Cameroon.
SOME IMPORTANT REGULATIONS
* OHADA parent company and subsidiary company. These concepts are defined in Section 179 and Section 180 of the Commercial Code.
A parent company is a company that has a controlling interest in another company. This means that it owns more than 50% of the shares or voting rights in the other company. The other company is called a subsidiary company. A subsidiary company is a company that is controlled by another company. This means that its majority shareholder or voting power is another company.
A joint subsidiary is a special case of a subsidiary company. It is a company that is controlled by several parent companies at the same time. These parent companies must meet two conditions:
– They must each own enough shares or voting rights in the joint subsidiary to prevent any major decision from being made without their approval.
– They must also participate in the management of the joint subsidiary.
These concepts are important to understand because they have legal and financial implications for the companies involved. For example, a parent company may be liable for the debts or actions of its subsidiary, or a joint subsidiary may benefit from the synergies and cooperation of its parent companies.
Articles 179 and 180 of the Ohada Uniform Act on commercial companies recognize the relationships between a parent company and its subsidiaries. The article states that:
– A parent company is one that holds, directly or indirectly, more than half of the share capital or voting rights of another company, or that has the power to appoint the majority of the directors or managers of another company.
– A subsidiary is a company that is controlled by a parent company, as defined above, or that is part of the same group as the parent company.
– A parent company and its subsidiaries must prepare consolidated financial statements that reflect the economic and financial situation of the group as a whole.
– A parent company and its subsidiaries must also disclose in their annual reports the nature and extent of their relationships, as well as the transactions and balances between them.
*The Cameroonian 2020 Finance Law introduced a new provision that requires service providers and service recipients to adhere to the arm’s length standard and the declaratory obligation for transfer pricing. This means that they have to ensure that the fees for services provided under a service order are consistent with the market prices and reflect the economic reality of the transaction. They also have to periodically review the fees and make adjustments if necessary, by mutual agreement and with an appropriate amendment to the service order.
The Ordinance 100/MINDIC/DPPM regulates the cost price and the profit margins applicable to imported products, locally manufactured products and services. It specifies that the rate excluding taxes applicable for a service is equal to the cost price of the work unit plus a profit margin of 15%. This implies that service providers and service recipients have to calculate the cost price of the work unit based on the actual costs incurred in providing the service, such as labor, materials, overheads, etc. They also have to apply a profit margin of 15%, which is considered as reasonable by the ordinance.
The challenge for service providers and service recipients is to reconcile these two regulations and ensure compliance with both. They have to demonstrate that their fees for services are in line with both the arm’s length standard and the ordinance. This may require them to perform a transfer pricing analysis and benchmarking study, using comparable data from independent sources. They also have to maintain adequate documentation and records to support their transfer pricing policies and practices.
In conclusion, service providers and service recipients operating in Cameroon have to be aware of the transfer pricing implications of the Cameroonian 2020 Finance Law and the Ordinance 100/MINDIC/DPPM. They have to ensure that their fees for services are fair, transparent and compliant with both regulations. This may require them to adopt a proactive approach and seek professional advice if needed.