Law No. 001 / PR / 2015 of 5 January 2015, was the start of transfer pricing legislation in Chad.

This law amended article 30 of the General Tax Code (GTC) by imposing a documentation obligation for management fees and technical assistance related costs.

Based on this law, the deductibility of head office and technical assistance expenses is subject to the presentation of details of these expenses in the annex of the Annual Tax Return (ATR).

The required information must show the overall amount of the head office expenses, the methods used to allocate expenses among the countries in which the company operates, and the amount allocated to the entity located in Chad.

New transfer pricing requirement

Law No. 021 / PR / 2017 on the State Budget for 2018 has established a specific requirement for transfer pricing (TP) and introduced the requirement of a TP return.

The scope of application has been specified by Administrative Instruction No. 04 / MFB / SE / DGM / DGI / DELC / 2018 dated 9 July 2018. The exact format of the TP return was provided as an Appendix to this Instruction.

Annual TP return

Content

The annual TP return should contain the following information:

• General information regarding the multinational enterprise to which the declaring entity belongs
• General description of the TP policy of the group applicable to the declaring entity
• Information regarding the intangibles used by the declaring entity
• Information regarding the intragroup transactions in which the declaring entity was involved during the financial year (including detailed information on the counterpart, such as name, country of location, registration number). The amounts of intragroup transactions must be aggregated by type of transactions as provided by the TP form
• Description of changes occurred during the financial year
• A legal organizational chart must be provided as an appendix to the TP Form

Covered entities

The filing obligation is mandatory for entities that are related or controlled by an entity or entities located outside Chad (article 1000 of the GTC).

The instruction clarifies control as follows:

Regarding legal dependence: companies are considered related parties when one company owns, directly or indirectly, a preponderant portion of the other company’s capital; or when, a foreign company performs, directly or through an intermediary, decision-making functions in the local company.

Regarding de facto dependence: the existence of de facto dependence is characterized by the actual capacity of one company to impose on another company, in their business activities, economic conditions which could not apply in relation between unrelated parties.

The instruction does not provide for any additional conditions apart from dependence (e.g., such as level of sales or assets), which means that any subsidiary of a multinational enterprise falls within the scope of the current TP requirement.

Filing deadline

The TP return must be filed by 30 April of each year along with the Annual Tax Return.

Fiscal Year 2018 (closing date 31 December 2018) is the first year of this requirement.

Penalty

The following sanctions are applicable in the case of non-compliance with filing of the declaration, or for the filing of a declaration with incomplete or erroneous information:

• Shift of burden of proof. Transfer to the Chadian entity the burden to prove the non-transfer of unjustified benefits to the entity of the group located abroad
• Denial of deductions. Rejection of the deductibility of expenses incurred with related companies for which there is no declaration or for which the declaration is incomplete or erroneous

In addition, the Finance Bill for 2019 provides that failure to comply with the transfer pricing documentation requirements will lead to a penalty equal to 5% of the total amount of the intragroup transactions, with a minimum penalty amount of €75,000 (FCFA50 million) per financial year.

Although Chad has not yet joined the inclusive framework for the implementation of the Base Erosion and Profit Shifting (BEPS) project, Chad is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes, a body set up to implement certain BEPS recommendations and in particular BEPS Actions 8–10 and Action 13. Additional changes in terms of documentation requirements are expected to happen soon.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Cameroon Sarl, Douala

• Joseph Pagop Noupoué | joseph.pagop.noupoue@cm.ey.com

Ernst & Young Tchad Juridique et Fiscal S.A., N’Djamena

• Anselme Patipéwé Njiakin | anselme.patipewe.njiakin@td.ey.com

Ernst & Young Advisory Services (Pty) Ltd., Africa ITS Leader, Johannesburg

• Marius Leivestad | marius.leivestad@za.ey.com

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

• Rendani Neluvhalani | rendani.mabel.neluvhalani@uk.ey.com
• Byron Thomas | bthomas4@uk.ey.com

Ernst & Young Société d’Avocats, Pan African Tax Desk, Paris

• Bruno Messerschmitt | bruno.messerschmitt@ey-avocats.com
• Alexis Popov | alexis.popov@ey-avocats.com

Ernst & Young LLP, Pan African Tax Desk, New York

• Dele A. Olaogun | dele.olaogun@ey.com

ATTACHMENT