We are pleased to bring you this second issue of the Africa Francophone regional newsletter.

In this issue, we review the key tax measures that have taken place in selected African countries during the second half of 2022. A particular focus has been placed on the prospects for the various 2023 Finance Acts. Special publications on the provisions of these different tax schedules will be offered to you during the first half of 2023.

Our regional teams remain available to assist you in the understanding or implementation of these measures in your activities.

INTERNATIONAL TAX

Entry into force of the multilateral convention of the BEPS project in Francophone African countries

Since 2017, Côte d'Ivoire, as well as a good number of Francophone African countries have adhered to the Inclusive Framework of the BEPS project ("erosion of the tax base and profit shifting"). The BEPS project fights against the transfer of profits for tax purposes, i.e. in a country where the company has no real activity and is devoid of substance.

Action 15 of the BEPS project calls for the development of a multilateral instrument ("MLI") on tax treaty measures to prevent tax base erosion and profit shifting.

The objective of the MLI is to adapt existing bilateral tax treaties to the actions of the BEPS plan without requiring changes at the level of each signatory. Indeed, the MLI allows for the modification of tax treaties covered by the instrument according to the options and reservations issued by the signatory states. Once signed, the MLI must be subject to the ratification, acceptance or internal approval procedures of each signatory state.

As a result of its ratification, the MLI will modify the application of bilateral tax treaties concluded with French-speaking African countries through the mandatory introduction of the MLI's minimum standards:

  • the modification of the preamble of the treaties (integrating the objective of fighting against double nontaxation situations);
  • the improvement of the stipulations on mutual agreement procedures;
  • the insertion of the so-called "Principal Purpose Test" and "Limitation of benefits" clauses that can disqualify a treaty.

The MLI also provides for artificial avoidance of permanent establishment status and treaty shopping.

In practice, with the ratification of the MLI, any payment made by a company to a non-resident will be individually examined in depth (qualification, nature of the transaction, benefit of the service rendered, duplication, etc.) and in its entirety (in the case of hybrid structures stripped of substance and whose sole purpose is tax avoidance).

Thus, the application of tax treaties signed by countries that have ratified the instrument (such as Côte d'Ivoire) will no longer be automatic and will have to be re-examined in light of the provisions of the MLI.

What is the scope of the multilateral instrument?

How does it fit into the Ivorian legal system (and more broadly into the legal system of Francophone African countries)?

What are the impacts of the multilateral instrument on existing tax treaties?

What is the feedback from the application of the Multilateral Instrument to date?

The Africa Tax Desk organizes, for the attention of its clients and partners, an exchange workshop, on Friday, January 20, 2023, in order to present this new multilateral instrument and its consequences on the business relations between regional economic actors.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.