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THE HIGH STAKES OF TRANSFER PRICES
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LEGISLATION THAT ATTRACTS INVESTMENT 67
AN APPEALING FISCAL REGIME 67
AN INCENTIVIZING FISCAL SYSTEM FOR COMMERCIAL ENTERPRISES IN THE FREE ZONE 68
THE HIGH STAKES OF TRANSFER PRICES 69
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Senegal has created legal and fiscal conditions that will make it easier for investors to establish businesses under optimal economic conditions. Fiscal, legal and economic advantages contribute to creating an environment that guarantees development for both local and foreign business enterprises.
The promotion of investment in Senegal can be understood by considering some of the encouraging provisions.
Law No. 2004-06 dated 6 February 2004 to establish the investment code amended by Law No. 2012-32 of 31 December 2012 is worth special attention because of its very broad application and considerable legal and fiscal implications. The same can be said about Law No. 2004-11 that amends Article 1 of Law No. 95-34 of 29 December 1995 establishing the status of the free export enterprises (EFE) whose aim is to promote the export market. These laws are very incentivizing since they commit the States to surrender certain prerogatives for a given period of time in order to allow investors to carry out their projects and begin production under favorable economic conditions. Senegal is offering this very solid guarantee as part of an effort to make attractive legal conditions even more attractive. It is important to note that these laws apply to a much broader framework that governs contractual relations between the State and the investors.
The main idea underlying the guarantee or at least the granting of certain fiscal, legal and economic benefits is the investors’ obligation to produce results. These investment-promoting options, however, may be jeopardized by conditions that are external to the favored investment or business development conditions, especially if they concern benefits that the State withheld since they did not fit in with its fiscal policies. This issue is part of the question of the fiscal conditions for “transfer prices”. When analyzing the inherent advantages of the legislative approach this vantage point must be considered by studying a legal and fiscal system that guarantees corporate safety and growth.
LEGISLATION THAT ATTRACTS INVESTMENT
The legal environment for investments in Senegal seems very propitious to business growth especially considering the national laws. Beyond the national level Senegal has joined many regional organizations such as the Union économique et monétaire ouest africaine (UEMOA) (West African Economic and Monetary Union), the Economic Community of West African States (ECOWAS) and the Organisation africaine de la propriété intellectuelle (OAPI) (African Intellectual Property Organization).
Despite the appealing conditions, anyone wishing to invest and do business in Senegal must abide by certain formalities. The formalities are different for a one-person proprietorship or business, a partnership or a corporation. The rules are set out in the Uniform Act on General Commercial Law, the Uniform Act on Commercial Companies and the OHADA EIG (Economic Interest Group of the Organization for the Harmonization of Business Law in Africa)
The time required to establish a company has been considerably shortened and the formalities have been simplified. The Agence nationale de la promotion des investissements et des grands travaux (APIX National Agency to Promote Investments and Major Public Works) has created a one-stop shop where businesses deal with only one person and conduct all the procedures in a single place.
A variety of corporate structures are available for the investors depending on the nature of their activities. In the first phase a company can set up branches. Branches of foreign companies must be transformed into companies after two years of existence, unless an exemption is granted by the Minister of Commerce. The holding company regime is reserved for Senegalese companies that own at least 10% of the shares of their subsidiaries and whose business is to manage their holdings and/or provide services to companies in their group. These companies benefit from the parent-subsidiary tax regime. Thus, dividends received by parent companies (holding companies) are taxexempt except for a portion for expenses and charges, calculated at a flat rate of 5% of the gross dividends received, i.e. effective taxation at the rate of 1.5%. Dividends redistributed by the parent company are not subject to income tax on investment (IRCM- Impôt sur le Revenu des Capitaux Mobiliers) up to the net amount of dividends received from its subsidiary, which have already been subject to a 10% income tax rate on investment income.
AN APPEALING FISCAL REGIME
Most fiscal measures can be found in the Code des investissements (Investment Code) and in the Code général des impôts (General Tax Code). Besides the incentives offered in these codes, Senegal has signed fiscal agreements with certain countries, such as France, Germany, and the United States, that apply the UEMOA/ WAEMU (West African Economic and Monetary Union) rules designed to avoid double taxation on financial transfers among its member states.
The Investment Code includes special benefits for investors since investors can apply for approval from APIX, which must respond within ten days.
Furthermore, investors are eligible for the special advantages if they meet the eligibility conditions set out in Article 17 of the Investment Code, i.e. • The amount of the forthcoming investment is equal to, or greater than, 100 million FCFA for a business involving the production of eligible goods and services, with the exception of those to which a specific minimum level has been set out in a decree;
