INTRODUCTION

Introduction

Taxation is a manifestation of sovereignty. This manifestation is more demonstrative when it comes

to cross border transactions that involves more than one sovereign state. Broadly speaking,
international taxation refers to the ‘international’ elements of national tax policies. International
taxation includes therefore the taxation of cross-border economic activity. This includes both direct
investments, through the direct involvement in business (active income) and indirect investment,
through shares and other forms of provisions of capital (Passive investment). While taxation is
fundamentally the right of governments, the transborder nature of international investment can
present problems where governments do not coordinate their tax systems. On the one hand, there
can be competing claims to the same transborder income by the home and host countries, which can
lead to double taxation, which can in turn have a dampening effect on foreign investment 1.

Businesses can also take advantage of the lapses in the tax law/system to diminish their taxes or
completely avoid them, thus leading to double under taxation or non-taxation. Since these situations
are harmful to both states or to one state, states have come up with strategies and mechanisms to
reduce or avoid these phenomena. Since neither of these situations is ideal, states generally
collaborate by agreeing to certain rules, principles and norms which can guide taxation of cross
border business in a way that minimizes these problems. In some cases, however individual states
take unilateral measures to minimnise these problems.

Efforts to minimise these problems especially through state collaboration have resulted to an
‘international regime’ or ‘legal order’ of principles, norms, standards and ‘soft laws’ that guide and
coordinate national tax policies to overcome these issues.

These rules, though non-binding, are very influential and have set the parameters around how states
tax cross border economic activity for roughly a century. Cooperative efforts on international

1
OECD (2014), “Fundamental principles of taxation”, in Addressing the Tax Challenges of the Digital Economy,
OECD Publishing, Paris. DOI: https://doi.org/10.1787/9789264218789-5-en

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taxation are centred in the core institutions of the regime, namely the Organisation of Economic
Cooperation and Development (OECD) and the United Nations’ Committee of Experts on
International Cooperation in Tax Matters.

PART I: INTERNATIONAL TAX ISSUES

CHAPTER I: Stakes of the Territorial and worldwide tax systems
A/ Territorial tax system
1/ The concept of territorial tax system

Territorial tax system relates to the system of taxation in which only revenue generated within a
given territory, usual an independent state or territory is subjected to tax. A territorial tax system for
corporations, as opposed to a worldwide tax system, excludes profits or income multinational
companies earn in foreign countries from their domestic tax base . As such, income earned
abroad by companies in that State is excluded from the scope. It is this system that is applied in
Cameroon according to Article 5 of the GTC which stipulates: " Profits liable to corporate income
tax are determined by taking into account only the profits obtained in the enterprises operated or on
the operations carried out in Cameroon, subject to the provisions of international conventions"2.

2/ Manifestation of the concept of territoriality: Corporate Income Tax (CIT) and Personal Income
Tax (PIT)

Income from exportation of good and services is considered as income earned in Cameroon even
though the goods/services are consumed abroad. The new Article 5 bis of the Finance Law for the
2015 financial year has further clarified the criteria for defining transactions deemed to be carried
out in Cameroon, and therefore subject to corporate income tax. These are:

 Companies whose registered office or place of effective management is located in

Cameroon: this refers to the registered office at the company's domicile, the place or address
indicated in the company's articles of association for its location. As far as effective
management is concerned, it refers to the place where the management, administrative and
control bodies of the company are concentrated. In practice, it is the place where the
management decisions necessary for the conduct of the company's activities are taken or
formalized.
2
The General Tax Code – 2023 Official Edition

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  Companies that have a Permanent Establishment in Cameroon: the concept of permanent
establishment refers to that of permanent establishment as provided for in international tax
treaties. This concept refers to a physical installation of a fixed nature and endowed with a
degree of autonomy, by means of which the foreign company carries out all or part of its
activity in Cameroon. This definition has greatly change with the continuous increase of the
digital economy.
 Companies that have a dependent representative in Cameroon such as a person without a
separate legal personality.
 Operations forming a complete business cycle in Cameroon: it covers the purchase and
resale operations for a commercial company; and processing, assembling or extraction for an
industrial company.
 The activity of transferring money abroad.

In the case of the assessment of territoriality in terms of personal income tax, efforts are being made
to tax only income from real estate or capital invested in Cameroon. Thus, it excludes the taxation of
foreign-source passive income.

For personal income tax on salaries/wages, section 30 of the General Tax Code stipulates that
“Income from salaries, wages, allowances, emoluments, pensions and life annuities as well as
profits earned by insurance agents, travelling salesmen-representatives, where the remunerated
activity is carried out in Cameroon, shall be liable to personal income Tax”.

For property tax, section 46 stipulates that “The following shall be included in the category of
income from property where they are not included in the profits of an industrial, commercial or
handicraft concern, agricultural undertaking, or a non-commercial profession:

- Income from the renting out of built-on or non-built-on property situated in Cameroon…”

B/ Worldwide tax system

1/ The concept of the worldwide tax system

The worldwide system, which not only includes all profits or income earned through branches
located abroad, also takes into account the profits made by subsidiaries of a parent company located
abroad. This system is the result of a unilateral and even arbitrary approach by the jurisdiction that
sets it up. For this reason, the modality system is fraught with a significant risk of obvious double
taxation. An example is the United States of America.

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2/ Manifestation of the worldwide tax system: Corporate Income Tax (CIT) and Personal Income Tax
(PIT)

The global system can be seen in both corporate and personal income tax. Thus, we find that
provisions are formulated in the local legal system to make all profits made both in the taxpayer's
jurisdiction of residence and in the jurisdiction of source of income subject to corporation tax and/or
personal income tax. In this case, the company/person concerned will be taxed on its/her entire so-
called “worldwide income”.

The same applies to personal income tax. In the latter case, passive income such as real estate
income and capital income invested outside the country may be subject to personal income tax in the
taxpayer's jurisdiction of residence. For example, rents for buildings located abroad will be subject
to local personal income tax. Residency is a determining factor in the taxation of such income.

Cameroon’s General Tax Code portrays elements of worldwide taxation. Section 42 for instance,
stipulates that “The following shall be taxable as income from movable capital, net overall capital
gains realised in Cameroon or abroad …”. As for personal Income tax from capital gains on foreign
securities, article 86 state “Personal income tax from capital gains from foreign securities earned
by natural persons or corporate bodies domiciled, resident and based in Cameroon shall be
deducted at source by the person paying such tax in Cameroon. Where such payments are made
abroad, the beneficiary must indicate such information on the yearly return provided for in section
74 of this Code and spontaneously pay the corresponding tax.”

Cameroon recently moved a step further by completely endorsing the worldwide tax system when it
come to personal income tax (PIT) through the formulation new tax legislation. Section 25 of the tax
code states as follows: “Subject to the provisions of international Conventions and those of Article
27 below, Income Tax for Individuals is due by any natural person having their tax residence in
Cameroon based on their worldwide income ». This implies that in the case of worldwide taxation,
all Cameroonian’s residents are subject to taxtion based on their worldwide income.

C/ THE CONCEPT OF RESIDENT AND SOURCE IN INTERNATIONAL TAXATION

Income from cross border activities can either be taxed where the income is earned, that is in the
source or market jurisdiction or where the corporation or person who earns the income is residence -
residence taxation. It could equally be based on the nationality of the person earning the income.

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The main justification of residence taxation is based on the principle that people and firms should
contribute towards the public services provided to them by the country where they reside. This
contribution should come from the income they earn irrespective of the source.

For source taxation, the logic stems from the fact that the country or jurisdiction which provides the
opportunity to generate income or profits should have the right to tax it.

The increasing reliance on revenue from income taxes by modern states, especially as the role and
responsibilities of the state increase soon saw the tax responsibilities of many multinational firms
increase to unprecedented levels. This was made worse by the fact that states adopted conflicting tax
rules which frequently led to double taxation. This is especially the case when states adopt the
worldwide tax system based on residence and nationality. In fact, was possible to see income taxed
at between 75% to 100%.

Due to it negative effects on trade/business between countries and since many if not all countries in
the world depend on Cross border economic activities, it became necessary to seek for a concerted
and international solution to the problem of double taxation. It is also worthy to note that countries
are equally losing whoopingly high sums of money through Base Erosion and Profit Shifting
(BEPS) manifested through double non taxation or low taxation.

A solution to the above problems can be found either unilaterally or through international tax
cooperation. Some jurisdictions unilaterally limit or eliminate double taxation on income derived
from foreign sources. This can be achieved through exemption or through the credit method.
Exemption method involves completely exempting the foreign earned income from taxation by not
including it in the tax base. This method could encourage business or investors to migrate to low tax
or no tax jurisdiction compared to home rates. The credit method implies that countries trying to tax
income from abroad would agree to provide a credit for foreign taxes paid, so that if the source tax
rate is lower, the investor would pay the difference in the country of residence. This will imply that
that the income always bears taxes at the higher rate.

So, any unilateral solution will invariably affect international investment flows. This explains why a
concerted international approach to avoid double taxation or double non taxation is better.

The United Nations (UN) and the Organisation for Economic Cooperation and Development
(OECD) have come up with principles and methods known as models to resolve these problems
internationally. This is either in the form of bilateral treaties or multilateral treaties. The over 2500

5
existing income tax treaties which provide the framework of international tax regime are based on
these models. Fundamentally, the treaties strike a compromise between source and residence
taxation. Some rights to tax are given to the source, and the residence country is required to relieve
double taxation either by giving a credit for such source taxes paid, or by exempting the relevant
income from its taxes.

Generally, the right to tax active (business) income is awarded to source states. However,
exceptionally, for short term business activities, the right to tax may be entirely or partially accorded
to the residence state. The source country therefore is given the right to tax business profit
attributable to branch of a foreign company (Permanent Establishment) or foreign owned company
(subsidiary). The source country on its part accepts to apply no or low tax at source (often in the
form of withholding taxes on passive incomes such as interest, dividend and royalties).

CHAPTER II: MEASURE TO COUNTER THE PROBLEMS POSE BY INTERNATIONAL

TAXATION
A/ UNILATERAL SOLUTION

1/ Elimination of double Taxation

The unilateral solution to the elimination of double taxation is for a State to put in its local legal
framework means to eliminate double taxation or double non-taxation without first concluding any
agreement with a third jurisdiction. Thus, the court may use one of the modalities of elimination of
double taxation or non-taxation. This is known as the exemption method or the imputation method.
The implementation of the elimination of double taxation or non-double taxation remains the same
as that provided for in international tax treaties. However, the method that is more appropriate to the
unilateral solution of eliminating double taxation or non-double taxation remains and remains the
imputation or credit method described above.

2/ Fight against fraud and international tax evasion

States equally include in their domestic legislations rules which are meant to combat international tax fraud
and avoidance. The US for instance has extensive legislation meant to combat these issues. We can cite for
example Controlled foreign legislation (CFC) rules, transfer pricing rules, Foreign Account Tax Compliance
Act (FATCA legislation) and many others.

Cameroon is gradually putting in place and updating such legislation in the tax code. We can cite legislation
on the profit of unincorporated branch profit (section 36), which is automatically considered as distributed,

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limitation of head office technical assistance (section 7 (A) (1) (d)), payments to tax havens (Section 8 (b)
new) etc.

B/ THE BILATERAL AND/OR MULTILATERAL SOLUTION

1/ Tax Treaties and the elimination of double taxation and double non taxation

Double taxation is the imposition of taxes on the same income, assets or financial transaction at two
different points, stages, or time. Double taxation can be legal or economic. Legal double taxation
refers to taxing same person or entity in two or more countries, why economic double taxation
relates to a situation where taxing same income at different stages and generally in different hands.

Double non taxation involves a situation where income, assets or transactions are not taxed in both
the country of source and the country of residence. This implies loss of potential revenue to both or
one state.

Some manifestation of double taxation includes taxing income at the corporate level in the form of
profit and in the hands of the shareholder as dividend. Under transfer pricing adjustments, double
taxation general occurs in the advance of corresponding adjustments. The main purpose of tax
treaties is the elimination of double taxation through double taxation elimination methods and
consequential or secondary adjustments.

How do tax treaties eliminate double taxation. On the one hand, double taxation is resolved if both
states agree to specific method of eliminating double taxation through bilateral or multilateral
double taxation treaties. The OECD and the UN Model Conventions expressly provides for two
methods of eliminating double taxation: exemption and set-off. The exemption method may be full,
taxable exclusively in one State, or progressive. The latter corresponds to the effective rate rule: the
income is taxable in State A and will be taken into account to determine the tax income in State B.
If, for example, an income of 100 is taxable under a treaty in State A and an income of 80 in State B,
the income of 100 must be taken into account for the determination of the tax rate in State B
(100+80). The imputation method, also known as a tax credit, can be total or partial. The tax credit
can be total; Let's take the example of an income of 100 taxable in the United States for a tax of 10;
in the hypothesis of a tax in France of 50 this method allows the offsetting of the entire American
tax on the French tax (50- 10=40). The tax credit can also be set off partially, i.e. up to the limit of
the corresponding French tax. This example is very theoretical, because in most cases the foreign tax

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will be lower than the French tax. To benefit from the tax credit, you must attach a receipt to your
tax return, certifying that you have already paid tax abroad.

Secondly, secondary (or correlative) comparability adjustments allow the state of the other
associated enterprise concerned by the transaction to take into account a transfer pricing adjustment
made by the state of the controlled company; It is an original means of eliminating double taxation
resulting from a transfer pricing adjustment of one of the companies of a multinational group.

2/ Tax treaties, fraud and international tax evasion

Tax treaties are also mean to check double non taxation especially that arising from fraud. Tax
conventions based on the UN and the OECD models contain provisions which are aimed at avoiding
fraud and/or avoidance. Such provisions include provisions relating to definitions (Articles 3-
General definitions, 4-Resident and 5-Permanent establishment) of the OECD model convention) to
avoid mismatch situations, provisions relating to transparency and avoidance of tax fraud and tax
avoidance (article 26- Exchange of information, 27- Assistance in the collection of taxes etc.).

Today, following the BEPS initiative, and the inclusive framework initiative, some sort of universal
multilateral convention has been put in place to govern International Tax issues around the globe.

This initiative is the consequence of concerted efforts to eliminate or reduce the effects of aggressive
international tax planning schemes which have let to states losing huge sums of money to tax
evasion and avoidance.

PART II: INTERNATIONAL TAX PLANNING

CHAPTER I: DELINEATING THE BOUNDARIES BETWEEN FRAUD, EVASION AND

INTERNATIONAL TAX PLANNING

In the context of a group of companies, certain strategic decisions are taken by the group's
management, including the parent company. The group's international tax planning is put in place to
reduce the group's overall tax cost. This planning is at the confluence of three concepts that pose a
major risk to the group: international tax avoidance, tax evasion and tax evasion. Tax optimization
is the compass from which tax evasion and tax evasion are identified. Since, when tax optimization
is illegal, it is automatically referred to as tax evasion (A); when it is legal but aggressive, it is

8
tempting to speak of tax evasion, even if this remains questionable in some respects. It appears that
tax evasion and avoidance are at the forefront of tax optimization (B).

A/ TAX OPTIMISATION AND TAX EVASION

Tax optimisation refers to the non-abusive ability, the ingenuity of companies and individuals, to opt
for the best tax choices in the presence of several possible options, in order to reduce their tax
burden legally. Tax optimisation is therefore the reduction of the tax burden by a company by using
the opportunities offered to it by the Law. This occurs when there is a liberal tax system that is set
up by a state, which gives the company the opportunity to make choices between several options.
These choices must be legally acceptable and restrained by law. Thus, the international tax planning
processes and techniques used by companies must be legal.

Tax optimisation is characterised by two elements: lawfulness and the realisation of a gain. The
legality of a transaction or arrangement is the very basis of tax optimisation. Tax optimisation must
also result in a gain, in particular the realisation of tax savings, which without this optimal
arrangement would not have been realised. Thus, tax optimisation can be carried out either by
increasing deductible expenses or by reducing taxable income, all of which contributes to reducing
the tax base and therefore the tax payable. In the context of transfer pricing, tax optimisation
consists, broadly speaking, in the implementation of a transfer pricing policy capable of reducing, or
at least controlling, the risk of tax adjustment by providing the tax authorities with reliable,
reasonable and relevant information.

Tax optimisation is to be distinguished from tax evasion, which is characterised by the commission
of an infringement of the Tax Law. Tax evasion is an unequivocal intention to evade payment of
taxes by violating the law. The illegality of a transaction, an act or a legal-tax arrangement is the
element characterising tax fraud. Thus, a willful or involuntary concealment of income, act or
property is tax evasion to the extent that the taxpayer has violated the Act by concealing or
withholding the income, act or property. While the line between tax evasion and tax optimisation is
easy to identify, it seems more complex when we talk about the notion of tax evasion.

B/ TAX EVASION AND TAX AVOIDANCE: THE APPROACHES TO TAX OPTIMISATION

In a generic sense, tax avoidance is understood as the taxpayer's desire to evade payment of tax by
exploiting loopholes in the Act. In the international dimension, "On the basis of these various
doctrinal works, it is possible to retain as the definition of international tax evasion, all the legal acts

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and facts mobilising the norms of company law and tax law of several jurisdictions, carried out
voluntarily by natural or legal persons, whose economic reality is relative and whose purpose is
essentially fiscal." Based on this definition, several criteria make it possible to distinguish tax
evasion from tax avoidance.

Tax evasion differs from tax avoiadance in that the situation is legal. Since in their efforts at
categorisation, authors generally start from the premise that lawfulness characterises avoidance,
while wrongfulness characterises evasion/fraud. The taxpayer will avoid taxes by intentionally
circumventing the Act without violating it. This can result in abstention, renunciation, or a void in
the law to deal with certain matters.

Secondly, the escape is distinguished by the means used. In fact, if there are two elements in tax
evasion, namely, the material element, which is the express violation of the tax law through the use
of fraudulent tactics, and the intentional or moral element, which is the unequivocal intention to
evade the law; In tax avoidance, we find only the intentional element, the material element does not
exist. It is the absence of this material element that justifies or testifies to the ingenuity of the
taxpayer (or at least of the tax specialist), which is why Maurice COZIAN will speak of the grace of
the gifted. The means used in tax avoidance are the loopholes in the Act.

Finally, the aim pursued is a very important criterion in the assessment of tax evasion. In fact, when
the motive sought in international planning is purely fiscal, then we speak of tax evasion. In this
case, only the intentional element is sought, because it is this element that determines the real
motive for a legal arrangement.

Moreover, tax evasion is punishable in the same way as tax fraud when it is comparable to an abuse
of rights or an abnormal act of management, even if it is not easy to adduce material proof of an
express violation of the Act. Indeed, the procedure for abuse of rights is governed by the section L
33 of the Procedure Manual of the General tax Code:

"- Any transaction concluded in the form of a contract or legal act whatsoever concealing the
realisation or transfer of profits or income made directly or through intermediaries shall not be
enforceable against the Tax Authorities, which shall have the right to restore the transaction to its
true character and to determine accordingly the bases of corporation tax or personal income tax. In
the event of a complaint before the contentious court, the Administration has the burden of proof. "

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 This is a situation of tax evasion that is legally constituted for purely fiscal purposes. As for
an abnormal act of management, it is not regulated by a text. It constitutes a limit to the principle of
freedom of management; Without interfering in the management of the company's affairs, tax
officials and the administrative judge may sanction any act unrelated to the direct interest of the
company's operation.

This type of behaviour is neither permitted nor encouraged by tax law, unlike certain tax
optimization choices, but it is not expressly prohibited by law. This places this type of attitude
between the "authorised, legal zone" and the "prohibited, illegal zone".

This varied and controversial understanding of the concepts of international tax avoidance, tax
evasion and fraud appears to be further complicated when one examines the processes of
international transfer of goods and services between related enterprises.

CHAPTER II: MANIFESTATION OF TAX PLANNING

A- TRANSFER PRICING PHENOMENON (See presentations)

1) Defining Elements of Transfer Pricing

According to the definition of the Organisation for Economic Co-operation and Development
(OECD), transfer pricing is "the price at which an enterprise transfers tangible property, intangible
assets, or renders services to associated enterprises". This definition leads to the following
definition:

First, the concept of related enterprises, which is understood under Article 9(a) and (b) of the
OECD Model Convention as an enterprise that participates directly or indirectly in the management,
control or capital of another enterprise located abroad; or even the two companies have joint direct
or indirect shareholdings in another company located outside the borders. However, the
Cameroonian legislator has defined related companies in the context of transfer pricing obligations
in Article 19 bis of the FTC as follows: "- Relationships of dependency or control shall be deemed
to exist between two companies:

a. where one holds, directly or through an intermediary, 25% of the share capital of the other or in
fact exercises decision-making power in the other; or

(b) where they are both under the control of the same undertaking or person under the conditions
set out in (a) above. »

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 Secondly, the notion of territoriality is interesting in terms of transfer pricing, since we
can only talk about transfer pricing in the context of international transfers; therefore, related
companies must be located in different jurisdictions. Thus, territoriality is understood here as the
territory over which the political sovereignty of a State in general and fiscal sovereignty in particular
applies.

Finally, the difference between the transfer price and the transfer price. Indeed, the internal
transfer price of a good or service is the valuation of transfers between the production units of the
same company for the purpose of assessing the profits of each responsibility centre. This system of
internal transfer, resulting from the divisional structure at the local level, responds to a purely
economic logic. Whereas transfer pricing, which is a schematization of the transfer pricing system at
the international level (since companies have the same parent company and responds to the common
interest of the group), is not a simple valuation of the transfers of goods and services but are real
transactions even if the transfers are made free of charge due to the arm's length principle.

2) The concept of the “arm's length principle"

The arm's length principle set out in Article 9 of the OECD Model Convention is based on
the concept of fair price. Article 9 provides: "where the two undertakings are, in their commercial or
financial relations, bound by agreed or imposed conditions which differ from those which would be
agreed between independent undertakings, the profits which, without those conditions, would have
been made by one of the undertakings, but which could not in fact be made because of those
conditions, can be included in the profits of that business and taxed accordingly. »

The OECD defines the fair price between related companies as the one that is the result of the
confrontation of supply and demand on the free market. To do so, this comparison must be made for
similar transactions, under similar conditions between independent undertakings. This is technically
referred to as the "arm's length principle"

It is a principle that requires that the prices and other terms of transactions between
associated enterprises (related parties) be the same as the prices and other conditions that would be
established in comparable transactions between independent enterprises (unrelated parties).

3) Transfer Pricing Methods

Transfer pricing methodologies fall into two groups: traditional transaction-based methods (i) and
new methods (ii)

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i) The so-called traditional transaction-based methods
Tags: Traditional transaction-based methods are those that do not address the issue of
profitability, they remain close to the purpose of the transaction. There are three of them, and they
consist of the search for arm's length prices. They are a priority in the OECD and Cameroon
hierarchy of pricing methodologies. These are the open market comparable price method, the cost-
plus method, and the resale price method.

 Comparable uncontrolled price (CUP) method

This involves comparing the price between two related companies with the price agreed
between independent companies or between one of these group companies and an independent
company, to determine whether the price is at arm's length. This is the method advocated by the
OECD because, in theory, it is the easiest to use and provides the most reliable result. In practice,
however, this method may not be successful due to a lack of comparative elements; Transactions
between two independent companies are sometimes difficult to know: use of secret comparables.
The administration of figures that have become known to it in the course of other accounting audits.
The sources are always confidential and are therefore never revealed. This method is particularly
useful where an independent undertaking sells the same product as that sold within the group,
subject to such adjustments as may be necessary to take account, inter alia, of volumes sold.
There are different criteria for comparing prices on the open market and the captive market.
These are criteria related to the nature of the products, in particular its characteristics, quality,
delivery time, degree of definition of the product and the presence of intangibles attached to the
product; secondly, the criteria related to the terms of the transaction, in particular the volume of
sales, the contractual clauses, the accessories to the sale, the risk of exchange, the economic and
social conditions of the market.

This method is better suited to commercial enterprises and the Cameroonian legislator is
following in the footsteps of the OECD in recommending this method for carrying out the tax
adjustment3.

 Cost plus method

This method first involves determining, for goods (or services) transferred to a related buyer,
the costs incurred by the supplier in a transaction between associated enterprises. Next, an
3
Article 19 (1) of the FTC: "Profits indirectly transferred shall be determined by comparison with those that would have
been made in the absence of arm's length or control."

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appropriate margin must be added to the cost price, so as to obtain a normal profit having regard to
the functions performed and market conditions; This is an industry-specific margin coefficient. The
price thus obtained can, at least in theory, be regarded as the arm's length price for the original
transaction between the associated undertakings. The formula is: selling price = cost of production +
arm's length margin. This method is recommended for evaluating a production function (sale of
semi-finished products within the group), service providers and equipment pooling agreements. For
example, a Cameroonian company sells goods to its U.S. distribution subsidiary that the latter resells
on the U.S. market.

The comparable to look for in this case is the arm's length add-on margin. The cost of
production is internal to the associated company. This method is better suited to industrial and
service activities; since it invites you to analyze and control the structure of production costs, thanks
to the implementation of cost accounting. The arm's length margin is to be found in the financial
data of independent companies, which makes the task difficult.

 Resale price method

The starting point is the price at which a product purchased from an associated company is
resold to an independent company. The Resale Price will be reduced by an appropriate gross margin
(the "Resale Price Margin") representing the amount with which the Reseller would cover its selling
and other operating expenses while making a suitable profit. The price obtained after deduction of
the gross margin may be considered, after adjustment for other costs related to the purchase of the
product, as an arm's length price for the initial transfer of ownership between associates. The
formula is: purchase price = resale price – arm's length gross margin. This method is
recommended for evaluating a distribution or marketing function. A producer in country A sells to a
distribution subsidiary in country B; It is necessary to determine a correct level of margin, by
reference, in principle, to the margin that the same reseller makes on the open market.

It is important to note that even the OECD admits that the arm's length principle is difficult
and complex to implement due to 4 the difficulties associated with the lack of comparables, hence
the use of transactional methods.

ii) Transactional Profit Methods or New Methods

4
TOVONY RANDRIAMANALINA, "Transfer Pricing in Developing Countries: The Case of Madagascar. Should the
arm's length principle be abandoned in developing countries? », 2019. ffhal02090977f, page 3.

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 New or transactional methods are based on the profitability of the business, not on
comparability. It is trying to make a better distribution of added value across the entire value chain
at the international level. The OECD report identifies two other methods that can be used when the
three traditional methods are not sufficiently reliable or in cases where they would not be applicable;
These methods take into account the profits made as a result of particular transactions between
associated enterprises.

 The transactional profit split method

This method consists first of all for the associated companies to identify the overall amount of
profits derived from the transactions they carry out; these profits are then shared among the
associated companies according to a key established on the basis of a functional analysis; The latter
analyses the functions performed by each company, taking into account the assets implemented and
the risks assumed by each company. It is, in a way, a question of considering that the associated
undertakings have notionally set up a joint venture and determining, if that were the case, the
manner in which the distribution of profits would be carried out if the undertakings were completely
independent. Two methods can be distinguished: the comprehensive profit-sharing method and the
residual profit sharing method.

The global profit-sharing method (or joint venture) consists of the allocation of the profit of a
set of controlled transactions between the contracting parties on the basis of an arm's length
economic agreement. This method will be used when there is a brand, but no study of comparables,
nor brand valuation. This is not very common in practice.

The residual profit-sharing method consists of two steps: first, the allocation of a "routine"
profit to each counterparty, and second, the sharing of the residual profit (or loss) between the
related parties. Let's take an example to illustrate this method. The German International Electronics
Group is composed of two companies, IE SA, a Cameroonian company whose main activity is the
production of electronic components, and IE GmbH whose main activity is the distribution of
electronic components in Europe. Both IE SA and IE GmbH have specialized research and
development entities. IE SA produces all the components sold by the group. To do this, it uses the
technology developed by the two research centres. IE SA sells all of its products to IE GmbH, which
distributes the group's products in Europe.

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  The Transactional Net Margin Method ("TNMM")
This method determines, on an appropriate basis (e.g. costs, sales, or assets), the net profit
margin that a taxpayer realizes on a controlled transaction; This involves determining the arm's
length profit of a related company due to its functions and risks (use of operating margin). The net
margin should be determined by reference to comparable transactions in the market and taking into
account the functional analysis. This method is similar to the cost-plus and resale price methods, but
it determines margins, not prices. The advantage of this method is the lower sensitivity to functional
differences (net margin/gross margin). It has, however, disadvantages related, in particular, to the
difficulty of accessing up-to-date information and the fact that the method applies to only one of the
associated undertakings.
The OECD has instituted a hierarchy of methods: first, it recommends the use of traditional
methods, the "UPC" method, when there are very strict comparability criteria, the "resale price"
method, for distributors, and the "cost plus" method for service providers or producers; Only in case
of failure or impossibility of use, should the transactional profit methods be applied. In practice,
none of them is applicable in all circumstances and companies can freely use other methods as long
as they respect the arm's length principle, while the administration is invited to be pragmatic and
flexible.

4) Cameroon's legal framework on transfer pricing

The Finance Act for the 2007 financial year introduced Article L19 bis of the Book of Tax
Procedures, which is the modality for the implementation of Article 19 of the General Tax Code. It
is this Article L 19 bis that introduced a documentary obligation in Cameroon in terms of transfer
pricing, i.e. the obligation to file with the tax authorities a declaration capable of justifying that the
prices charged in the context of intra-group transactions do not conceal indirect transfers of profits.

For a better understanding of transfer pricing documentary production, it is important to

study its scope of application, which first involves the identification of companies eligible for this
documentary production obligation (i) and secondly through the content of transfer pricing
documentation (ii).

i) Eligible companies
In Cameroon, the documentary production of transfer pricing is governed by Article L 19 bis
(new) of the LPF and Article 18 ter of the FTC, which respectively regulate the spontaneous

16
documentary production of transfer pricing during accounting audits (1) and the annual
documentary production of transfer pricing in declarative form (2). Each of these articles defines the
undertakings eligible for each of these transfer pricing documentary production duties and those
which are exempted from these duties are deduced by a contrario reasoning (3).
 Spontaneous documentary production during accounting audits
The use of the procedure provided for in Article L 19 bis of the LPF is mandatory and
systematic; it may only be implemented during an audit of the accounts of the audited undertakings
where the audited undertaking has an annual turnover excluding tax of FCFA one billion
(1,000,000,000) or more and is dependent on or controlled by other undertakings within the meaning
of Article 19a5 of the CGI. The procedure for the spontaneous production of documentation at the
beginning of an accounting audit can therefore only be implemented with regard to companies that
are likely to be dependent on or have control over companies located outside Cameroon, or to be
dependent on a company or group that also has control over companies located outside Cameroon,
or to have carried out transactions of any kind with related undertakings within the meaning of
Article 19 of this Code 6.
There are indications of dependencies and abnormalities in transactions: significant
differences or changes in prices, different payment terms, discounts, discounts, discounts, discounts,
discounts, rebates granted and not explained, etc.
Since the amendment of the 2020 Finance Act, there is no longer a documentary production
of transfer pricing at the request of the tax authorities 7, at least it has been abolished by that Act.
5
Article 19 bis of the FTC: "Relationships of dependency or control are deemed to exist between two companies: a.
when one directly or through an intermediary holds 25% of the share capital of the other or in fact exercises decision-
making power in the other; or
b. where they are both placed, under the conditions set out in point a. above, under the control of the same undertaking
or person.'
6
Article L 19 bis of the LPF does not seem to impose an obligation to produce transfer pricing documents during
accounting audits on companies that have indirectly transferred profits to companies located in a State with preferential
taxation when they are not related within the meaning of Article 19 bis of the FTC, despite the fact that Article 19 of this
Code excludes the link condition from the conditions for the reintegration of profits indirectly transferred of dependency
and control of Article 19 bis of the CGI. This is a loophole in the tax loophole for companies.
7
Article 19 bis of the 2019 FTC: "When, in the context of an accounting audit, the Administration has gathered elements
giving rise to the presumption that the company has made an indirect transfer of profits, within the meaning of the
provisions of Article 19 of this Code, it may request information and documents specifying:
- the nature of the relations falling within the provisions of the above-mentioned Article 19, between this company and
one or more companies, companies or groups established outside Cameroon; - the method of determining the prices of
transactions of an industrial, commercial or financial nature which it carries out with undertakings, companies or
groups referred to in (1) and the elements justifying it as well as the consideration granted.
- the activities carried out by the undertakings, companies or groups referred to in (1), related to the operations
referred to in (2);
- the tax treatment reserved for the transactions referred to in (2) and carried out by the companies it operates outside
Cameroon or by the companies or groups referred to in (1). The above requests must be specific and explicitly indicate,
by type of activity or product:

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Article L 19 bis (new) of the LPF only provides spontaneous documentary production under three
cumulative conditions:
 First, documentary production is only highlighted during accounting audits, more precisely on
the date of commencement. In other words, upon receipt of the audit notice, the company
prepares fifteen (15) days later to produce the documentation. If the required documentation is
not submitted to the tax authorities or is only partially submitted on the date of the start of the
accounting audit, the tax authorities will send the company concerned a formal notice to
produce or complete it within fifteen (15) clear days, specifying the nature of the documents
and additions expected. This formal notice must indicate the penalties applicable in the
absence of a response or in the event of a partial response. In this case, the burden of proof lies
with the company.
 Secondly, only companies with a pre-tax turnover equal to or greater than one billion CFA
francs (1,000,000,000 CFA francs) are concerned by the production of transfer pricing
documents. Thus, the production of transfer pricing documentation also concerns companies
under the jurisdiction of the Centre des Impôts des Moyennes Entreprises (CIME) as well as
those of the DGE, it being understood that for the former, the ranges of attachment to this
centre are at least fifty million (50,000,000 CFA francs), the floor and three billion
(3,000,000,000 CFA francs) at most, the ceiling.
 Finally, the event giving rise to the requirement for the documentation to be due is the
accounting audit. More specifically, on the date of commencement of the audit, documentation
enabling them to justify the transfer pricing policy applied in the context of transactions of any
kind carried out with affiliated undertakings within the meaning of Article 19 of this Code is
required.
If companies covered by the CIME are also concerned by the obligation to produce
spontaneous documentation on transfer pricing during accounting audits when their annual turnover
excluding tax is equal to or greater than one billion (1,000,000,000) in addition to the conditions of
Article 19 bis of the CGI; the annual documentary production made in the form of a declaration
concerns only companies under the DGE.

- the country or territory concerned.

- the company, company or group concerned.
- the amounts involved. »

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  Annual Transfer Pricing Document Production: Article 18 ter of the FTC
In addition to the documentary production of Article L 19 bis (new) of the LPF, the General
Tax Code, in its article 18 ter paragraph 1, has introduced an annual transfer pricing reporting
obligation for companies that meet the following cumulative criteria:

- Companies must come under the structure in charge of the management of large
companies, in this case, designated by the Directorate of Large Enterprises (DGE). To be
eligible, companies must have an annual turnover equal to or greater than FCFA three
billion (3,000,000,000);
- Enterprises must be dependent on or control other enterprises within the meaning of
Article 19 bis of this Code. In other words, these are companies that are controlled or that
directly or through an intermediary control of other companies to the tune of 25% of the
share capital or in fact exercise decision-making power in them; or they are both placed
under the same conditions of 25% under the control of the same company or person; In
the latter case, these are the so-called sister companies.
ii) The Contents of Transfer Pricing Documentation

It should be noted that the term "Transfer Pricing Documentation” does not include business
accounting documents or vouchers such as invoices, contracts, communications, etc., that are likely
to be used to support or support the amount of taxable income or deductible expenses. The format
and content of transfer pricing reporting varies from country to country. For the sake of simplicity,
according to Cameroonian legal system, this documentation can be classified into two main
categories: Annual documentary production in declarative form and Spontaneous documentary
production during accounting audits.

 Transfer pricing documentary production in declarative form

Initially, the documentary production of transfer pricing in declarative form is strictly speaking a
declaration that is different from annual, quarterly or monthly income declarations. It is a transfer
pricing statement that refers to a set of standardised transfer pricing information that the taxpayers
concerned must submit periodically to the tax authorities, usually by 15 March of the year at the
latest8. This information is entered at the same time as the annual declaration, in particular the
Statistical Tax Return (DSF).9 This annual transfer pricing declaration concerns only companies
8
Art. 18 of the French Tax Code.
9
It should be remembered that in Cameroon, the annual transfer pricing declaration is not included in the FSD although
it is carried out at the same time as the FSD report.

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under the authority of the Directorate of Large Enterprises that are dependent on or control other
companies within the meaning of Article 19 bis of the FTC. OECD’s new standard 10 for the
documentation and presentation of transfer pricing information is a three-pronged approach: a
master file, a local file and a country-by-country report.

The Cameroonian legislator, through Article 18 ter (2), has retained the first two parts to
furnish the annual transfer pricing declaration, which is carried out using a form 11 drawn up by the
tax authorities that the taxpayer declaring must fill in and send only electronically; This is the main
file and the local file.

First of all, the master file provides an overview of the activities of the multinational group in
question, including the nature of its global activities, its overall transfer pricing policy in their global
economic, legal, financial and tax context. This is general information on the group of associated
companies, in particular the list of the shareholdings they hold in other Cameroonian or foreign
companies; a general description of the activity carried out, including any changes that have
occurred during the financial year; a general description of the group's transfer pricing policy; a list
of the intangible assets held by the group and used by the reporting company as well as the name of
the company owning these assets and its state or territory of tax residence.

Then, the local file or local file files in English, unlike the main file which offers an
overview, the local file offers more precise information about specific business-to-business
transactions. The local file focuses on information relevant to transfer pricing analysis relating to
transactions between a local subsidiary and associated enterprises located in different jurisdictions
and that is important in the context of the local tax system. This is specific information about the
reporting company, including a description of the activity carried out, including any changes that
have occurred during the financial year; a summary statement of the transactions carried out with
related undertakings within the meaning of Article 19a of this Code. This statement shall include the
In some countries, transfer pricing reporting is part of the annual tax return (FSD). In this case, specific questions
regarding transfer pricing are included in the tax return or in an annex to the tax return. This is the case, for example, for
Australia, Bulgaria, Georgia, the Netherlands, the Slovak Republic and the Czech Republic, which require information
on transfer pricing transactions to be included in the annual tax return
10
www.oecd.org, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations: " Action
13 of the OECD/G20 Base Erosion and Profit Shifting Project (BEPS Action 13) establishes a standardised three-tiered
approach to transfer pricing documentation, comprising: •a master file containing general information on the global
transfer pricing activities and policies of multinational enterprises (MNE group); • a local file containing detailed
information on jurisdiction-specific transactional aspects of transfer pricing; and • a country-by-country report that sets
out each year and for each of the tax jurisdictions in which an MNE group operates the amount of its turnover, its pre-
tax profits, the taxes on profits paid and those due, as well as other information necessary to make a general risk
assessment".page 254
11
Appendix 1: Annual Transfer Pricing Reporting Form,

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nature and amount of the transactions, the name of the company and the State or territory of tax
residence of the affiliated enterprises concerned by the transactions, as well as a statement of the
loans and borrowings made with the related enterprises; a summary statement of transactions carried
out with affiliated companies, without consideration or with a non-monetary counterparty; a
summary statement of transactions with related companies, which are the subject of a prior transfer
pricing agreement or tax ruling concluded between the associated enterprise concerned by the
transaction and the tax authorities of another State or territory. These are the data that allow the
comparability analysis to be carried out and that they can logically be compared and verified with
the information provided by the main file.

 Transfer Pricing Documentation in Accounting Audits

Secondly, with regard to the content of transfer pricing documentation during accounting audits,
Article L 19 bis (new) (2) of the Book of Tax Procedures provides: "The content of transfer pricing
documentation, which does not replace the supporting documents relating to each transaction, shall
be determined by a specific text». The specific text in question has not yet been published. Faced
with this legal vacuum, it is not superfluous to use the transfer pricing information requested by the
tax authorities during accounting audits. Thus, the detailed statement of transactions to be provided
during a tax audit is of four kinds:
- a description of the transactions carried out with other related companies, including the nature and
amount of the flows, including royalties. As well as methodological and documentary documents
(internal document describing the method, contractual document), accounting documents (extract
from general or analytical accounting) and economic documents (data relating to the market and the
functions of the group's entities, information and analyses justifying comparables).
- a presentation of the method(s) for determining transfer pricing in accordance with the arm's length
principle, including an analysis of the functions performed, the assets used, and the risks assumed,
as well as an explanation of the selection and application of the method(s) used.
- a list of the cost-sharing agreements and, where applicable, a copy of the advance pricing
agreements and tax rulings relating to the determination of transfer pricing, affecting the reporting
company's results;
- Finally, the tax treatment reserved for transactions carried out with related companies within the
meaning of Article 19 bis of the FTC.
For the need for compliance, related companies must conduct transfer pricing studies so that
at the time of accounting audits, it is easy for them to provide sufficient documentation on the one

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hand and to facilitate their annual returns on the other hand. This obligation to comply is not without
its drawbacks for companies.

B- OTHER PHENOMENA OF INTERNATIONAL TAX PLANNING (See presentations)

1) Base Erosion and Profit Shifting (BEPS)

Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit loopholes
and differences in tax rules in order to "disappear" profits for tax purposes or to shift them to
jurisdictions where the company has little real activity. Without being exhaustive, this may include
tax havens, preferential schemes and treaty shopping.
In the case of tax havens, in a broad sense, the term tax haven refers to a jurisdiction with a low or
even zero tax rate. In the strict sense of low taxation, this is understood only in comparison with
other countries (or other regions of the same country) with higher taxes at least in certain areas or
for certain activities. Thus, it should be noted that there is no single, clear and objective criterion for
identifying a country as a tax haven. Each country tries as much as possible to give a definition that
avoids the erosion of its tax base outside the country. In Cameroon, according to Article 8 ter (new)
of the French Tax Code, two criteria are used to qualify a territory as a tax haven:
- the rate of personal or legal income tax is less than one third of that applied in Cameroon,
or
- a state or territory considered to be non-cooperative in terms of transparency and
exchange of information for tax purposes by international financial organisations.
Examples of world-famous tax havens include the British Virgin Islands and Luxembourg
Secondly, the numerous preferential regimes granted by states that are not qualified as tax havens
for companies are also a major source of profit erosion. This allows a company established in a
jurisdiction to benefit from a low effective tax rate that could be equivalent to that of jurisdictions
qualified as tax havens.

Finally, tax haggling or treaty shopping, which is a way of eroding profits abroad. This involves
using loopholes in international tax treaties in order to avoid paying tax. It is precisely a question of
making a comparative study of the different international tax treaties of the jurisdictions in which a
group of companies operate. Thus, by juxtaposing the tax treaties of the States in question, it is
possible to see the loopholes allowing for the avoidance of tax payments, if there are any.

2) Solution Exquisite: BEPS Project

Faced with the aggressive tax avoidance practices of multinationals in an almost systematic way, the
G20 and the OECD have set up the BEPS Project. It consists of a timetable of 15 key actions to

22
reform international taxation. The objective is to ensure that the profits made are taxed in the
territory in which they are actually realized; and thus, prevent erosion of the tax base. The Project,
launched in 2013, includes 15 Action Plans, some of which are included in the Tax Treaties Plan to
limit aggressive international tax planning.

N/B: Complete this part with the presenta

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