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17.06.2019

For a contract concluded between a Senegalese company and a foreign one, are all the products necessarily subject to corporate income tax (CIT) in Senegal?

Key Facts
  • Profit from businesses operating outside Senegal are made abroad.
  • CIT is only due on the profits made in Senegal. 
  • A foreign company and its Senegalese branch are one single legal entity because of the absence of the independent legal personality of the branch.
  • The only question that matters is where the contract has been materially executed.

Article 3 of the Senegalese General Tax Code (GTC) provides that: “Subject to the provisions of international double taxation treaties (DTT), CIT is due on profits made in Senegal. Profits from companies operating in Senegal are deemed to be made in Senegal”. This issue was raised recently in a tax adjustment case where the tax administration considered that all revenues from a contract concluded between a Senegalese company and a foreign one, including profits made by its Senegalese branch, must be subject to CIT.

The case in point related to the design and manufacture abroad of materials and supplies delivered to a Senegalese company as an importer and, for assembly in Senegal, those supplied by a foreign company (i.e. a company domiciled in a country which has not signed a DTT with Senegal) through a subcontracting agreement with its Senegalese branch.

What tax problem arises from this case?

Is subjecting all the revenues from this contract to the CIT in compliance with Article 3 of the GTC, despite the price split between (i) the design and the supplies manufactured and delivered from abroad, (ii) the transportation within in Senegal, and (iii) the assembly in Senegal?

As mentioned above, CIT is only due on the profits made in Senegal. 

The profits from businesses operating in Senegal are deemed to be made in Senegal. On the other hand, profit from businesses operating outside Senegal are made abroad.

The tax auditors referred to Article 3 of the GTC, but in our opinion, they did not apply it correctly.

Does a legal form of an establishment in Senegal (branch or subsidiary) have anything to do with global or partial taxation in Senegal?

The tax auditors essentially base their opinion on Article 117 of the OHADA Uniform Act on commercial companies and the economic interest group, according to which a foreign company and its Senegalese branch are one single legal entity because of the absence of the independent legal personality of the branch.

Article 117 of the Uniform Act states that: “The branch does not have an autonomous legal personality distinct from that of the company or the natural person that owns it.” As a result, the tax auditors consider that no subcontract can be signed between such foreign company and its Senegalese branch, because of the uniqueness of its legal status.

They (i) refuse to admit the existence in Senegal of a permanent establishment despite the presence of an assembly site; (ii) consider that the entire project price (including the amount paid to the Senegalese branch for local services provided from Senegal) is part of the foreign enterprise products operated in Senegal; and (iii) claim that the CIT must be paid by the parent company on the entire profit made in Senegal.

Our opinion

The only question that matters is where the contract has been materially executed. The reason is known to everyone: CIT does not only charge legal persons. It essentially taxes profit centres controlled by foreign companies in Senegal.

The truth is that for all markets partially executed abroad and with services provided on the Senegalese territory, the division of profit must be the key to distributing the power to levy tax. Profits made abroad should be subject to foreign taxation; the profits made in Senegal by the company (branch or subsidiary, regardless) operating in Senegal should be subject to Senegalese CIT: this is the meaning of Article 3 of the GTC.


Contact

El Hadji Sidy
Email: sidy.diop@faceafrica.sn

Article published in ITP Newsletter #1/2019
Changes in international tax law and country-specific developments with respect to the taxation of permanent establishments in 10 selected countries
View publication
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