Does the new Finance Law enhance the country’s attractiveness? Finance Law 2014 By Elias PUNGONG

Page 2 Does the new Finance Law enhance the country’s attractiveness? Two main tax regimes apply in Cameroon. One that derives from the investment code of 2013 and one that derives from the common regime reinforced by the new Finance Law. The first provides for substantial tax incentives for investors, whereas the second increases the tax burden on taxpayers under the common tax regime.  What is truly the sustainability of the tax incentives under the 2013 investment code?  Is a cohabitation between these two types of taxpayers possible considering: ► different tax burden imposed on each of them which lead to discrepancies in taxes paid and distorts competitivity ► the fact that investors benefiting from tax incentives will be switched back to the common tax regime at the end of the favorable period?

Page 3 Does the new Finance Law enhance the country’s attractiveness? Regression of the taxation regime on interests on foreign loans. Before 2014, the interests on foreign loans were free of any taxation irrespective of the duration of the loan repayment. With the new Finance Law, the repayment period should at least be equal to seven (07) years ! Introduction of Thin capitalization. Thin capitalization is commonly accepted in a globalized tax world. Yet, it might not be favorable to foreign Investors in a country in need of investments and in a competitive environment where countries develop strategies to attract investments. 1. Financing attractiveness

Page 4 Does the new Finance Law enhance the country’s attractiveness? Stricter deductibility conditions of current charges through: ► The limitation of deductibility of interest remunerating foreign loans; ► The Introduction of thin capitalization; ► The introduction of stricter transfer pricing regulations Which lead to an increase of the tax burden for investors through: ► The increase of the taxable basis, thus of the corporate income tax to be paid! ► The increase in the number of charges to be reintegrated to which shall apply the tax on distributed income (IRCM) 2. Your Effective Tax Rate / Burden 38,5% or more?

Page 5 Does the new Finance Law enhance the country’s attractiveness? A new option is granted to the taxpayer enabling him to request a general tax audit in case the VAT credit requested is partially or entirely contested by the tax authorities ► In order for both parties to reach through a more rigorous process the correct amount of VAT credit due and to be refunded ► VAT credits are almost never repaid. Thus, it has a significant impact on investors’ cash flow ► It is now more costly to introduce a tax claim. Indeed, the taxpayer must make available throughout the process a 30% deposit of the amount challenged.. 3. Stimulating your cash flow WHY ? A LURE ?

Page 6 Does the new Finance Law enhance the country’s attractiveness? Main objective of the tax controversy process: To shorten the tax litigation process through ► Shorter deadlines (30 days at each stage of the process); ► Shorter steps ( only 3 stages in the litigation process) However… ► A deposit of 30% of the total disputed amount must be paid to the tax authorities throughout the process! 4. Simplifying the Tax controversy process vs. using a Tax audit as a driver to accelerate tax collection

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