The Democratic Republic of the Congo’s transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Tax Procedures Law.
Arm’s Length Principle
When companies that are related through control or dependency engage in cross-border transactions, they are required to price those transactions as if they were conducted between independent companies, following the arm’s length principle. If this is not done and profits are shifted abroad, such as through manipulated pricing or capital structure, the Congolese tax authorities have the power to adjust the taxpayer’s taxable income. This adjustment is determined by comparing the transaction in question to similar transactions conducted between independent, unrelated parties.
Related Party Definition
Companies are deemed dependent when one has a majority of the other’s share capital or controls its decisions either directly or indirectly or where both companies are under the same company’s control. Even indirect profit transfers can occur from abnormal management conducts like unreasonable royalties, payments waived, interest-free or low-interest loans, debt relief, or benefits that are via the services for which they were received.
Transfer Pricing Methods
The tax law does not provide specific pricing methods specified in the Democratic Republic of Congo.
Documentation Requirements
In the Democratic Republic of Congo which has foreign companies or corporate groups as either controlling or dependent parties and reports an annual income of at least one million U.S. dollars, they must maintain records that show that their transactions with said related foreign companies are at arm’s length.
They also have to file a special report, either on paper or electronically, within two months after the deadline for filing their income tax return. This report must include:
General information about the group of related companies, such as:
- A description of the group’s business activities and any changes during the year;
- A list of the group’s main intangible assets (like patents, trademarks, and know-how), including where the companies that own them are based;
- An overview of the group’s transfer pricing policy and any changes made during the year.
Specific information about the Congolese company, including:
- A description of its business activities and any changes during the year;
- A summary of its transactions with related companies, if the total amount for each type of transaction goes over a certain threshold. This must include the type and amount of each transaction and where the related companies are based;
- Details of the pricing method used for these transactions and any changes made during the year.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Companies can request the tax authority to approve in advance how they will set prices in transactions with related companies (this is called an advance pricing agreement). The request must be made in writing, and the agreement can last for up to four years. The details on how to apply will be set out in a decree issued by the Minister of Finance.
Approach to Transfer Pricing Audits
During a tax audit if the tax authorities determine that a Congolese company has paid a foreign company prices that do not comply with the arm’s length principle (that is the prices are too high or too low as compared to what independent companies would charge) the full value of such payments may be included back into the Congolese company’s taxable income.
Penalties
If a company uses incorrect pricing in its transactions, the tax authorities can increase its taxable income. This means the company may have to pay more tax, along with interest and penalties.
Taxation at a Glance
The Democratic Republic of the Congo (DRC) operates a centralized tax system managed by the General Directorate of Taxes under the Ministry of Finance. This system encompasses various taxes, including corporate income tax, personal income tax, value-added tax, and customs duties.
The currency of the Democratic Republic of the Congo is the Congolese franc. The official name of the Democratic Republic of the Congo tax authority is the General Directorate of Taxes.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 30% |
VAT | 16% |
Withholding tax on dividends to non-residents | 20% |
Withholding tax on interest to non-residents | 20% |
Withholding tax on royalties to non-residents | 20% |
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