Cash pooling in French-speaking Africa
Centralised cash management (cash pooling) enables international groups to achieve economies of scale and thus reduce their banking costs. We wanted to take a look at some of the key aspects of setting up this mechanism in French-speaking Africa."
KEY POINTS
Banking regulations applicable in the WAEMU and CEMAC regions allow cash pooling agreements to be set up within groups. When these transactions are carried out with cash centres located abroad, they are subject to foreign exchange regulations (declarations, authorisations, etc.).
In the case of transactions between affiliated companies, the procedures applicable to regulated agreements apply in principle.
Financial flows give rise to various tax constraints, particularly in terms of corporation tax (ceiling on deductible interest rates, thin capitalisation and transfer pricing), VAT (taxation of financial interest), withholding tax and income tax on securities.
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Cash poolingis a tool for optimising cash requirements and surpluses used by groups of companies. The pooling of financial resources the overall debt of the group and to negotiate more advantageous banking negotiate more advantageous banking conditions. A so-called pivot account, held by the parent company or an ad hoc company (central treasury company), is created to receive cash flows from from group companies linked by a contractual agreement and to meet the cash requirements of these companies. companies linked by a contractual agreement and to meet the cash requirements of these companies.
Due to its nature (financing activity) and the flows generated (international intra-group financial flows), cash pooling raises a variety of issues. cash pooling amène à s’interroger sur des problématiques variées. cash pooling amène à s’interroger sur des problématiques variées.
BANKING MONOPOLY
The main regional banking regulations (UEMOA/CEMAC) applicable naturally reserve to banks and credit institutions a monopoly on "banking operations". While this does not prevent the opening of current accounts by partners (holding at least 10% of the share capital in the UEMOA or 5% in the CEMAC), these regulations more generally provide that the banking monopoly does not prevent a company from carrying out cash transactions with related companies (the link being defined by reference to the power of effective control, direct or indirect). Banking legislation therefore authorises the use of cash pooling in groups. cash pooling dans les groupes. cash pooling dans les groupes.
FOREIGN EXCHANGE REGULATIONS
Cash pooling operations carried out with a central treasury located abroad must also comply with all the conditions and formalities provided for by the foreign exchange regulations of the countries concerned (which may range from simple declaration to authorisation, with sometimes restrictive documentary requirements). In this respect, it can be noted that the CEMAC zone imposes stricter conditions on foreign borrowing or lending operations than those provided for in the UEMOA zone.
REGULATED AGREEMENTS
Although the OHADA Uniform Act on the law of commercial companies and economic interest groups provides that the authorisation [of the board of directors] is not necessary when conventions portent sur des opérations courantes the agreements relate to current operations concluded under normal conditions" Article 439), it seems preferable to subject centralised cash management agreements to the procedures of prior authorisation by the board of directors and approval by the general meeting. general meeting. To this end, it will be necessary to ensure that the amount of money lent or that the amount of money lent or the amount of interest paid should not be considered excessive or too low or, conversely, too low, so that he social interest of the companies, which may which may have to be assessed independently from the general interest of the group, must be in any case, respected.
SOME TAX ASPECTS TO BE UNDERSTOOD
Limitation of interest deductibility
The deductibility of interest paid in respect of centralised cash management operations is generally not excluded from the thin capitalisation provisions applicable to corporate income tax. The deductibility of interest paid by subsidiaries may be subject to (i) rate limitations (traditionally the rate allowed by the central bank possibly increased by two or three percentage points) and/or (ii) limitations on the debt ratio depending on the amount of share capital [1] or even equity [2] or (iii) deductibility of interest paid limited to a percentage of pre-tax profit[3]It should be noted that even though some of the provisions only apply to partners' current accounts, it is not uncommon for tax authorities to extend these principles to relationships between affiliated companies.
Transfer pricing documentation
The French-speaking African countries have strengthened measures to combat profit transfers in recent years, ranging from measures to combat profit shifting, ranging from simple general measures to combat the indirect transfer of profits to more elaborate to more elaborate measures that include specific documentary requirements, to be to be provided to the Administration in the context of to the Administration as part of accounting audits or by spontaneous annual spontaneous filing. It is therefore important to ensure that It is therefore necessary to ensure that the interest rates charged, whether in the position of borrower or lender within the framework of cash pooling, are in accordance with the principles of arm's length and precisely documented. cash pooling, sont en conformité avec les principes de pleine concurrence et précisément documentés.
VAT
Some legislation provides that financial interest is subject to VAT. In the case of interest payments to a foreign lender, the tax is paid by the interest-bearing subsidiary, which makes a declaration on behalf of a third party, which may add to a VAT credit (sometimes difficult to reimburse), or even constitute an additional cost (in the absence of deductibility, e.g. when the activity is exempt from VAT).
Withholding taxes
Financial interest paid to a foreign company is subject to withholding tax, usually at a reduced rate and is eligible for a tax credit in the creditor's state if there is a tax treaty.
Finally, tax laws generally provide that loans granted by subsidiaries to their shareholders constitute deemed distributed income subject to withholding tax on the income of securities (IRVM), unless proven otherwise (IRVM). It is therefore essential to document intra-group loans resulting from cash pooling agreements.
[1] e.g. Morocco, Senegal, Tunisia, Gabon
[2] Ex: Cameroon, Mauritania
[3] Ex: Cameroon
