INTERNATIONAL LOGISTICS: STORAGE WAREHOUSE AND ASSOCIATED TAX RISKS
Attractive for its neutrality in terms of customs duties and taxes before any reexport or release for local consumption, the establishment of a storage warehouse in sub-Saharan Africa may nevertheless generate a risk of characterisation as a permanent establishment for tax purposes.
KEY POINTS
The warehousing regime allows goods to be stored locally, deemed to be outside the customs territory and under customs control, under suspension of all duties, taxes and prohibitions, with a view to their subsequent re-exportation or release for consumption.
However, this system may entail the risk of qualifying a permanent establishment as liable for corporation tax. In particular, care needs to be taken with regard to the applicable definition in agreements (the analysis varies significantly from one agreement to another) and the role played by the stock manager, who must not be involved in the sales process (negotiating and signing contracts, taking orders, etc.).
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The optimisation of logistics flows by locating stocks as close as possible to the target markets is a major challenge for many operators (speed of the sales process, cost management, etc.). . Below is a brief overview of th storage warehouse (or customs warehouse) regime in French-speaking Africa as well as the tax issues involved in characterising a permanent establishment (PE).
BONDED WAREHOUSE REGIME (UEMOA AND CEMAC ZONES)
The bonded warehouse is governed by regional regulations: UEMOA [1] on the one hand and Cemac[2] on the other hand.
It allows imported goods to be stored for a specific period of time, in premises subject to the control of the customs administration, under suspension of all customs duties, taxes (notably VAT) and prohibitions. Goods stored in this way are deemed to be outside of the customs territory. When they leave the warehouse, they are treated as if they had just been imported from the country from which they are to be released for consumption locally or re-exported (without bearing significant local duties and taxes).
International traders can then store their goods in strategic locations (depending on target countries and shipping lines) to supply their continental customers more efficiently without significant additional customs or tax costs in the country of the warehouse.
There are three categories of bonded warehouses public warehouse (set up by the authorities), private by the Authorities), private or special.
As very few public warehouses have been set up by the authorities in the UEMOA and CEMAC zones, operators turn to private warehouses (or special warehouses for goods requiring special warehouses for goods requiring special precautions).
Authorisation to open such a warehouse may be granted by the competent customs authorities (i) as a "common" private warehouse to natural or legal persons who store goods on behalf of third parties or (ii) as a private warehouse to industrial or commercial companies for their exclusive use in order to store their own goods. The procedure for the granting and the conditions for the operation of private warehouses shall be laid down in each Member State by the competent national special warehouses for goods requiring special precautions).
While this scheme may be attractive, precautions should be taken to avoid the risk of tax status of a PE in the country of establishment.
RISK OF CHARACTERISATION AS A PERMANENT ESTABLISHMENT FOR TAX PURPOSES
Goods stored “solely for the purpose of storage, display or delivery”
The definition of PE in domestic law is generally very succinct, leading tax authorities to consider that the mere territorial location of the warehouse allows the activity of selling goods to be taxed for corporate income tax purposes, considering that this activity would be facilitated by the presence of the stock.
The existence of a tax treaty may be essential in this respect, as the treaties based on the OECD model provide that stocks of goods stored “solely for the purpose of storage, display or delivery” do not constitute a PE [3].
However, great attention must be paid to the wording of the convention, as some of the conventions signed with countries in the UEMOA and CEMAC zone provide, on the contrary, that such a stock constitutes a PE [4].
The analysis should also be put into perspective with the terms of the OECD multilateral tax convention currently being ratified by the States and the new version of the OECD model tax convention (approved in 2017), which stipulate in particular that these stocks do not constitute a PE provided that this activity is of a “preparatory or auxiliary nature”.
Notion of dependent agent
The tax treaties signed by the countries of the UEMOA and CEMAC zones generally provide, in accordance with the OECD model, that a company may have a PE in a country if it carries out its activity there through a dependent agent, acting on its behalf and having the power to conclude contracts in the name of the company. Some agreements further specify that the dependent agent is deemed to exercise such powers, inter alia, when he “habitually has a stock of goods or merchandise belonging to the enterprise by means of which he regularly executes orders which he has received on behalf of the enterprise”1. It is therefore imperative to ensure that the dependent agent has the necessary powers to conclude contracts on behalf of the enterprise.[5].
It is therefore imperative to ensure that the It is therefore imperative to ensure that the stock manager (although possibly employed by the local service provider) does not intervene in any way in the sales process as local support or back-up (negotiating and signing contracts, taking orders, etc.) on behalf of the company [6].
CONCLUSION
The storage warehouse regime can be a real operational asset if the tax risk of qualifying a PE can be limited. Otherwise, some operators may be tempted to move closer to the African market while remaining in the European Union (Canary Islands, Spain). in the European Union (Canary Islands, Algesiras - tax treaties with Spain, which are essentially based on the OECD model).
[1] Benin, Burkina Faso, Republic of Côte d'Ivoire (RCI), Guinea - Bissau, Mali, Niger, Senegal and Togo.
[2] Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea and Chad
[3] Ex: conv. RCI - Switzerland, Gabon - France.
[4] Ex : conv. RCI/Togo/Cameroun - France.
[5] Ex : conv. RCI/Togo/Cameroun - France.
[6] Also in this respect, be aware of the multilateral tax treaty in course of ratification under which a PE is constituted when “the agent habitually concludes contracts or habitually plays the main role leading to the conclusion of contracts which, on a routine basis, are concluded without significant modification by the enterprise [...]”.
