Settlement of tax disputes in French-speaking Africa: what alternative methods are there?
The difficult conditions of access to ordinary tax litigation imposed by some jurisdictions are leading companies to explore alternative methods of settling their tax disputes.
KEY POINTS
By setting high financial conditions for the granting of a suspension of payment pending a court decision (in a context where confirmed reassessments are sometimes very high) and in the absence, often, of specialised courts, some States still discourage access to ordinary tax litigation.
Companies are therefore encouraged to explore other ways of settling their tax disputes, or even to settle as a last resort.
When the protection of a foreign investment or the provisions of a tax treaty are at stake, recourse to arbitration or a mutual agreement procedure can be invaluable assets.
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Some laws in French-speaking Africa still discourage access to ordinary tax litigation, sometimes imposing onerous conditions on the granting of a stay of payment of disputed tax adjustments: advance payments of 15% to 20%, bank guarantees requiring funds to be blocked, proportional duties to be paid [1].
These restrictions, combined with the uncertainty inherent in the absence, more often than not, of specialised tax courts, are holding back the expected emergence of tax case law, which is an essential element of legal certainty. In view of these difficulties, companies are sometimes forced to explore alternative methods of settling their disputes with the tax authorities, or even to compromise as a last resort.
INTERNATIONAL ARBITRATION : WHEN TREATY PROVISIONS ALLOW ACCESS TO IT
In order to guarantee the proper implementation of tax provisions inserted in investment agreements between an investor and a State, in a context where State jurisdictions may suffer from a fear of partiality (particularly in tax matters), legislation in Africa has enshrined the jurisdiction of arbitration bodies, which are presumed to be neutral, to settle disputes arising from these specific agreements.
Although governments are often tempted to consider ex post that tax disputes are "non-arbitrable" because they affect their sovereignty, most jurisdictions that have ratified the New York Convention of 10 June 1958 have not expressly classified tax disputes as non-arbitrable.
Where a contractual clause generally provides for arbitration to settle "all disputes arising out of this agreement", arbitration must be considered possible, provided that the dispute relates to the interpretation of the tax provisions of the investment agreement in question.
By way of illustration, a recent court decision (Webcor v. la Commune de Libreville, 25 May 2021, RG 29/18708) recognised (on this point) the validity of an ICC arbitration award (No. 21458/MCP/DDA) relating to tax issues under Gabonese law.
In addition to arbitration clauses inserted in contracts directly binding the investor and the State, bilateral investment protection treaties may also allow recourse to arbitration (nearly 80 bilateral treaties concluded by French-speaking African countries contain a Cirdi arbitration clause), particularly in the extreme case where an adjustment would lead to expropriation.
By way of illustration, the Cirdi ruled that a tax reassessment likely substantially to affect a company's operational capacity could amount to a measure leading to indirect expropriation (Señor Tza Yap Shum v. Republic of Peru, Cirdi, ICSID Case No. ARB/07/6, award of 7 July 2011).
MUTUAL AGREEMENT PROCEDURE : WHEN THE PROVISIONS OF A TAX TREATY ARE AT ISSUE
When a tax assessment made by a State does not comply with the provisions of a tax treaty for the avoidance of double taxation, the mutual agreement procedure (Article 25 of the OECD Model) allows the taxpayer to refer the matter to his State of residence so that it can try, through dialogue, to reach an agreement with the other State.
In addition to placing the debate on an international level, the mutual agreement procedure may (albeit in rare cases) have the advantage of suspending the assessment of disputed taxes.
While this procedure only imposes an obligation of means on the States involved, it is interesting to note that the new multilateral instrument proposes to institute, with the same objective, a genuine binding arbitration procedure. At this stage, however, no African country has taken up this option.
On the French side, in practice, companies that dispute the conditions under which a tax treaty has been applied by another State may refer the matter to Bercy's “international window” (Bureau SJCF 4B), whose resources have recently been strengthened and which can help to find a solution to the dispute.
INTERNAL MEDIATION BODIES: A NOVELTY IN SOME JURISDICTIONS
Spurred on by the Ohada Uniform Act of 23 November 2017 on mediation, some African jurisdictions have already introduced specific mediation arrangements for tax disputes into their legal systems. This is the case in Cameroon, which recently introduced tax mediation (LDF 2020 - Article L 140 bis of the LPF), enabling parties in the litigation phase before the courts to request the intervention of a third-party mediator which can lead to the conclusion of an agreement and the amicable settlement of their dispute. However, the implementing regulations for this procedure have yet to be published.
Benin, for its part, has retained in its new General Tax Code (Law no. 2021-15 of 23 December 2021) the possibility of referring a dispute to the Tax Commission for an opinion when a disagreement remains during a tax adjustment procedure.
THE TRANSACTION
Legislation in French-speaking Africa generally only provides a framework for out-of-court settlements, limited to the remission of penalties (e.g. Article 419 of Togo's LPF); settlements aimed at putting an end to a dispute through reciprocal concessions (along the lines of those provided for in the Civil Code), including those relating to duties, are more rarely provided for.
It is interesting to note that Cameroon has expressly introduced the possibility of settling "taxes" in general (duties and penalties), by decision of the Minister of Finance following a proposal from the Director General of Taxes (Article L.125 of the LPF).
[1] Some legislations, such as those of the Ivory Coast, Senegal or Benin, only require the provision of guarantees, making it easier for companies to have recourse to ordinary tax litigation (provided, however, that the amount of the reassessments maintained allows this).
