Various DRC Tax Code measures refer to the requirement for transactions with related parties to be at arm’s length. The most recent provision, as introduced by the Finance Law 2017, stipulates that for the determination of taxable income of DRC enterprises which control or are controlled by non-resident persons, any profits indirectly transferred to the latter are recaptured and added back to taxable income. The Finance law 2017 lists a number of situations (qualified as abnormal business practices) where profits are deemed to be indirectly transferred to non-resident related parties, including:
- Reduced or increased sales or purchase prices;
- Payment of excessive or unjustified royalties; or
- Any other abnormal business practice such as forfeiture of income through e,g, reduced prices, provision of services for no consideration, lending at reduced interest rate or no interest; waivers of debt or the granting of any advantage which is not proportional to the benefits obtained.
Where a transaction is deemed to represent an abnormal business practice, the resident related party may justify the transaction by demonstrating that it serves its proper interest. The fact that the tested transaction serves the general interest of the group is not by itself an acceptable justification.
With respect to the mining industry, the new 2018 Mining Code prescribes that service payments to non-resident persons which are directly or indirectly related to the payer, are deductible only if the following 4 conditions are cumulatively met:
- The "quality" of the service rendered is clearly established;
- The service cannot be rendered in DRC;
- The service fee is commensurate with services rendered; and
- The recipient is not established in a low-tax jurisdiction (see Sec. 6.5. for a definition).
The Finance Law 2017 stipulates that a resident and a non-resident are deemed to be associated if
- One party directly or indirectly holds the majority of the capital in the other party, or otherwise exercises therein a de facto decision-making power; or
- Both parties are directly or indirectly controlled as per above by a third party.
Where the beneficiary of indirect transfers of profits is established in a low-tax country or a non-cooperative jurisdictions (see Sec. 6.5. for a definition), the transfer pricing rules apply irrespective of whether or not the parties are related.
The new 2018 Mining Law seemingly adopts a somehow different definition of related parties as it deems a resident enterprise to be related to a non-resident enterprise if the latter or other group companies hold an interest in the capital of the former.
The law does not specifically establish formal requirements regarding permissible transfer pricing methods. It is generally thought that the OECD’s traditional and transactional methods would be acceptable.