Republic of Congo: Taxing the digital economy

There are billions of transactions made on a daily basis and these are facilitated by the internet, blockchain technology, and the world wide web. Tax systems are struggling to keep up with the rate at which the global economy is evolving.

The Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS), in its Action 1, attempted to address the tax challenges arising from digitalisation of the economy, under the Two-Pillar solution that aims to reform international taxation rules and ensures that multinational enterprises pay a fair share of tax wherever they operate.

Under the Two-Pillar solution, Pillar 1 provides a reallocation of certain profits from Multinational Enterprises (MNEs) that fall within the scope (worldwide revenue greater than €20 billion and profitability above 10%) to market jurisdictions while Pillar 2 sets a global minimum tax (at least 15%).

Meanwhile, the African Tax Administration Forum (ATAF) is pushing for the OECD to include more MNEs within Pillar 1’s global revenue threshold, arguing that the profit allocation rules maintain an unfair ground. ATAF is also requesting OECD to simplify its Pillar 1 proposal to meet the specific needs of African economies.

The Republic of Congo is a member of the IF, and following the recommendations from Pillar 1 for countries to enact local legislations within the context of their legislative process, what has The Republic of Congo done so far?

Electronic stamp

The 2019 Finance Law also introduced a digital economic fee called electronic stamp. The electronic stamp is at XAF 50 and levied on economic operators, commercial establishments, and public organisations that have carried out electronic transactions. This digital economic fee aims at facilitating the digitization of documents.

Although the recommendation from OECD is to remove all Digital Service Taxes and other relevant similar measures on all companies, the impatience of the countries in waiting for the complete solution has led to the Republic of Congo maintaining its local measures.

At present, the digital hub fee and electronic stamp are only levied on the parties who pay for services and goods via electronic platforms. It does not take into account the nexus rules for MNEs that are in scope and the reallocation of profits as recommended by Pillar 1.

Also, the declarative method of the platform would only exclude MNEs who would not provide monthly statements of transactions.

Though the digitalisation of the economy is a major challenge for the current tax system, the Republic of Congo has taken some initiatives in its legislation, to tax digital taxable operations.

The Ministry of Economic and Finance has put in place a number of projects which aims, among other things, at controlling taxable matter, the flows of operations in the telecommunication sector, digital content, the assessment liquidation and tax collection procedures and carrying out surveys and analysis on fraudulent schemes which contribute to the erosion of the tax base.