The government, in drafting the preliminary draft on the financial law, put its weight on the private institutions to compensate citizens and exempt them for every tax for the coming year, by setting a series of measures that were put in place and that would close the door to institutions for any attempts to indirectly convert the profit to the real value of the taxes to be paid, and as the sources of foreign currency exchange abroad dried up in exchange for the services that are provided by foreign companies.
The executive body set up, within the next year’s draft finance law, which a copy is available to Echorouk, and Article 2 came to amend the article 141 of the Direct Taxes and Similar Fees Law, which calculates the various economic institutions for their net profit, and makes it subject to deduction of costs that are related to general expenses and fees of renting real estates, which are leased by the institution and the expenses of users and labor.
It also reduced the margin of manipulation of the expenses that are allocated to services which are provided by foreign institutions such as technical, financial or accounting assistance costs, making it the first precedent of its kind that is not subject to the taxable profit that is limited to 20% of the general costs of the debtor and 5% of the capital plus only 7% of the capital for the study offices.
Government has linked this reduction to two conditions: that the capital is fully released and that the amounts at the disposal of the company should not ecxeed 50% of the capital.
The Government’s justification for the new procedures, which had already been the subject of instructions for successive Governments, without having achieved practical results, was that the procedure was intended to be subjected to the costs of technical, financial or accounting assistance to the reduction, taking into account the type of the practiced activity. On the one hand, to reduce tax evasion and to encourage enterprises to conclude technical assistance contracts with technological transfer or at least supplemented by skill.
The measure also aims to allow enterprises to supply high-quality equipment, especially those related to heavy loads, in the context of industrial activity. This limitation does not apply to the costs of technical assistance and studies that are related to heavy loads, especially the construction of factories.
Government also seeks, through the procedure, to determine the reduction of the financial benefits of the partners. Under the business process, the partners often place their partners at their disposal, in return for excessive interest on the loan.
In its presentation of the proposal, the government emphasized that this type of financing caused damage to the public treasury, as these practices ensure that companies resort to advances rather than raise their capital or even the total liberalization of subscribed capital, and to reduce the benefits of dividends. In order to remedy this imbalance, the government decided, by the beginning of next January, to make the benefits that are provided to the partners directly at the disposal of the company and their share in the capital, whatever the nature of the company, which is subject to reduction within the average effective interest rate that is determined by the Bank of Algeria.
This reduction is subject to a double requirement that the capital will be fully liberalized and the amounts placed at the disposal of the company which capital does not exceed 50%.
The legislator added that official reports showed that several companies put at the disposal of their partners advances or interest-free loans for a short, medium and long term. Therefore, it is recalled that at the level of Article 64-4 of the Direct Taxes and Similar Fees Act, the amounts at the disposal of the partners are distributed. These provisions will also allow the principle of competition in business practices to be based on the average effective interest rate that is determined by the Bank of Algeria.
In the case of the reduction of financial benefits between joint ventures, the current measure established a new system for reducing financial burdens between joint enterprises, whether directly or indirectly, and provided that interest on amounts is placed at the disposal of an enterprise by another enterprise in the same group that is subject to reduction within the average effective interest rate that is determined by the Bank of Algeria,
This system, which aims to combat border or local tax evasion schemes, also aims to reduce the basis of taxation, places the tax administration in a situation where it is impossible to collect the tax, noting the growth of interest-free loans or reduced interest among institutions that can not be subject to normal commercial conduct.
In order to combat this phenomenon, the tax administration should be given the right to restructure the loan holders for re-incorporation in the framework of establishing the corporate profits tax, and determining the interest rate that is granted between the institutions without interest or reduced interest by applying the amounts that are lent to the effective interest rates that are determined by Bank of Algeria.
Government confirmed in its presentation of causes that the public treasury recorded huge losses due to the phenomenon of tax evasion that is applied by institutions that use exchange rates or legal instruction to lift their burdens, especially those related to the default debt and the reduced capital value, in order to reduce the tax.
Government asserted that it has stood by the fact that institutions arbitrarily resort to technical, financial or accounting assistance services without technological transfer or good work and thus have dependency throughout their existence to assist service providers, thereby increasing costs over benefits. it explained that technical assistance is a hotbed of tax evasion where companies associated with service companies such as market research firms, advertising companies, technical assistance companies and research centers pay for services that are rendered at inflated prices or even unfounded services.