Page 1 of 6 Transfer Pricing Country Summary Ghana September 2018
Page 2 of 6 Legislation Existence of Transfer Pricing Laws/Guidelines Ghana published the Transfer Pricing Regulations, 2012 (L.I 2188) on 31 July 2012. The Internal Revenue Act (IRA) 592 of 2000 as amended, however, contained basic provisions governing transfer pricing, even though purely of an anti-avoidance character. The transfer pricing regulations introduced in 2012 therefore apply alongside the anti-avoidance provisions of the IRA and other administrative provisions governing transfer pricing (e.g. Technology transfer Agreements). The Transfer Pricing provision Section 70 of the IRA, Act 592, 2000 applies to all transactions between associates regardless of their residence, and to cases involving an associated resident entity of a nonresident person or a PE in Ghana of a non-resident person. The regulation also empowers the Commissioner General to re-characterize the source of any income and the nature of any payment or loss as revenue, capital, or otherwise. He may distribute, apportion, or allocate inclusions in income, deductions, and credits to reflect the tax payable, which would have arisen for these taxable persons if the transaction had been conducted at arm s length. The Commissioner General in so doing may disregard an arrangement entered into or as part of a tax avoidance scheme, that does not have substantial economic effect, and or the form of which does not reflect the substance. Ghana has not implemented documentation requirements from Action 13 of the OECD Transfer Pricing Guidelines. Definition of Related Party The regulation applies to transactions between persons who are in a controlled relationship; dealings between a permanent establishment and its head office; dealings between a permanent establishment and other related branches of that permanent establishment; transactions between a taxpayer and another taxpayer who is in a controlled relationship; and in transactions between a taxpayer and another taxpayer. Per the Act, a controlled relationship refers to a relationship between one taxable person and another, under terms, which enable the relationship to influence the transfer price set in a transaction, and in which that other person is an associate of the first person, a relative of the first person. The Transfer Pricing regulation applies to commercial transactions that affect the profits or losses of persons covered by the Regulations. These include, the purchase and sale of goods; the purchase, sale, lease or use of a tangible and intangible asset; the provision of management services, technical services or other intra-group services; the provision of finance or other financial arrangements; rent and hire charges; and any other transaction that may affect the profit or loss of the entity.
Page 3 of 6 Transfer Pricing Scrutiny The Ghanaian Transfer Pricing Unit (TPU), which was set up in 2013, initiated the first cycle of transfer pricing audits in the beginning of 2015. Managing the resources constraints and concerns about the level of contributions to government revenue from investors operating in key sectors of the economy and the publicity given to reports of tax abuses by certain multinational enterprises (MNEs) doing business on the African continent, including through subsidiaries and branches in Ghana, has heightened Transfer Pricing scrutiny. An extensive training in specialized personnel is being done, in response to the Transfer Pricing Regulation of 2012, focused on audits in sectors like mining, oil and gas, manufacturing and the transfer of services. Transfer Pricing Penalties Where the Commissioner General raises additional taxes following a transfer pricing adjustment, the difference is treated as underpaid tax, which may trigger penalties upon failure by a company requested to pay additional tax and or supply additional tax information. Safe these, the Ghanaian Transfer Pricing regulation does not stipulate any additional specific penalties governing transfer pricing cases. Resort is therefore made to the standard administrative penalties (e.g. those pertaining to fraud or failure to file returns) contained in the IRA: Failure to maintain proper tax records carries a charge of 5% of the tax payable; Failure to furnish return is fined at GHS 2.00 per day for companies after due date and GHS 1 per day for self-employed persons; Failure to pay tax on due date is fined at 10% of the tax plus the amount due for periods less than 3 months and 20% of the Tax plus amount due for outstanding periods exceeding 3 months; and, Understating the estimated tax payable by installment is fined at 30% of the remainder of the actual amount understated. Advance Pricing Agreement (APA) There is currently no provision for Advanced Pricing Agreements in the regulation. Safe Harbor The IRA s thin capitalization provisions operate to counter a specific form of tax base erosion involving the exploitation of inter-affiliate relationships resulting from excessive financing of resident affiliates through debt instead of equity. The provision thus disallows any interest deductions on inter-affiliate debts that exceed the prescribed debt-to-equity ratio of 2:1.
Page 4 of 6 Documentation And Disclosure Requirements Tax Return Disclosures Inter-related parties must maintain a contemporaneous documentation on their transaction for the income year. The information on the companies Transfer Pricing submitted with the annual tax return in a form prescribed by the Commissioner General includes: The transfer pricing method which includes information on any adjustment made; any assumption made in applying that method; justification for use of the method; the comparables chosen and the criteria for choosing those comparables; the comparability analysis of the associated party transactions; The calculations made by the person, with the price adjustment factors considered for purposes of achieving the comparability; The arm s length range determined by the taxpayer and the reasons in support of that determination and use of that range; The taxpayer s global organizational structure, location and ownership linkages amongst associated persons; A description of the nature of the business in which the relevant transaction took place, and the property used; Details of the intercompany transaction, including: contracts detailing the terms; segmented financial accounts for the transactions and the assumptions made to obtain the segmented information; The policies applied and information analysis the taxpayer relied on to determine and ensure that the transaction is at an arm s length; The person s identity and the relation between that person and other persons in the controlled relationship; Details regarding the principal business activities of each person in the group; and the business relationship, services provided, goods sold and intangible used in the group s consolidated financial statements; and, Information about each associated party; the line of business; industry dynamics; the market, regulatory and economic conditions; the functions, risks, assets used and financial statements. The Commissioner General may also require any additional information relevant on the transactions undertaken by the person during that tax year, in accordance with the standard provision under the IRA. Tax return documentation filed in the form prescribed by the Commissioner must state the information required, and in the manner prescribed. It must also include a duly signed declaration that the return is complete and accurate.
Page 5 of 6 The taxpayer must also furnish with his return a separate statement of income, expenditure and a statement of assets and liabilities for each business undertaking carried on within that business and income year. Level of Documentation The regulation requires the taxpayer to comply with the outlined requirement in order to support her transfer pricing practices; otherwise be exposed to penalties. The importance of the required documentation outlined in the regulation is substantiated by the IRA: thus, the commissioner may require any person examined to produce any book; records or computer-stored information in that persons control to be used for tax return purposes. The commissioner general or tax officer therefore has the right to access premises; property, books, records or computer and can make extracts of copies from such books, and records as necessary. He may also seize books, records and computer-stored information if it is material evidence against the taxpayer. Record Keeping The IRA requires a taxpayer to keep records or evidence necessary to explain information provided in a tax return or other documents accompanying the return in order to enable the taxpayer s tax liability accurately determined. Such records or evidence are to be retained by the taxpayer for at least six years unless otherwise specified by the Commissioner General. Language of Documentation Tax returns must be furnished in the form prescribed by the Commissioner General stating the information required in the manner prescribed by him. The documentation must be prepared in the English language. Small and Medium Sized Enterprises (SMEs) There is currently no specific provision in the Ghanaian TP regulation in regards to small and medium sized enterprises. Deadline to Prepare Documentation Since the TPU is developing a few cycles of transfer pricing audits, entities are strongly advised to maintain a high consistency among all documents. A robust local documentation should be prepared in order to provide to the tax authorities in case of an audit.
Page 6 of 6 Deadline to Submit Documentation Tax returns for a year of assessment must be filed not later than four months after the end of a basis period, which coincides with the end of the year. Therefore, Transfer pricing documentation needs to be sent before 30 April. And, on request by the taxpayer, the commissioner may extend the deadline, not later than two months after the due date. Statute Of Limitations The statute of limitation is 6 years from the date of assessment of the Tax. Transfer Pricing Methods The Ghanaian Transfer Pricing Regulation endorses the five standard International Transfer Pricing methods for determining the arm s length price. With no reference given to either the OECD or the UN transfer pricing methods, taxpayers may rely on those methods to the extent where there is no clear guidance in the regulations. Thus: The comparable uncontrolled Price Method (CUP); The Resale price Method (RPM); The Cost plus method (C+); The Transactional Net Margin Method (TNMM); The Profit split Method (PSM) However, the taxpayer can use any alternative Transfer Pricing method that best substantiate their transfer price. The Regulations also permits the Commissioner General to apply an alternative method if, considering the nature of the transaction, none of the five listed methods can be used to determine the arm s length price. The alternative method applied by the taxpayer might also be approved beforehand by the Commissioner General, thus reducing contention. Comparables There is no express stipulation in the regulation in regards to the types of comparables used during tax audits. The taxpayer is therefore given the freedom to choose the transfer pricing method which includes information on any adjustment made; any assumption made in applying that method; justification for use of the method; the comparables chosen and the criteria for choosing those comparables; the comparability analysis of the associated party transactions and the comparables used.