Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

February 19, 2020
2020-5254

Ghana: Transfer pricing update for first quarter 2020

Audit training for transfer pricing resources

The Ghana Revenue Authority (GRA) has signed a Memorandum of Understanding (MoU) with the Netherlands Tax and Customs Administration (NTCA) to increase the technical capacity of its personnel to undertake risk-based transfer pricing (TP) audits. The MoU, which was signed on 14 February 2020, spans 18 months starting from March 2020.

During the period of the MoU, NTCA and GRA TP officials will work together to conduct transfer pricing audits on multinational companies which have been risk-profiled for audits. The goal is to combine practical on-the-job training with skills transfer for the officers of the TP unit. Another stated goal is to increase revenue mobilization from multinationals through the transfer pricing audits. The sectors expressly mentioned by the GRA Commissioner-General for special focus are petroleum, telecom and banking.

This MoU follows the recent significant investment in hiring skilled personnel for the GRA TP unit, including the hiring of a senior resource from one of the Big Four firms to head the TP unit in December 2019.

Implications

The substance of transactions, rather than the form, lies at the crux of transfer pricing. This substance determines the pricing of the intra-group transactions in compliance with the arm’s-length standard. Furthermore, the TP rules require maintenance of contemporaneous documentation by the taxpayer to demonstrate its compliance with the arm’s-length standard. Multinationals and other taxpayers with related party transactions are advised to take note of the GRA’s initiatives and adequately prepare for increased enforcement actions by the TP unit of the GRA.

Audit focus on representative office structures

Recent audit trends indicate that the GRA has increased its review of branch and representative office structures being implemented by some multinational companies in Ghana.

Typical implementation of such structures include the Ghanaian branch performing marketing services on behalf of the nonresident Parent. These services include product exhibitions and product demonstrations. However, when the customer makes a purchase, they are directed to place the order directly with the nonresident Parent. Under this arrangement, the Ghanaian representative office is usually treated as a cost center with no profits as revenue is equal to costs which are fully reimbursed by the nonresident Parent. Such structures are generally used in the pharmaceutical sector but have also been seen in other manufactured goods sectors.

The remuneration structures for these representative offices have been challenged from a TP perspective by the GRA. The GRA considers the characterization of these offices as cost centers as not reflecting the substance of the services they provide and the zero profits as not reflecting arm’s-length trading.

Implications

The TP rules require compliance with the arm’s-length principle. Multinationals with representative/marketing office structures should evaluate them and ensure that the remuneration of the Ghanaian branches reflects the substance of the services provided. Furthermore, multinationals must ensure that they maintain proper documentation in accordance with the requirements of the regulations.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Ghana, Accra
Ernst & Young Advisory Services (Pty) Ltd., Africa ITTS Leader, Johannesburg
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more