This is the final article of my three-part series of articles on the key changes to Ghana’s Transfer Pricing (‘TP’) regime, enabled by the passing of TP Regulations 2020, L.I. 2412 (‘New TP Rules’) to repeal the previous TP Regulations 2012, L.I 2188 (‘Old TP Rules’). This part focuses on compliance requirements in relation to related party transactions.
Annual return filing requirements
By now the main question on the mind of most Multinational Enterprises (‘MNEs’) operating in Ghana would be: “what do all these new changes mean to us in terms of compliance? Is there a new form of returns required? What has changed?”. Basically, not much has changed regarding the filing of TP returns, save for the two issues addressed below. Firstly, under the Old TP Rules, it was possible to argue that the TP return formed part of the Corporate Income Tax (‘CIT’) return generally required to be filed by all businesses, and once the CIT return was filed without the TP return, the Ghana Revenue Authority (‘GRA’) could not levy a penalty for non-filing of the TP return. At best, the person could only be faulted for filing an incomplete CIT return, as it excluded the TP return. This ambiguity has been cleared with the promulgation of the New TP Rules: the TP return is now a standalone return for which penalties for non-filing or late filing apply in the same way as they apply to a CIT return. Secondly, the annual TP return now requires more information, including those relating to group revenue, number of employees, reason for choosing a TP method, etc. We expect the GRA to release a new TP return template, given that taxpayers whose financial year ended on 31 December 2020 need to comply with the New TP Rules by 30 April 2021, save any approved extension of filing deadline.
TP Documentation filing requirements
1. Annual preparation and filing of the Master File and Local File
One of the biggest changes in the TP landscape in Ghana is the incorporation of the Organisation for Economic Cooperation and Development (‘OECD’) BEPS Action 13, which seeks to enhance tax transparency.
According to the New TP Rules, a person engaged in an arrangement with another person with whom that person has a controlled relationship shall maintain contemporaneous documentation i.e. Master File (‘MF’) and Local File (‘LF’) of the arrangements engaged in by that person in each year of assessment. The MF and LF should be filed electronically with the GRA not later than four months after the end of each accounting year of the affected person. A TP documentation may however not be required from a person engaged in a transaction or arrangement with another person which does not exceed the Ghana Cedi (‘GHS’) equivalent of US$ 200,000.
Note however that two or more transactions can be consolidated or aggregated under the New TP Rules, and it is contended that even in cases where an individual transactional value is not up to US$ 200,000 the GRA could argue that those transactions be consolidated for TP purposes. A TP documentation may be required in such a situation.
The MF contains high-level information on the global business and structure of the group of companies the Ghanaian company belongs to, while the LF focuses on the key information on the Ghana operation of the local entity. The New TP Rules spell out the minimum content of the MF and the LF, which is largely in line with existing international best practice on information disclosures. Some of the critical issues regarding the filing deadline of these two reports to be noted by MNEs is the probable filing requirement of the MF and LF when signed audited accounts are yet to be finalised and/or an extension to file the TP return is requested.
2. Simplified approach
Instead of requiring the preparation of voluminous and complex MFs and LFs covering all transactions above the US$ 200,000 threshold or its equivalent in Ghana Cedis, the New TP Rules allow taxpayers to opt in to a simplified approach to TP documentation for their low value-adding services (which attract a mark-up of not more than 3% of the relevant costs).
The same applies to transactions covered by technology transfer agreements (‘TTAs’) approved by the Ghana Investment Promotion Centre (‘GIPC’) where royalties, know-how and management/technical fee, do not exceed 2% of net profit (i.e., profit after tax, interest, depreciation and amortisation but excluding the charge for technology transfer) per transaction. While this is good news, the chances are that this may not apply to many TTAs as a significant number of these are priced as a percentage of sales/revenue and this amount will in most cases be higher than the 2% of net profit threshold.
Entities that elect to opt in to the simplified approach to TP documentation would be required to append relevant information as provided by the New TP Rules regarding those transactions as part of their annual TP return filing and will not be able to opt out of this arrangement for a period of three years without prior approval from the Commissioner General of GRA (‘C-G’).
Filing of County-by-Country Report (‘CbCR’)
There are further provisions on the submission of a document called a CbCR, by a Ghanaian entity which is part of a group with a minimum group revenue of GHS 2.9 billion in its previous financial year. This filing requirement is waived or excepted where a CbCR has been filed at Group level or by a relevant entity within the Group and this report could be made available to the GRA based on the international conventions available.The Ghanaian entity will instead be required to notify the C-G about the identity and tax residence of the entity required to file the CbCR on behalf of the group. The deadline for filing CbCRs and for notifying the C-G, where applicable, is no later than twelve months after the year-end of the group.
The real issue is that Ghana is yet to sign a multilateral convention that will grant rights to the GRA to access CbCRs filed in other jurisdictions and existing bilateral agreements such as double tax treaties do not provide for an automatic exchange of tax information. If this remains unchanged, all entities of MNE groups meeting the revenue requirements might be required to file a CbCR in Ghana.
The CbCR generally should contain consolidated tax related information on the MNE group broken down according to the various states in which the group’s individual entities have a presence, including information such as income, taxes paid, etc.
What is the way forward from now?
We expect the GRA to issue templates for all mandatory compliance requirements and practice notes to clarify on the implementation and their interpretation of key matters. Taxpayers should reassess their operations and readiness to implement the New TP Rules. Dear reader, I urge you to stay safe, positive and healthy.
About the author
Kingsley Owusu-Ewli is a Partner in PwC Ghana and the Transfer Pricing and International Tax Services Leader in Ghana. He is a regular speaker on tax matters and a facilitator at the PwC Business School in Ghana.