Transfer pricing and its challenges

Lack of skilled manpower and capacity in the Ghanaian judicial system to handle transfer pricing cases are two major challenges that may affect implementation of the Transfer Pricing (TP) Regulations in the country, Emmanuel Obeng Asiedu, Partner at KPMG has said.

The Transfer Pricing Regulations, 2012 (L.I 2188) requires taxpayers who have undertaken connected-party transactions to specifically comply with ensuring that inter-connected party transactions are priced in compliance with the arm’s-length principle.

And also to ensure that affected persons, including companies, file transfer pricing income tax returns.

Transfer Pricing is the price assumed to have been charged by one part of a company for products and services it provides to another part of the same company, in order to calculate each division’s profit and loss separately.

He was speaking at this year’s first Continuous Professional Education (CPE) and Post-Budget Seminar organised by the Chartered Institute of Taxation Ghana (CITG) in Accra.

“Ghana has had its share of losing a lot of tax revenue due to taxpayers mispricing their inter-related party transactions. It was no surprise when the Minister of Finance and Economic Planning in his 2012 Budget Statement indicated that Ghana has lost about US$36million through transfer pricing.”

Enumerating other challenges, which include the readiness of the Ghana Revenue Authority in implementing this law; effectiveness in exchange of information under both the Double Tax Treaties and the Convention on Mutual Administrative Assistance in Tax Matters; effective education of affected taxpayers and the need to give time for implementation of the TPR -- he added that if these challenges are not properly addressed, the country may be losing more revenue.

Mr. Asiedu said on a global scale the unwillingness of transfer pricing (TP) beneficiaries -- that is, counter-country jurisdictions, to effectively implement tax laws to counteract transfer pricing may be curtailing implementation of the TP laws in developing countries like Ghana.

Also, the lack of effective exchange of information pacts, infrastructure and technology, economic and tax uncertainty in most African countries and several others are challenges which may face implementation of the laws.

“A lot of multinational companies, through the mispricing of their inter-rlated party transactions, have been noted for shifting profits and businesses from higher tax jurisdictions to lower tax jurisdictions -- which has lead to the loss of billions of dollars of revenue to various countries, especially developing ones.

“Africa has therefore become a net creditor to the rest of the world through the shifting of capital by mispricing of inter-related transactions,” he said.

Mr. Asiedu added that the practice prompted Britain, France and Germany of the G-20 to address this issue by issuing a communiqué entitled ‘Developing Measures to Address Base Erosion and Profit Shifting, Take Necessary Collective Actions’, which is to show their commitment to implementing measures for remediating these issues.

Highlighting the revenue mobilisation in the 2013 national budget, Abdallah Ali-Nakyea, Managing Director of tax legal consulting firm WTS Ghana, said the country has very good tax laws but lacks enforcement, monitoring and evaluation.

“We need to empower the Ghana Revenue Authority with the needed logistics and resources; improve and enhance taxpayer education; promote tax compliance; respect taxpayers’ rights, and we will be able to mobilise more than enough domestic revenue for the development of Ghana.

Mr. Ali-Nakyea added that the 2013 budget contains laudable propositions, but these remain promises unless government comes out with some specific details of the approach to attaining the set objectives for scrutiny and appraisal.