Question Tag: CUP Method

The resort industry at Ada in the Greater Accra region of Ghana is extremely popular with foreign tourists due to the Volta estuary, good weather and the range of leisure activities. These attract investments from multinational companies in the resort business. The multinational enterprises dominate the industry at Ada. The multinational enterprises operate over 90% of the resort industry servicing business clients and other travellers. There are smaller enterprises apart from the multinationals in the resort business. Multinational companies operating in the resort industry make use of central booking companies in low tax jurisdictions. These central booking companies are associated companies of the multinational. The central booking companies advertise the resorts in targeted markets, accept bookings for stay at the resorts and conclude the contracts for stay at the resorts.

A recent study by a Non-Government Organization (NGO) revealed that the multinational enterprises in the resort industry in Ghana reported minimal profits or losses for the last years.

Grape Resort Limited is a Ghanaian registered company whilst CPL Resort Limited is a Cayman Island registered company. Sunrise Pleasure Limited and CPL Resort Limited are 100% owned by the Manna Group S.A, a company resident in Austria.

Grape Resort Limited owns, manages and operates a chain of full service resorts at Ada. CPL Resort Limited advertises the resorts, accepts bookings for stay at the resorts, concludes the contracts and receives payments from clients. Special vouchers are then given to the clients. Clients present the special vouchers to Grape Resort Limited in Ada to access their services. CPL Resort Limited pays fees to Grape Resort Limited from the payment it receives from the clients. Some local and foreign clients book, patronize and pay for the resort services directly at the Grape Resort Limited. Grape Resort Limited is among the multinationals that has reported losses from their operation of resorts in Ghana for the last 5 years.

Required:
Prepare a preliminary Transfer Pricing Report for the management of Grape Resort Limited on how to determine the arm’s length price of their products and services in Ghana based on the information you have at your disposal.