Question Tag: Transfer Pricing

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  • 20 Marks

STP – Feb 2007 – L3 – Q2 – Employee Taxation

Outline Ghanaian tax and social security implications for a French employee working in Ghana under a Double Tax Treaty.

Mr. Nor Amid, the Human Capital Resource Person of Amanda Inc, an entity registered in France sends a brief note to you in respect of a duty tour of an employee as follows:
“Amanda is sending an employee to Ghana and I am hoping that you could provide guidance for Amanda. Our understanding is as that:

  • The employee is French and may be kept on the French payroll
  • The employee’s remuneration will be cross charged to Amanda in France and Ghana
  • The employee, according to French Tax Law, will be French for tax purposes
  • The employee will spend 40% or less of his time in France
  • The employee will spend between 40 to 60% of his time in Ghana and whilst in Ghana the employee will be accommodated in hotels, will have free use of car with fuel and free meal.
  • The employee will spend his time in Ghana from 7 to 25 days at a time depending on need.

Would you kindly provide us with a brief outline of the Ghanaian tax and social security implications for Amanda and the employee? Kindly note that Ghana has an operating ‘Double Tax Treaty’ with France.

Required:
(a). Please submit a memo to respond to the concerns raised by Mr. Nor Amid.

(b). Ghana has general tax-avoidance rules in the tax acts. Kindly discuss any three practice methods adopted by the Revenue Agencies to regulate transfer pricing between related parties?

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  • 20 Marks

STP – Aug 2020 – L2 – Q4 – Debt vs Equity Financing

Discuss whether debt financing offers more tax benefits than equity financing for companies, with references to Ghanaian tax law.

Some scholars argue that from a strategic tax planning perspective, debt financing provides more tax benefits to companies than equity financing for investors.

Required
With the aid of appropriate authorities, discuss the accuracy or otherwise of the above assertion.

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  • 20 Marks

STP – Aug 2020 – L2 – Q1 – Tax Planning vs. Tax Avoidance

Discuss distinction between tax planning and tax avoidance under Ghanaian tax law with examples and references.

The Council of the Chartered Institute of Taxation, Ghana (CITG) has invited you to speak at a Continuous Development Program (CPD) on the topic “The distinction between tax planning schemes and tax avoidance arrangements under Ghanaian tax laws”.
In the letter of invitation, the Council indicated that you are to submit a detailed write-up of your presentation.

Required
With the aid of appropriate examples and specific references to Ghanaian tax law provisions, write in sufficient detail, the content of your presentation.

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  • 20 Marks

Feb 2020 – L1 – Q4 – Transfer Pricing Principles

Prepare a transfer pricing report for Grape Resort Ltd to determine arm’s length pricing.

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.

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  • 10 Marks

AT – Nov 2024 – L3 – Q5a – Transfer Pricing Documentation and Compliance

Explain the required transfer pricing documentation and exemptions under Ghana’s Transfer Pricing Regulations, 2020 (L.I. 2412).

You are a Senior Transfer Pricing Associate of Fameye and Associates. You have received the following email from a former client, Asew LTD, who has received a Transfer Pricing audit assessment from the Ghana Revenue Authority (GRA) for the 2021, 2022, and 2023 years of assessment.

Subject: Transfer Pricing Compliance Assistance

Hello Team,

I came to the office today and received a letter from the GRA regarding a tax assessment on transfer pricing issues. According to the letter, our company owes the GRA some penalties for non-compliance with the transfer pricing regulations. I am confused as to what our compliance obligations are. I would need your assistance on how we can comply with the transfer pricing laws of Ghana.

I hope to hear from you soon.

Kind regards,

Nii Armaah
Managing Director, Asew LTD

Required:

In line with the provisions of the Transfer Pricing Regulations, 2020 (L.I. 2412), draft a response for the review of your Tax Partner, covering the following:

(i) The required transfer pricing documentation that must be maintained by companies in Ghana under the three-tier transfer pricing documentation requirements, including the time by which these must be filed with the GRA, where applicable.                      (ii) TWO conditions or circumstances under which a company may be exempted from compliance with any of the above documentation requirements.

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  • 10 Marks

MA – Nov 2024 – L2 – Q1a – Transfer Pricing

Explanation of three reasons why Kako PLC determines transfer pricing centrally.

Kako PLC is a multinational company with production divisions trading in many countries across the globe. Trade takes place between a number of the divisions in different countries, with intermediate products being transferred between them. Where a transfer takes place between divisions trading in different countries, it is the policy of the board of the company to determine centrally the right transfer price without reference to the managers in the division.

Required:

i) Explain THREE possible reasons for Kako PLC to determine transfer prices of goods from the head office.

ii) Explain TWO criticisms of the central determination of transfer pricing.

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  • 15 Marks

ATAX – May 2017 – L3 – Q5 – Transfer Pricing

Explain the significance of transfer pricing, its regulation, and methods.

The dwindling oil revenue in recent times has constrained the earning capacity of the Nigerian government. This situation accelerated the slide in the nation’s economy into recession in 2016. There has been a lot of arguments as to which regime’s actions or inactions brought about this economic malaise. Some experts argue that Nigeria has good tax laws, but successive governments displayed a lack of political will to implement them. They posit that the lack of implementation has caused the nation’s Internally Generated Revenue (IGR) to nosedive.

As part of various recommendations by these experts, coupled with the compelling need to shore up the Internally Generated Revenue, the Federal Inland Revenue Service (FIRS) has created the Transfer Pricing Division located in the FIRS Building at Ikoyi, Lagos. To give teeth to its mandate, the Division has been writing multinationals and groups of companies to file returns with it, in respect of their transfer pricing activities.

MGBORIE GROUP LIMITED recently received one of such letters from the FIRS, which startled the Chairman/Chief Executive who is already sensing rough times with the FIRS.

As the company’s tax consultant, the letter was forwarded to you for further explanations.

You are required to state:
a. The significance of Transfer Pricing. (2 Marks)
b. TWO objectives of the Income Tax (Transfer Pricing) Regulation Act of 2012. (2 Marks)
c. Contents of the Transfer Pricing Disclosure and Submission Forms to the FIRS. (5 Marks)
d. THREE Transfer Pricing Methods. (6 Marks)

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  • 15 Marks

ATAX – May 2019 – L3 – Q6 – Transfer Pricing

Outline key aspects of transfer pricing regulations in Nigeria, including objectives, key concepts, and methods.

The need for monitoring and controlling the operations of multi-national enterprises (MNEs) and their local subsidiaries or associate companies around the world has necessitated special interest in various governments putting in place mechanisms for the treatment of transfer pricing. Although transfer pricing is not new in Nigeria, the law regulating it, the Income Tax (Transfer Pricing) Regulation Act, was enacted in August 2012. It specifies that “every taxpayer” is expected to develop a transfer pricing policy in regard to transfer pricing and control transactions, as well as treatment of transactions of permanent establishments (PE) and dispute resolutions.

You have been invited by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) to present a paper at a workshop on transfer pricing regulations in Nigeria. The primary objective of the workshop is to provide the participants, both local and foreign stakeholders in the Nigerian business environment, necessary information on transfer pricing issues in Nigeria.

You are required to outline relevant points to address the following issues:

a. Objectives of application of transfer pricing regulation in Nigeria (3 Marks)
b. The concepts of:
i. Connected taxable persons (3 Marks)
ii. Arm’s length principle (3 Marks)
c. Description of three transfer pricing methods (6 Marks)

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  • 10 Marks

FM – Nov 2014 – L3 – SC – Q6a – Treasury Management

Discuss transfer pricing and its implications for multinational companies with subsidiaries in foreign countries.

Nimega Plc is a Nigeria-based multinational company that has subsidiaries in two foreign countries. Both subsidiaries trade with other group members and with four third-party companies.

You are required to present SIX arguments for and FOUR arguments against centralized treasury management in a multinational organization.

(10 Marks)

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

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  • 10 Marks

AFM – May 2017 – L3 – Q5b – Treasury and Advanced Risk Management Techniques

Explanation of internal and external factors influencing transfer pricing decisions for multinational companies like Kofas Ltd.

One of the key considerations for multinational companies is to decide on the price at which goods and services are transferred from one member of a group to another.

Kofas Ltd has been operating in four countries: Ghana, Nigeria, UK, and USA. The parent company and the subsidiaries have decided to use a transfer pricing policy.

Required:
You have been approached as a consultant to advise on the internal and external factors that will facilitate the transfer of goods and services from one member of the group to another. (10 marks)

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  • 20 Marks

AFM – Nov 2015 – L3 – Q4 – The use of financial derivatives to hedge against interest rate risk

Assess the advantages and disadvantages of interest rate swaps and recommend a hedging strategy. Also, explain internal factors for transfer pricing.

JB Investments Holding Ltd (JB) is a multinational company that is committed to a policy of expansion into African countries. JB finances foreign projects with loans obtained in the currency in which project cash flows are received. JB financed an operation in Liberia with a syndicated loan of $20 million. Currently, the loan has three years to maturity. The loan requires semiannual interest payments at a fixed rate of 6.5% per annum, but JB prefers a floating interest rate as the pattern of cash flows from the Liberian project has changed.

The Finance Director talked to the creditors about JB’s preference for a floating interest rate. The creditors have agreed to accept a floating rate of LIBOR plus 200 basis points over the remaining three years of the loan term. However, the Finance Director feels that this rate is rather too high considering JB’s credit rating. She is therefore considering two alternatives for managing the interest rate risk exposure.

Alternative 1: Coupon swap with a bank
Engage in a coupon swap with UT Bank through which JB trades-in its fixed rate interest payments obligation for floating rate interest payments. The table below presents UT Bank’s bid and ask quotes for fixed dollar coupon rates:

Loan term to maturity Bid Ask Treasury note (TN) rate
2 years 2-year TN rate + 30 basis points 2-year TN rate + 40 basis points 5.3%
3 years 3-year TN rate + 35 basis points 3-year TN rate + 50 basis points 5.9%
4 years 4-year TN rate + 40 basis points 4-year TN rate + 60 basis points 6.7%
5 years 5-year TN rate + 45 basis points 5-year TN rate + 70 basis points 7.8%

Floating rate quotation: Floating rates are pegged at 6-month dollar LIBOR plus 100 basis points.

Alternative 2: Coupon swap with another multinational company
Engage in a coupon swap with McEwen Ltd, a multinational company that has a floating rate dollar debt but prefers fixed coupon payments. The interest rate on McEwen’s dollar debt is LIBOR plus 150 basis points but it can borrow fixed rate dollars at 8%. Assume JB can borrow floating rate dollars at LIBOR plus 200 basis points.

Required:
(a)
i) Discuss TWO (2) advantages and TWO (2) disadvantages of hedging interest rate risk with an interest rate swap. (4 marks)
ii) Based on the restructuring deal with the creditors and the two interest rate swap alternatives, recommend a hedging strategy for interest payments on the $20 million debt. Support your recommendation with relevant computations. (10 marks)

(b) The Board of Directors of JB Investments Holdings Ltd is considering a transfer pricing policy for the transfer of goods and services among the company and its foreign subsidiaries.
Required:
Explain THREE (3) internal factors (motivations) for transfer pricing, which the board should consider in formulating a transfer pricing policy for the company. (6 marks)
(Total = 20 marks)

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  • 5 Marks

TF – May 2018 – L3 – Q5d – International taxation

Explanation of arm's length price and its effect on tax revenue.

The Transfer Pricing Unit of the Ghana Revenue Authority frowns upon any transaction between controlled persons that is not conducted at arm’s length.

Required:
What is arm’s length price and its effect on tax revenue?

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  • 8 Marks

AT – April 2022 – L3 – Q2a – Anti-avoidance measures

Discuss four factors the Commissioner-General will consider in comparability analysis for transfer pricing arrangements.

In response to some taxpayers’ behaviour, transfer pricing regulation has been passed to ensure that all arrangements are conducted at arm’s length. The Commissioner-General in his dealings with taxpayers must ensure that market price drives business transactions. The Commissioner-General reserves the right to allege abuse of transfer pricing if certain factors point to the fact that there is an arrangement not in accord with the dictate of market forces.

Required:
Explain FOUR (4) factors the Commissioner-General will rely on in his comparability analysis in Transfer Pricing arrangements.

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  • 3 Marks

AT – May 2021 – L3 – Q3b – Anti-avoidance measures

Explain how contractual terms protect revenue in transfer pricing arrangements.

Contractual terms between two persons, both dependent and independent, must be examined regarding goods, property, and services. The associate’s transactions must be scrutinised to ensure that revenue is not lost relative to non-associate.

Required:
How do contractual terms protect revenue in transfer pricing arrangements?

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  • 4 Marks

AT – NOV 2021 – L3 – Q2b – International taxation

Explain the underlying principle of transfer pricing in international taxation.

What is the principle underlying the concept of Transfer Pricing? (4 marks)

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  • 10 Marks

AT – May 2020 – L3 – Q2a – Tax administration in Ghana

Explanation of five transfer pricing methods approved by LI 2188 and OECD guidelines.

In July 2012, Ghana introduced new transfer pricing rules and guidelines through Transfer Pricing Regulations, 2012 (LI 2188). The transfer pricing rules require the use of the “most appropriate” method to price related party transactions. Similar to the Organisation for Economic Co-operation and Development (OECD) guidelines, the transfer pricing methods approved by the LI 2188, among others, are:

i) The Comparable Uncontrolled Price method; ii) The Resale Price method; iii) The Cost-Plus method; iv) The Transactional Profit Split method; and the v) Transactional Net Margin Method.

Required: Explain the transfer pricing methods stated above.

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  • 10 Marks

AT – Nov 2020 – L3 – Q5b – Business income – Corporate income tax

Tax computation for Percy-Perry Construction Ghana Ltd and Percy-Perry Engineering Company USA Ltd, addressing related party transactions and withholding tax implications.

Percy-Perry Engineering Company (USA) Ltd is incorporated in the USA and has Percy-Perry Construction (Ghana) Ltd as its subsidiary in Ghana. The foreign company was awarded a road construction contract by the Government of Ghana at a total sum of GH¢9 million on 1 January 2019. The company subcontracted the job to Percy-Perry Construction Ghana Ltd at GH¢7 million. Both companies entered into a technical service agreement under which the parent company would provide equipment and technical personnel for the execution of the contract.

The contract was successfully executed by Percy-Perry Construction Ghana Ltd during the year ended 31 December 2019, and the statement of comprehensive income of the company showed the following:

Description Amount (GH¢)
Contract Fees 7,000,000
Less:
– Cost of Materials (910,000)
– Hiring of Equipment (795,000)
– Technical Personnel Cost (555,000)
– Other Administration Expenses (223,000)
– Depreciation (110,000)
Net Profit 4,407,000

The following additional information is provided:

  • The equipment hired from the parent company at GH¢795,000 could have been hired from another company at GH¢600,000.
  • If the parent company did not provide the technical personnel, Percy-Perry Construction Ghana Ltd could have employed the same personnel at GH¢450,000.
  • Capital allowances for the year have been agreed at GH¢65,000.
  • The contract fees were subject to withholding tax.

Required: i) Compute the Companies Income Tax payable by Percy-Perry Construction Ghana Ltd for the relevant year of assessment and comment on the treatment of any two of the transactions.
(5 marks)

ii) Compute the Companies Income Tax payable by Percy-Perry Engineering Company (USA) Ltd to the Ghana Revenue Authority for the relevant year of assessment.
(2 marks)

iii) Explain THREE (3) objectives of the Ghana Investment Promotion Centre (GIPC).
(3 marks)

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  • 6 Marks

AT – Nov 2020 – L3 – Q3c – International taxation

A paper to the Commissioner-General outlining factors to consider in a related party transaction for SuccessVehicles Ltd.

Two vehicles of the same model and brand were sold by SuccessVehicles Ltd to two buyers at different prices. The first buyer bought one of the vehicles at the equivalent of US$84,500 and the second buyer bought the other vehicle at US$91,000. This arrangement, the Tax Authority finds difficult to accept and plans to confront SuccessVehicles Ltd on the matter.

The Commissioner-General has invited you as a final level student of ICAG to advise him on the factors to consider before approaching SuccessVehicles Ltd on the matter, as the Commissioner-General suspects related party issues.

Required:
Write a paper to the Commissioner-General on the issues to consider before approaching SuccessVehicles Ltd on the matter.

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  • 20 Marks

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

Gomoa Ltd, a resident of the United States of America, established two companies, Komenda Ltd (resident in South Africa) and Abirem Ltd (resident in Ghana). The Ghana Revenue Authority (GRA) requested information about Abirem Ltd for tax purposes.

The details for the 2021 year of assessment are as follows:

Additional information:
i) Gomoa Ltd invoiced goods to Abirem Ltd at a price of GH¢1,900,000, which is 10% higher than the market price.
ii) Dividend of GH¢700,000 paid by Abirem Ltd to Gomoa Ltd has been incorporated into Abirem Ltd’s cost.
iii) Management and technical services fee of GH¢1,290,000 paid to the group by Abirem Ltd has been added to operating expenses.
iv) Goods invoiced to Komenda Ltd by Gomoa Ltd amounted to GH¢1,000,000, priced 15% below the arm’s length price.
v) Dividend of GH¢200,000 received by Abirem Ltd from a resident company is included in its revenue. Abirem Ltd holds 25% of the resident company’s voting power.
vi) The Managing Director of Abirem Ltd took goods for personal use, valued at GH¢200,000 (cost), with a margin of 20%.
vii) The Managing Director of Abirem Ltd took additional goods worth GH¢130,000 at cost for home consumption, which was not added to the cost of goods above. The goods were sold at a 10% markup.
viii) Abirem Ltd paid GH¢20,000 in tax in South Africa at a rate of 27% on goods sold, which was included in its revenue.
ix) Abirem Ltd received a loan from Komenda Ltd for operations. Loan details are as follows:

  • Loan amount: GH¢10 million
  • Interest on loan payable: GH¢1,000,000
  • Foreign exchange loss on the loan: GH¢200,000
    x) Equity at the start of the year: GH¢2,000,000, and at the end of the year: GH¢2,800,000
    xi) GH¢400,000 was transferred from retained earnings to share capital.
    xii) Financial gain from derivative: GH¢2.5 million, and financial cost from derivative: GH¢6 million, included in operating expenses.

Required:
Calculate the tax payable by Abirem Ltd for the 2021 year of assessment.

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