1. Relevant provisions that are needed to address the concerns of the company are in Section 7 and 101 (4) of the Income Tax Act (ITA) 896, Article 3(1)(H) and Article 8 of the Double Taxation between United Kingdom (UK) and Ghana.

ITA 896 General Rules

2. The rule in respect of resident entity is that an entity is resident in Ghana where the entity is incorporated under the company Act 992 or it has its affairs centrally managed in Ghana.

3. Provision in section 7 of the ITA 896 is relevant. Section 7 exempts the income of a non-resident person from business of operating ships, aircraft, where the Commissioner General is satisfied that equivalent exemption is granted by the country of residence of that person to a person resident in Ghana.

4. Considering that, there is DTA between Ghana and UK, the provisions in the DTA, prevail over the provision in the ITA. See section 98 of Revenue Administration Act, 915.

Changes to UN/OECD MTC article 8

5. Prior to 2017, the tie breaker rules for allocation of taxing right of state by resident status was changed from place of effective management (POEM) to a determination being made by mutual agreement and also to the manner in which profits arising from international shipping and air transport will be allocated from the State with the company’s place of effective management to the State of the enterprise.

The DTA and determination of the taxing right The General rules in the DTA

6. There is a need to consider Articles 3 and 8 of the DTA between South Africa and Ghana and the UK and Ghana. The relevant provisions in DTA with UK and South Africa are the same.

7. Article 7(4) provides that where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of art 7.

8. So, where the relevant activity falls within Articles 3 and 8, Articles 5 and 7 do not apply, therefore, Article 8 trumps Articles 5 and 7.

9. Article 8(1) of DTA between Ghana and UK provides that Profits derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

10. Article 3(1)(h) of the DTA also defined ‘international traffic’ to mean any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State

11. On the basis of Article 8(1) and paragraph 2 of the Commentary to article 8, and on the basis of the fact in the case, there is no specific need to consider the location of Volta Air’s place of effective management.

12. Rather where the relevant activities fall within Article 3 and Article 8 is where the taxing right will be located.

13. Most likely, South Africa has the right to tax all the relevant profits as it is the most likely state to be “Contracting State of the enterprise” based on the facts. Remember, the company is incorporated in South Africa. And exclusive use of place of effective management has changed to enterprise of the state. In fact, this is the position of Ghana/UK DTA.

14. Where the aircraft (as part of the same voyage) flies between a place in Ghana to South Africa (leg one) and then flies from the South Africa location to another location in UK (leg two), both legs of the journey will fall within the definition of “international traffic” as longer as the flight originate from UK.

15. The relationship between the agents in Ghana and Volta air needs not be considered as has been the case in Article 5(5) and Article 7(1).

Ancillary income

16. Commentary on Article 8(1), para 4-4.3, the allocation rule in Article 8 applies not only to the profits directly obtained from ticket sales but also to profits obtained from activities that are not directly connected with these sales provided these other activities are ancillary to the operation of Volta Air airline business. Where the activities are considered to be ancillary then profits from these activities will be taxable only in the state of the enterprise, i.e. Ghana.

17. The advertising income earned will fall under article 8(1) 18. Paragraph 10.1 of article 8 provides that income derives by enterprise in international traffic arising from pooling arrangement for purpose of maintaining and repairing of aircraft or ships are taxed in accordance with Art 8(1)

b). Jurisdiction to tax the income 19. According to Article 8, UK has the right to tax profits derived by Volta Air from “international traffic”, air/ship traffic within its borders and also that occurring within third countries, the United Kingdom. 20. In this case UK will have the right to tax any profits derived by Volta Air from sales made by the Ghanaian agent that are for travel under the Ghana/South Africa DTA (i.e. category flights above) and may have the right to tax any profits arise from flight made to South Africa or Ghana 21. South Africa will have the right to tax all ancillary income (advertising and repairs and maintenance).