Topic: Tax Treaties and Interpretation

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  • 20 Marks

IT – Feb 2020 – L1 – Q5 – Tax Treaties and Interpretation

Respond to exchange of information requests from South Africa, Netherlands, France, and Italy.

You are a tax official working in the Exchange of Information unit of Ghana Revenue Authority. You have been asked to respond to several enquiries relating to the exchange of information with tax authorities in South Africa, Netherlands, Italy and France.

a. A request came from South African Tax Authority which begins with an observation, from the previous year’s data, that taxpayers in South Africa have often failed to disclose foreign source income. South Africa requests the names of all shareholders in Company X operating from Ghana who are resident in South Africa, and information on any dividends paid to them. Company X has a very popular brand in Ghana and has large shareholders.

b. Mr. Johnson Walker is resident of Netherlands. In the course of an ongoing tax investigation, it has been identified that Mr. Johnson Walker failed to declare her bank accounts with Agricultural Development Bank in Ghana. Netherland also suspects that accounts may have been opened in the name of Mr. Johnson Walker’s daughter, Phyllis. As Phyllis is the daughter of the beneficial owner, Netherland requests information on all accounts with Agricultural Development Bank held in both Mr. Johnson Walker and Ms. Phyllis Walker’s names.

c. Yesterday you reviewed a request for information from the revenue department of France. The file, however, is back on your table today as it has been discovered that a loan application which is subject to such exchange of information contains a secret trade formula.

d. Your junior colleague has just sent you an email, asking you to differentiate between “spontaneous exchange”, exchange of information on request, and automatic exchange of information. He believes that information that has recently been obtained upon request from Italy could be of interest to South Africa Tax Authority. Assume that no exchange of information agreement exists between Italy and South Africa.

Required
What will be your response to each of the requests? State reasons for your responses.

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  • 20 Marks

IT – Feb 2020 – L1 – Q3 – Double Taxation and Relief

Advise Mauritius on double taxation relief for investments in Ghana under proposed DTA.

Mauritius seeks to enter into a Double Taxation Agreement (DTA) with Ghana. From the context of the consultation so far held with Ghana, it is evident that Mauritius intends to negotiate the DTA in order to enable its corporate sector to invest capital in Ghana. Mauritius and Ghana operate worldwide system of taxation, but Ghana has high tax rate than Mauritius.

The Minister of Finance in Mauritius approached Kinsful Tax Practitioners, a Chartered Tax Practitioners, in Ghana to advise Mauritius on the most appropriate method of double taxation relief to be included in the proposed Ghana/Mauritius Double Taxation Agreement as it impacts on portfolio investment, direct share ownership and permanent establishment.

Required
(a). As the Head of Tax at Kinsful Tax Practitioners, prepare a briefing note to the Minister of Finance of Mauritius in which you set out your advice.

(bi). State the process by which a Double Taxation Agreement can be operative in Ghana.

(bii). When interpreting a Double Taxation Agreement (DTA), where a term is not defined in the DTA itself, what should the parties do?

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  • 20 Marks

IT – Aug 2020 – L1 – Q5 – Exchange of Information

Analyzes application of Article 26 OECD MTC on exchange of information, including relevance, bank secrecy, and trade secrets.

This question concerns the application of Article 26 OECD MTC. Sub-questions (1)-(4) will allow students to demonstrate their awareness of the major conditions envisaged by Article 26 OECD MTC and apply them in various contexts.

Part 1
a) The exchange of information is governed by Article 26 OECD MTC.
b) In a nutshell, under Article 26(1) the competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to secure the correct application of the provisions of the Convention or the domestic law of the Contracting States concerning taxes of every kind and description imposed in these States.
c) The reference to “foreseeably relevant” seeks to provide for exchange of information to the widest possible extent. Yet, at the same time, Contracting States may not engage in “fishing expeditions” or request information that is unlikely to be relevant to define the tax liability of a particular taxpayer. In this respect, the Commentary recommends looking for a reasonable possibility that the requested information will be relevant.
d) On the given facts, the relevance of the open-ended request for information submitted by South Africa (SA) tax authority can be questioned. SA seems to be engaging in “fishing expeditions” (in other words, has made a speculative request that has no apparent nexus to an open inquiry or investigation).

Part 2
a) This factual scenario satisfies the conditions set out by Article 26 OECD MTC. The requested information appears to be foreseeably relevant to secure the correct application of laws in Netherland
b) Even if the information about accounts opened in the name of John Walker may turn out to be immaterial, the Commentary to Article 26(1) in paragraph 5 clarifies that it does not matter whether the information (once provided) will actually prove to be relevant.
c) Therefore, a request in an ongoing investigation, where a definite assessment of the relevance can only be made upon receipt, cannot be refused. Hence, Ghana Revenue Authority is obliged to provide the requested information. This conclusion can be supported by a similar example included in paragraph 8(e) of the Commentary to Article 26(1).
d) In relation to the possibility of refusing the request on the ground that such information is held by National development Bank, Article 26(5) stipulates that a Contracting State shall not decline to supply information to a treaty partner solely because the information is held by a bank or other financial institution.
e) In effect, paragraph 5 overrides paragraph 3 of Article 26: the latter would otherwise permit a requested Contracting State to decline to supply information on the grounds of bank secrecy (paragraph 19.11 of the Commentary to Article 26(5)). Any further comments on international developments concerning transparency and/or bank secrecy will be rewarded by a higher mark.

Part C
a) According to Article 26(3)(c), paragraphs 1 and 2 of this article cannot be construed so as to impose on a Contracting State the obligation to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process. However, secrecy in this context should not be interpreted too broadly in order to make sure that the overall effectiveness of Article 26 is not undermined.
b) A Contracting State should carefully weigh whether the interests of the given taxpayer really justify the application of this provision (Commentary to Article 26(3), paragraph 19). Ghana Revenue Athority in these circumstances is given a certain discretion as to whether it should refuse the request.
c) If it does choose to supply the information, the taxpayer cannot allege an infraction of the rules of secrecy (Commentary to Article 26(3), paragraph 19).
d) As made clear by paragraph 19.2 of the Commentary to Article 26(3), in limited circumstances the disclosure of financial information might reveal a trade, business or other secrets.

Part D
As paragraph 9 of the Commentary to Article 26(1) explains, the exchange of information can happen in three ways: (i) on request, (ii) automatically and (iii) spontaneously.

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  • 20 Marks

IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Non discrimination

A. Article 24 of the MTC deals with the elimination of tax discrimination in certain precise circumstances. It deals with discrimination on the basis of nationality, statelessness, the permanent establishment of an enterprise, non-residence specifically in relation to the deductibility of certain payments (e.g. interest and royalties), and non-resident direct investors ( share capital)                                                                                                                                                                                                                                                                B. Bearer Shares and Bearer Banks

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Permanent Establishment

Analyze if technical experts’ presence in Ghana constitutes a Service PE under Article 5 of Ghana-Netherlands DTA.

(A) This question must be answered within the context of permanent establishment under Article 5 (1) of DTA between Ghana and Netherland and within domestic tax law. The presence of the technical expert may likely constitute a Service PE.                                                                                                                                                                                                                                                                                        (B)This question is based on the Article 10 (Dividend) of Double Tax Agreement (DTA). It also espoused the concept of Beneficial Ownership Concept in Paragraph 2 of Art 10 of the DTA.

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  • 20 Marks

IT – Feb 2020 – L1 – Q5 – Tax Treaties and Interpretation

Respond to exchange of information requests from South Africa, Netherlands, France, and Italy.

You are a tax official working in the Exchange of Information unit of Ghana Revenue Authority. You have been asked to respond to several enquiries relating to the exchange of information with tax authorities in South Africa, Netherlands, Italy and France.

a. A request came from South African Tax Authority which begins with an observation, from the previous year’s data, that taxpayers in South Africa have often failed to disclose foreign source income. South Africa requests the names of all shareholders in Company X operating from Ghana who are resident in South Africa, and information on any dividends paid to them. Company X has a very popular brand in Ghana and has large shareholders.

b. Mr. Johnson Walker is resident of Netherlands. In the course of an ongoing tax investigation, it has been identified that Mr. Johnson Walker failed to declare her bank accounts with Agricultural Development Bank in Ghana. Netherland also suspects that accounts may have been opened in the name of Mr. Johnson Walker’s daughter, Phyllis. As Phyllis is the daughter of the beneficial owner, Netherland requests information on all accounts with Agricultural Development Bank held in both Mr. Johnson Walker and Ms. Phyllis Walker’s names.

c. Yesterday you reviewed a request for information from the revenue department of France. The file, however, is back on your table today as it has been discovered that a loan application which is subject to such exchange of information contains a secret trade formula.

d. Your junior colleague has just sent you an email, asking you to differentiate between “spontaneous exchange”, exchange of information on request, and automatic exchange of information. He believes that information that has recently been obtained upon request from Italy could be of interest to South Africa Tax Authority. Assume that no exchange of information agreement exists between Italy and South Africa.

Required
What will be your response to each of the requests? State reasons for your responses.

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  • 20 Marks

IT – Feb 2020 – L1 – Q3 – Double Taxation and Relief

Advise Mauritius on double taxation relief for investments in Ghana under proposed DTA.

Mauritius seeks to enter into a Double Taxation Agreement (DTA) with Ghana. From the context of the consultation so far held with Ghana, it is evident that Mauritius intends to negotiate the DTA in order to enable its corporate sector to invest capital in Ghana. Mauritius and Ghana operate worldwide system of taxation, but Ghana has high tax rate than Mauritius.

The Minister of Finance in Mauritius approached Kinsful Tax Practitioners, a Chartered Tax Practitioners, in Ghana to advise Mauritius on the most appropriate method of double taxation relief to be included in the proposed Ghana/Mauritius Double Taxation Agreement as it impacts on portfolio investment, direct share ownership and permanent establishment.

Required
(a). As the Head of Tax at Kinsful Tax Practitioners, prepare a briefing note to the Minister of Finance of Mauritius in which you set out your advice.

(bi). State the process by which a Double Taxation Agreement can be operative in Ghana.

(bii). When interpreting a Double Taxation Agreement (DTA), where a term is not defined in the DTA itself, what should the parties do?

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  • 20 Marks

IT – Aug 2020 – L1 – Q5 – Exchange of Information

Analyzes application of Article 26 OECD MTC on exchange of information, including relevance, bank secrecy, and trade secrets.

This question concerns the application of Article 26 OECD MTC. Sub-questions (1)-(4) will allow students to demonstrate their awareness of the major conditions envisaged by Article 26 OECD MTC and apply them in various contexts.

Part 1
a) The exchange of information is governed by Article 26 OECD MTC.
b) In a nutshell, under Article 26(1) the competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to secure the correct application of the provisions of the Convention or the domestic law of the Contracting States concerning taxes of every kind and description imposed in these States.
c) The reference to “foreseeably relevant” seeks to provide for exchange of information to the widest possible extent. Yet, at the same time, Contracting States may not engage in “fishing expeditions” or request information that is unlikely to be relevant to define the tax liability of a particular taxpayer. In this respect, the Commentary recommends looking for a reasonable possibility that the requested information will be relevant.
d) On the given facts, the relevance of the open-ended request for information submitted by South Africa (SA) tax authority can be questioned. SA seems to be engaging in “fishing expeditions” (in other words, has made a speculative request that has no apparent nexus to an open inquiry or investigation).

Part 2
a) This factual scenario satisfies the conditions set out by Article 26 OECD MTC. The requested information appears to be foreseeably relevant to secure the correct application of laws in Netherland
b) Even if the information about accounts opened in the name of John Walker may turn out to be immaterial, the Commentary to Article 26(1) in paragraph 5 clarifies that it does not matter whether the information (once provided) will actually prove to be relevant.
c) Therefore, a request in an ongoing investigation, where a definite assessment of the relevance can only be made upon receipt, cannot be refused. Hence, Ghana Revenue Authority is obliged to provide the requested information. This conclusion can be supported by a similar example included in paragraph 8(e) of the Commentary to Article 26(1).
d) In relation to the possibility of refusing the request on the ground that such information is held by National development Bank, Article 26(5) stipulates that a Contracting State shall not decline to supply information to a treaty partner solely because the information is held by a bank or other financial institution.
e) In effect, paragraph 5 overrides paragraph 3 of Article 26: the latter would otherwise permit a requested Contracting State to decline to supply information on the grounds of bank secrecy (paragraph 19.11 of the Commentary to Article 26(5)). Any further comments on international developments concerning transparency and/or bank secrecy will be rewarded by a higher mark.

Part C
a) According to Article 26(3)(c), paragraphs 1 and 2 of this article cannot be construed so as to impose on a Contracting State the obligation to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process. However, secrecy in this context should not be interpreted too broadly in order to make sure that the overall effectiveness of Article 26 is not undermined.
b) A Contracting State should carefully weigh whether the interests of the given taxpayer really justify the application of this provision (Commentary to Article 26(3), paragraph 19). Ghana Revenue Athority in these circumstances is given a certain discretion as to whether it should refuse the request.
c) If it does choose to supply the information, the taxpayer cannot allege an infraction of the rules of secrecy (Commentary to Article 26(3), paragraph 19).
d) As made clear by paragraph 19.2 of the Commentary to Article 26(3), in limited circumstances the disclosure of financial information might reveal a trade, business or other secrets.

Part D
As paragraph 9 of the Commentary to Article 26(1) explains, the exchange of information can happen in three ways: (i) on request, (ii) automatically and (iii) spontaneously.

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  • 20 Marks

IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Non discrimination

A. Article 24 of the MTC deals with the elimination of tax discrimination in certain precise circumstances. It deals with discrimination on the basis of nationality, statelessness, the permanent establishment of an enterprise, non-residence specifically in relation to the deductibility of certain payments (e.g. interest and royalties), and non-resident direct investors ( share capital)                                                                                                                                                                                                                                                                B. Bearer Shares and Bearer Banks

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Permanent Establishment

Analyze if technical experts’ presence in Ghana constitutes a Service PE under Article 5 of Ghana-Netherlands DTA.

(A) This question must be answered within the context of permanent establishment under Article 5 (1) of DTA between Ghana and Netherland and within domestic tax law. The presence of the technical expert may likely constitute a Service PE.                                                                                                                                                                                                                                                                                        (B)This question is based on the Article 10 (Dividend) of Double Tax Agreement (DTA). It also espoused the concept of Beneficial Ownership Concept in Paragraph 2 of Art 10 of the DTA.

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