The Ghana Revenue Authority (GRA) finds that many companies do not file transfer pricing return.
If you do not file transfer pricing returns you will pay a penalty. Yet, many people are unaware of the Transfer Pricing Regulation. Others are aware but unsure whether they must file such returns.
In this article we show who must file transfer pricing returns. This article explains a complex law in plain language. It is not exhaustive, so we recommend you consult a tax advisor.
What is Transfer Pricing?
A transfer price is the price at which persons (or entities) in a controlled relation sell goods and services between themselves.
Two persons (entities) are in a controlled relation if one of them can make sure that the other person acts to his wishes. For example, Company A owns 50% or more of the voting shares of Company B. Company A controls Company B.
Subsidiaries and branches are an example of business entities in a controlled relationship.
When independent enterprises do business, the market sets the price, but those in controlled relations may not do business at market prices.
As they are in a controlled relation, they may sell goods and services between themselves at prices different from the market price.
Why does it interest the GRA?
GRA is interested in transfer prices because the transfer pricing arrangements can transfer profits from Ghana to another country.
To counter abusive transfer pricing arrangements, GRA needs information on prices at which entities in a controlled relation transfer goods and services between themselves.
The transfer pricing return provides the information on transactions between the reporting entity and its related parties.
Where the transfer prices are not market prices, GRA will adjust taxable profit to reflect market prices on the transaction
What the transfer pricing regulation says
The Transfer Regulation 2012 (LI2188) and section 124 of the Income Tax Act, 2015 (Act 896) oblige companies in controlled relations to file transfer pricing returns not later than four months after their yearend.
Who must file?
Persons in a controlled relation, who conduct business among themselves, must file a transfer pricing return.
“Persons” refer to individuals and companies.
The following must file transfer pricing returns:
- Parent companies and their subsidiaries – any company in Ghana that is a member of a group of companies must file transfer pricing returns.
- Branch companies – Branch companies (External Companies) may transact business with the parent and its related companies and branches.
- Transactions with associates or companies who have significant influences. E.g. Company A is an associate of Company B if Company B owns more that 25% but less than 50% of the voting shares of A.
- Transactions between persons in an employment relationship. They are in a controlled relation.
For example, a company gives interest-free loans to its employees. This transaction is not at arm’s length, so this company must file a transfer pricing return.
Transfer pricing issues can be complex. We recommend that you always seek the help of a tax expert when dealing with transfer pricing issues.