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. (6 marks)
View Solution
ICAG
Accra
12th December, 2020
COMMISSIONER-GENERAL
GHANA REVENUE AUTHORITY
ACCRA
SIR,
COMPARABILITY FACTORS
Introduction
The sale of two vehicles with the same model and brand at USD84,500 and USD 91,000 to two differently buyers by Success Vehicles Ltd raises tax issues especially transfer pricing on the surface. In order to draw meaningful conclusion for the Commissioner-General, the following factors shall be considered:
Contractual terms
The price will be the same if the contractual terms are the same. Different contractual terms will create different pricing
Nature of the vehicles
There is the need to look at the vehicles critically and determine if the price differential is as a result of the nature of each vehicle.
FAR analysis
The FAR analysis looks at the following:
Function
Asset
Risk
Function
The function performs in each of the vehicle is worth noting to determine if there is an abuse in the pricing.
Asset
The asset used will also determine. In this case, the place of manufacture is worth taking into account.
Risk
The risk assumed in the manufacture of the vehicle is very important and can explain the price differentials
Economic condition at the time of producing each vehicle
What was the state of the economy at the time they were manufactured? Inflation, Interest and foreign exchange situation if different can explain the price differentials
Market penetration
New products hitting the market for the first time unknown to the market must be priced below its counterparts in order to get known before the price starts to see an increase.
Conclusion
The analysis of the factors above will help in the determination of the rationale for the price differentials.
Yours faithfully,
Boys Abre3 (Final Level Student) (6 marks evenly spread using ticks)