Advice Konadu Yiadom Limited and its shareholders on:

• The income tax implications of the acquisition of shares by Japan Rocks.
• The acquisitions of sixty percent shares of Japan Rocks by Konadu Yiadom Limited will amount to change ownership of Japan Rocks.
• Sections 38(l)(f) and section 62 of Act 896 provide that where the underlying ownership of an entity changes by more than fifty percent at any time within three years, the assets and liabilities of the entity immediately before the change is deemed to be realised.
• Underlying ownership in relation to an entity is defined in section 133 of Act 896 to mean membership interests owned in the entity, directly or indirectly through one or more interposed entities, by individuals or by entities in which no person has a membership interest.
• Since there will be more than fifty percent change in ownership of Japan Rocks, the assets and liabilities of Japan Rocks will be deemed to have realised immediately before the change.
• Section 62(2) of Act 896 provides that where the underlying ownership of Japan Rocks changes by more than fifty percent, Japan Rocks cannot:
  o deduct financial costs carried forward under section 16(3) that were incurred by the entity before the change
  o deduct a loss that was incurred by the entity before the change;
  o claim a deduction after the change, in a case where the entity has included an amount in calculating income under those provisions before the change; or
  o carry back a loss that was incurred after the change to a year assessment before the change.
• Thus, the loss of GH¢3,600,000 of Japan Rocks cannot be carried forward, and the financial cost of GH¢900,000 cannot be deducted or carried forward.
• If the underlying ownership changes by more than fifty percent during a year of assessment of Japan Rocks, the period after the change shall be treated as separate years of assessment under section 62(3) of Act 896.

Percy-Perry Construction
Computation of Tax Payable
Y/A 1st January-31st December 2019

Alternative solution
Alternative solution with the assumption that the hire of equipment and staff costs between the USA and Ghana are incomparable in view of the geography and the economic climate of both jurisdiction.
Percy-Perry Construction
Computation of Tax Payable
Y/A 1st January-31st December 2019

Percy- Perry USA
Computation of tax Payable
Y/A 2019
                                                                                                          GH¢
Profit (9,000,000-7,000,000)                                                         2,000,000
Tax Charged @25%                                                                         500,000
Less withholding Tax (9,000,000*5%)                                            450,000
Net Tax Payable                                                                                 50,000

Issues:
The Parent Company based in the USA is using its subsidiary in Ghana to perform the task. Assuming it had no subsidiary, technically, it would have been considered a Permanent Establishment (PE) since construction for 90 days or more makes a non-resident person a PE in Ghana.

Hire of equipment
There is no indication that the subsidiary in Ghana tried finding out if any entity in the USA could hire the equipment for a lower amount or at best the GH¢600,00 being quoted by the Subsidiary

Staff Cost
There is no indication that other person that is uncontrolled in the USA could collect an amount lower than what the Parent Company is asking.
In any case, Citizens of other States that come to Ghana are paid slightly higher than their counterparts in Ghana.

Contract award
By winning the contract for GH¢9m and subletting it for GH¢7m, making a profit of GH¢2m, the profit will be subject to tax in Ghana as profit attributable to operations in Ghana.

Kaek Consult
Box 4
Accra

12th December 2020

The Manager
Gona Jon Ltd

Dear Sir,

HOW TO ACCESS WORTHWHILE CONTRIBUTION/DONATION AND BENEFITS

Following your request for us to furnish you with the benefits of worthwhile causes and how an entity can access them, I forward as follows for your study and decision making:

Nature of worthwhile causes
The worthwhile causes are in the nature of donation or contribution towards any of the following:

• A charitable organisation
• A scheme of scholarship for an academic, technical, professional or other course of study
• Development of any rural or urban area
• Sports development or sports promotion and
• Any other worthwhile cause approved by the Commissioner-General

Benefits of the worthwhile causes
The benefits of such are as follows:
The entity is able to enjoy good will from such donation and additionally, will be used as a deduction from income before tax is imposed. This reduces the tax payable of the entity.

How to access them
Approval should be sought from the Commissioner-General or from the sector ministry to be able to enjoy the deduction from income.

Conclusion
It is hoped that the above would help you in your decision making.
In case you need further clarification on the above, do not hesitate to get in touch with the undersigned.
Thank you.

Yours faithfully,

Boys Abre3

The proposed investment will help in the following:
Tax Rebate
Investment in the shoe manufacturing in Accra will create for the entity a tax payment at the rate of 25%
On the other hand, Juice manufacturing in Nsawam will create a tax paying responsibility at the rate of 12.50 % with a rebate of 50% from the corporate tax at the rate of 25% based on the location.                        (2 marks)

Locational Incentive
Accra /Tema corporate tax rate is 25%
Regional capitals tax payable is at the rate of 18.75% with a rebate of 25%
Any other area 12.50% with a rebate of 50%                                                     (1 mark)

Capital allowance
The cost it intends to incur in the following depreciable assets shall rank for capital allowance for the entity.
                                                    GH¢
Building                                 7,200,000
Plant and Machinery              11,700,000
Furniture and fittings              180,000
Computers                               180,000
The above constitute depreciable assets and shall be granted capital allowance:
Building falls under pool 4 and shall be granted capital allowance at the rate of 10% straight line method.
Plant and Machinery fall under pool 2 which will be granted capital allowance at the rate of 30% reducing balance method.
Furniture and fittings shall fall under pool 3 and be granted capital allowance at the rate of 20% reducing balance method
Computer falls under pool 1 and capital allowance at the rate of 40% on reducing balance method.
The essence of capital allowance is to reduce the chargeable income and consequent tax payable.        (3 marks)

Fresh graduate incentive
The recruitment of fresh graduates will also generate benefit to the entity as follows:

Loss carry forward
The losses projected to be incurred as follows
2018                         36,000
2019                         32,400
2020                        18,000
The above losses shall be carried forward for 5 years and shall be deducted in the order in which they occur. Each year’s loss shall be carried forward for five years against income in line with section 17 of Act 2015 (Act896).               (1 mark)

Thin capitalization Issues
The borrowing of 100,000,000 against equity of 36,000,000, has no tax implication. The safe harbour rule is Debt equity ratio of 3: 1.

Equity of 3 time is GH¢108,000,000 (3*36,000,000), which is higher than the amount of loan to be secured from a related party. The interest on the loan shall all be allowable deduction to the extent that the interest is at a commercial rate.
If the debt equity ratio is more than 3: 1, the interest on the excess of the loan above 3:1 ratio shall be disallowed for tax purpose.                                     (1 mark)

Tax is charged on income from employment, business and investment in the case of a resident person, on world-wide income but for non-resident on income derived from and accrued in Ghana.

Lydia Waakye, being an income earner shall be required to pay taxes on income. However, as an individual aged 16 years and running an enterprise, she is an incapacitated person (not fit and proper) and therefore, the tax affairs must be managed by her trustee.

She cannot pay tax on her income, the trustee will pay tax on her behalf until she is able to pay at an adult age
(3 points well explained for 3 marks)

Trading in Ghana is having presence in Ghana, doing business in Ghana and making profits in Ghana. Trading in Ghana is taxable in Ghana while trading with Ghana is not having presence in Ghana and not doing business in Ghana. Trading with Ghana is not taxable in Ghana.

Tax implication of XYZ Park Co contract for fuel depot in Ghana are as follows:

• Production and Fabrication works – $500,000.
  This work is to be carried out outside Ghana. Therefore, permanent establishment cannot be established in Ghana. The income therefore not liable to tax in Ghana.

Installation Work and related service $200,000 and GH¢2,400,000 respectively.

• Installation site is in Ghana. This will serve as a permanent establishment for the performance of the work in Ghana.
• Related services will also be performed in Ghana and therefore will constitute a permanent establishment for XYZ Park in Ghana.
• If there is double tax agreement (i.e. tax treaty) between Ghana and the country of residence of XYZ Park, Ghana tax will apply to both the installation works and related service and appropriate relief provided.                 (4 points @ 1.5 marks each = 6 marks)

The acquisition of 68% of Mbangba ltd will result in change in underlying ownership of Mbangba ltd by more than 50%.
Tax implication:

• The period before the change and the period after the change in underlying ownership in the assets shall be treated as separate years of assessment.
• The tax loss GH¢400,000 incurred in 2018 year of assessment cannot be utilized by Lawomba ltd.
• Financial cost of GH¢100,000 from derivatives brought forward from 2018 cannot be benefited by Lawomba.
• Bad debts of GH¢1,200,000 cannot be taken account of by Lawomba ltd.
• Gain on realization is taxable.                              (4 points @ 1.5 marks each =6 marks)
  

Under section 47 of Act 2015 (Act 896), the gains on realization of an asset accruing to or derived by a company arising out of a merger, amalgamation or re-organisation of a company is exempt from tax where there is a continuity of at least fifty percent of the underlying ownership in the asset.

The intended merger of the two companies may create either a tax benefit or burden depending on the arrangement.

Under this arrangement, Akolo has 40% in the underlying ownership in the asset of the new company, this suggests realization of the assets and consequently, any gains made is subject to tax by adding it to business income and subjecting it to applicable tax rates.

In the case of Abolo that intends to hold 60% in the underlying ownership in the assets of the new company, any gain from this merger is exempt from tax.

If both hold 50% in underlying ownership in the assets of the new company that constitutes realization of asset but the gains on this realization are exempt from tax in both Akolo ltd and Abolo ltd.

Trading in Ghana connotes a non-resident person having business presence in Ghana and competing with our local businesses. It implies in simply terms, having a permanent establishment.
On the other hand, trading with Ghana does not connote having presence in Ghana. This will not create any tax implication for the non-resident person.