The spectrum of investment opportunities in Ghana has heightened and this has attracted some investors who intent to visit next month to access potential for investment. The Ministry of Finance has written to your Tax Consulting Firm to make a presentation on behalf of the Ministry to these Investors. The letter from the Ministry, contains in part, the following:
‘International trade has given persons the ability to carry out separate aspects of their business operations in different countries. Even though it will be inconceivable to compel a person to pay taxes in every country where that person carries out business operations, the level of business activity carried on by a person in a particular country may expose that person to tax liabilities under the laws of that country. In Ghana, assessable income of a non-resident person includes income effectively connected with a Ghanaian permanent establishment of the person irrespective of the source of the income…’.
Required:
Prepare a report highlighting the following:
a) What Constitute Ghanaian permanent establishment with reference to Income Tax Act, 2015 (Act 896)? (4 marks)
View Solution
Report
To: Tax Partner
From: Tax Intern
Date: July 7, 2020
Subject: Ghanaian Permanent Establishment
a) Ghanaian permanent establishment, according to the Act 896, could be any of the following:
- A place in Ghana where a non-resident person carries on business or that is at the disposal of the person for that purpose.
- A place in Ghana where a person has, is using or is installing substantial equipment or substantial machinery.
- A place in Ghana where a person is engaged in a construction, assembly or installation project for ninety days or more. This includes a place where a person is conducting supervisory activities in relation to that project.
- A place for the provision of services in Ghana.
- A place in Ghana where an agent performs any function on behalf of the business of a non-resident person:
* including, in the case of an insurance business, the collection of premiums or the insurance of risks situated in Ghana, but
* excluding a case involving a general agent of independent status with its own legal personality acting in the ordinary course of business. (4 points for one mark each for total of 4 marks)
b) Explain the taxation rules on Ghanaian permanent establishment as enshrined in the Income Tax Act, 2015 (Act 896). (10 marks)
View Solution
- The mere fact that a non-resident has a subsidiary in Ghana is not enough to make the subsidiary a permanent establishment of the parent company. It is important to show that the parent company performs or carries out its business through the subsidiary in Ghana before the subsidiary will be classified as a PE of the parent company. The general understanding of the word “permanent” establishment connotes an element of “continuity” and as such it will be difficult to characterize a one- off transaction as creating a permanent establishment of a non-resident in Ghana.
- Under the income tax law of Ghana, a permanent establishment is treated as an entity which is distinct from its non-resident owner. A Ghanaian permanent establishment is subjected to tax in the same manner as a resident company but a foreign permanent establishment is exempt from tax. The permanent establishment and its owner are treated as persons in a controlled relationship and thus the transactions must satisfy the arm’s length principle. A Ghanaian permanent establishment is expected to withhold tax on payments made, pay taxes on payments received and pay tax by instalments after assessment in the same manner a resident company will do under a similar circumstance. The tax law recognizes a debt owed by an owner to a permanent establishment or a debt owed by permanent establishment to its owner and interest derived or incurred as a result of this debt obligation provided these obligations reflect in the book of accounts maintained by the owner and the permanent establishment.
- Any activity carried out by a permanent establishment is treated as conducted in the course of a single business.
- The Act also provides that when the owner of a permanent establishment employs an individual who is resident in Ghana; makes a sale of trading stock of the same or a similar kind as those sold through the PE and when the owner conducts any other business activity with a person resident in Ghana and the activity is of the same or a similar kind effected through the permanent establishment, the activities of the owner of the PE are treated as conducted by the Ghanaian permanent establishment.
- Any asset held by or employed in an activity of a permanent establishment is an asset of the permanent establishment. An intangible asset created by or through a permanent establishment is an asset of the permanent establishment. However, an intangible asset is recognized as an asset of a Ghanaian permanent establishment if that the asset is exploited in Ghana. A debt obligation incurred in borrowing money which is employed in the activity of a permanent establishment or which is used to acquire an asset which is held or employed in the activities of a permanent establishment is recognized as a liability of the permanent establishment. Any other liability arising directly out of an activity of the permanent establishment is also recognized as a liability of the permanent establishment. (5 points @ 2 marks each = 10 marks )