The Transfer Pricing Unit of the Ghana Revenue Authority frowns upon any transaction between controlled persons that is not conducted at arm’s length.
Required:
What is arm’s length price and its effect on tax revenue? (5 marks)
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Arm’s length price is the market price of goods and services. It can be said to be a price that a willing and a knowledgeable buyer and seller agree to exchange for goods and services. (2 marks)
The effect of arm’s length price on revenue:
The arm’s length price is the price the tax administrators allow to be used by persons in a controlled relation. It allows for proper reporting of revenue by the seller of the goods and services. This helps the GRA be able to compute the true tax profit of the person. (3 marks)