Tighten knot on transfer pricing

Ghana hosts a number of foreign companies operating in different sectors of the economy and these companies contribute to national development.

Some of these multinational companies can be found in the mining, beverage, oil and gas, textiles and banking sectors, all making good returns on their investments.

These companies are also expected to discharge their statutory obligations in the form of paying taxes and other levies in return for the enabling environment, including infrastructure, security, and human capital, created to support the smooth operation of their businesses.

In some cases, the state grants some of these companies juicy tax incentives to enable them to overcome the fiscal constraints of start-ups, among others.
Regrettably, some foreign companies use various aggressive tax planning schemes to avoid paying the requisite amount in taxes.

One of the commonest ways is through transfer pricing, which is an advanced management accounting method used to determine a suitable price for transactions conducted between related parties.

This is when a company pays higher prices to a related party in another country where taxes are lower. The second company then makes more profits, which are remitted to the parent company in that country or elsewhere, while the company in the first country consistently reports lower profits, thereby denying that government more revenue.

It is for this reason that the Daily Graphic supports the initiative by the government of The Netherlands to build the capacity of our tax officials in the area of transfer pricing.

The initiative will enable the Ghana Revenue Authority (GRA) to overcome the challenges faced with transfer pricing when auditing large and complex businesses.

The Daily Graphic wishes to urge those who participated in the workshop to take the programme seriously and share the knowledge acquired with other members of staff of the GRA. For us, building the capacity of GRA staff in transfer pricing and risk-based audits is as important as blocking the loopholes in our tax administration.

This is so because some multinational companies sometimes exploit and reduce their tax obligations through transfer pricing, thereby denying the state of revenues.

They do this by simply shifting profits from host countries, such as Ghana, to other countries, including their home countries, through transfer pricing or mis-pricing of goods and services.

We expect that the training will help address the shortcomings associated with the anti-avoidance provisions in the tax laws of the country and enhance the government’s revenue mobilisation drive.

The government is often compelled to shift the burden of taxation to individuals and households through increased indirect taxation if the companies evade their obligation.

The worry is that sometimes the government has to resort to borrowing to boost the revenue required to provide essential services for the people.

We, therefore, recommend that accountants and staff of the Audit Service should be roped into the programme, so that risk-based audits could be increased to spot any such price manipulations that can go against the country.

To ensure an effective tax administration system, we urge the GRA also to review the policy of rotating auditors around the various divisions on a bi-annual basis, particularly for the mining and petroleum audit desks, given the economic significance of the companies and the need for expertise to match their ingenuity.

We also urge the Transfer Pricing Unit of the GRA to develop a pricing matrix for all the sectors in which foreign companies operate. This will strengthen the monitoring and evaluation capacity over transfer pricing risks.

The Daily Graphic believes that checking inimical business practices such as transfer pricing will help ensure tax compliance and lessen the tax burden on a few taxpayers.