Connected By Control, Governed By Compliance: Embracing Ghana's Transfer Pricing Landscape

Introduction

As Ghana positions itself more firmly within the global economic landscape, its business environment is witnessing a notable surge in complex cross-border and intra-group transactions. These transactions, ranging from the exchange of goods and services to the transfer of intellectual property and financial arrangements, have become a common feature among both domestic enterprises and multinational corporate groups operating within the jurisdiction.

Behind these transactions lies a complex array of legal and regulatory considerations. Central among them is Transfer Pricing, a vital area of tax compliance that ensures that related-party transactions are conducted on market-based terms. Improper Transfer Pricing practices often result in hefty tax liabilities, disputes with tax authorities, and reputational damage.

This article provides a practical overview of Ghana's Transfer Pricing regime, focusing on the governing legal framework and best practices for businesses seeking to navigate this complex area.

What is Transfer Pricing: "Unpacking the Logic of Transfer Pricing Rules"

Transfer Pricing refers to the determination of prices of goods, services, or intangible assets exchanged between associated enterprises.¹ When such transactions are not properly structured, there exists the potential for profit shifting from high-tax jurisdictions to low-tax jurisdictions, thereby reducing a company's overall tax liability.

To prevent tax advantages arising from the manipulation of prices, Ghana's Transfer Pricing regime, primarily governed by the Income Tax Act, 2015 (Act 896) (As Amended) (the "Act"), and the Transfer Pricing Regulations, 2020 (L.I. 2412) (the "Regulations") requires that arrangements between persons in a controlled relationship be conducted in accordance with the Arm's Length Standard.² An arrangement between persons in a controlled relationship satisfies the Arm's Length Standard if the terms of that arrangement do not differ from the terms of a similar arrangement between independent persons.³

Who is Related? "Decoding Controlled Relationships"

The first step in assessing the applicability of Ghana's Transfer Pricing laws to a transaction is to determine whether the parties involved are in a controlled relationship. Where such a relationship exists, the Arm's Length Standard must be applied to the transaction.

In Ghana, parties are considered to be in a controlled relationship where the relationship between them is that of:

1. An individual and a relative of the individual;
2. Partners in the same partnership;
3. An entity and an associate of the entity;
4. A settlor, trustee, and beneficiary of a trust or
5. A relationship such that a person, not being an employee, acts under the direction, request, suggestion, or wish of another person, whether or not the person is in a business relationship and whether or not the direction, request, suggestion, or wish is communicated to that other person.⁴

A person is regarded as an associate of an entity if they participate, either directly or indirectly, in the management or control of the entity, or if both the person and the entity are managed or controlled by the same persons.⁵ "Control" in this context means holding, either directly or indirectly, twenty-five percent (25%) or more of the voting power or rights to income or capital of the entity.⁶

Accurately identifying a controlled relationship is a foundational step towards ensuring compliance and avoiding penalties.

Applying the Arm's Length Standard: "Ensuring Fairness in Related-Party Dealings"

Upon establishing a controlled relationship, businesses must ensure that all transactions between associated entities adhere strictly to the Arm's Length Standard. The Regulations provide detailed guidance on the application of this standard, particularly with the selection of the appropriate transfer pricing methods, the treatment of transactions involving intangible assets, cost contribution arrangements, financial arrangements, and business restructuring.

I. Transfer Pricing Method: "Choosing the Right Approach"

In Ghana, businesses are required to adopt one of the following methods in determining arm's length prices:

1. Comparable Uncontrolled Price Method
2. Resale Price Method
3. Cost-Plus Method
4. Transactional Profit Split Method
5. Transactional Net Margin Method⁷

The Regulations emphasize the importance of selecting the most appropriate method, taking into account the nature of the transaction, the availability of reliable information, the accuracy of comparability adjustments, and the inherent strengths and weaknesses of each approved method.⁸

Notwithstanding, a business may, with the prior approval of the Commissioner-General of the Ghana Revenue Authority (GRA) (the "Commissioner- General"), apply an alternative method not listed among the approved methods. To obtain such approval, the business must demonstrate to the satisfaction of the Commissioner-General that none of the prescribed methods can be reasonably applied to the transaction and that the proposed method will yield an arm's length result.⁹

II. Arrangements Involving Intangible Properties: "Valuing the Invisible"

Intangible properties include patents, software, inventions, secret formulas or processes, designs, models, plans, trademarks, know-how, or marketing intangibles.¹⁰ Given the inherent challenges in obtaining comparable data for such properties, related-party transactions involving intangible properties are subject to heightened scrutiny by the GRA.

In determining the arm's length conditions for such transactions, the Commissioner-General evaluates the price that would be paid by a comparable independent party for the intangible property and the usefulness of the intangible property to the business of the transferee.¹¹

Significant emphasis is placed on the economic substance of the transaction, specifically identifying which party bears the costs and risks associated with the enhancement, maintenance, protection, and exploitation of the intangible property.¹²

Accordingly, businesses must ensure that transactions involving intangible properties are meticulously documented and accurately reflect the true economic substance of the transaction.

III. Cost Contribution Arrangements: "Sharing the Load"

Businesses in controlled relationships often engage in Cost Contribution Arrangements (CCAs) to jointly undertake the development, production, or acquisition of tangible and intangible assets or services. Under such arrangements, the participating entities agree to share the associated costs and risks in proportion to the benefits each entity is reasonably expected to derive from the assets or services obtained under the arrangement.¹³

To ensure that CCAs meet the Arm's Length Standard, the Commissioner-General evaluates the following factors:

1. The contractual arrangement among the participants;
2. The assets contributed by each participant;
3. The risks assumed by each participant;
4. The management and control of those risks; and
5. The financial capacity to assume the risk.¹⁴

Therefore, businesses in controlled relationships engaged in CCAs must ensure that such arrangements are economically rational and commercially justifiable, with a clear and consistent correlation between the costs incurred and the benefits expected to be derived by each participant.

IV. Financial Arrangements: "When Related Parties Lend and Borrow"

Financial arrangements such as loans, credit facilities, and guarantees made between controlled relations are required to comply with the Arm's Length Standard. This means that the terms of such arrangements, in particular interest rates, must reflect those that would have been agreed upon by independent parties operating under comparable circumstances. Where this standard is not met, the Commissioner-General is empowered to impute appropriate interest or loan fees or adjust the amount of interest or loan fee to align with the Arm's Length Standard.¹⁵

In assessing whether the interest or loan fee meets the Arm's Length Standard, the Commissioner-General evaluates various factors, including the characteristics of the loan, the credit risk profile of the borrower, the prevailing interest rates in the tax residence of both the lender and borrower for similar loans to independent parties and other relevant information.¹⁶

Businesses in a controlled relationships undertaking financial arrangements must always ensure that interests on loans, trade payables and other credit facilities reflects market-based terms. This is essential to prevent transfer pricing adjustments by the GRA, which results in significant penalties.

V. Business Restructuring: "New Structures, Same Standards"

Business restructuring typically entails substantial organizational changes, including the relocation of functions and the transfer of rights, interests, assets, and risks among associated entities. While often undertaken for strategic, operational, or tax planning purposes, restructurings between associated parties raise critical Transfer Pricing considerations that must be carefully evaluated to ensure compliance with the Arm's Length Standard.

When restructuring, transfer of assets between related parties must be evaluated to ensure the pricing reflects fair market value, taking into account the associated risks and expected returns. Additionally, the shifting of business functions from one entity to another may alter the allocation of profits within the group. Such changes must be substantiated by appropriate documentation that clearly demonstrates the economic substance of the transaction.

To ensure compliance, the GRA often conducts a functional analysis of the pre-business and post-business restructuring arrangements to determine the true nature such transactions.¹⁷ Accordingly, businesses must exercise due diligence and maintain comprehensive documentation to mitigate the risk of tax audits and disputes with the GRA.

Transfer Pricing Returns and Documentation: "Keeping Track"

To ensure full compliance, businesses engaged in controlled transactions are required to file a Transfer Pricing Return with the GRA no later than four (4) months after the end of each basis period (e.g., by 30th April for entities with a 31st December year-end).¹⁸

In addition to this requirement, any Ultimate Parent Entity or Constituent Entity of a Multinational Enterprise (MNE) Group that is tax resident in Ghana must file a Country-by-Country Report with the Commissioner-General within twelve (12) months after the last day of the MNE Group's reporting fiscal year.¹⁹

Businesses must also maintain contemporaneous documentation of the controlled arrangement engaged in each year of assessment.²⁰ An electronic copy of this documentation must be submitted to the Commissioner-General no later than four (4) months after the end of each basis period.²¹ The documentation must include the following components:

1. Master File – This should outline the organizational structure of the group, including a chart that illustrates both the legal and ownership structure as well as the geographical location of its operating entities. In addition, it must provide a detailed description of the group's business operations, its intangible assets, and the group's financial and tax position.²²
2. Local File – This should outline the organizational structure of the entity in Ghana, provide details of its controlled arrangements with related parties, and include information on the financial activities of the entity within Ghana.²³

Exemptions from the obligation to maintain contemporaneous documentation apply under certain conditions:

1. Where the monetary value of the controlled arrangement does not exceed the Ghana Cedi equivalent of two hundred thousand United States Dollars (USD 200,000.00)²⁴; or
2. Where a person enters into a Technology Transfer Agreement (TTA) with a person with whom there is a controlled relationship and elects, by written notice to the Commissioner-General, to be exempted, provided that:
   • The TTA is registered with the Ghana Investment Promotion Centre (GIPC) and
   • The amount charged for the technology transferred in respect of royalties, know-how, management, and technical fees does not exceed two percent (2%) of the net profit of the entity.²⁵

In light of these obligations, businesses must establish robust internal systems for documenting, monitoring, and reviewing related-party transactions, as failure to maintain proper documentation or to file a Transfer Pricing Return as required by law attracts substantial penalties.²⁶

Staying Compliant: "A Summary Checklist for Businesses"

To effectively navigate Ghana's Transfer Pricing landscape and mitigate regulatory risks, businesses engaged in controlled relationship transactions must adhere to the following best practices:

1. Identify controlled relationships at the outset.
2. Map all controlled transactions comprehensively.
3. Apply the Arm's Length Standard to all controlled transactions.
4. Select the most appropriate Transfer Pricing method.
5. Conduct regular functional analysis.
6. Maintain thorough and up-to-date documentation.
7. Ensure timely filing of required returns.
8. Consult tax and legal advisors for expert guidance.

Conclusion

With the growing prevalence of intra-group and cross-border transactions, a clear understanding of Transfer Pricing principles is essential for ensuring compliance and sustaining business operations in Ghana. The complex nature of controlled-relationship transactions, especially those involving intangible assets, financial arrangements, and business restructurings, demands a thorough understanding of both the legal framework and practical compliance requirements. By proactively applying the Arm's Length Standard, maintaining proper documentation, and engaging professional advisors, businesses can mitigate the risk of audits, penalties, and reputational harm. Ultimately, a well-structured Transfer Pricing strategy is not only a regulatory necessity but also a key component of sound corporate governance and sustainable business growth.

Footnotes

1. OECD (2022), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, OECD Publishing, Paris, paragraph 11 of p 13, available at < https://doi.org/10.1787/0e655865-en. > Last accessed 16/04/2025

2. Transfer Pricing Regulations, 2020 (L.I. 2412), Regulation 2(1)

3. Ibid, Regulation 2(2)

4. Income Tax Act, 2015 (Act 896) (as amended), Section 128(1)

5. Ibid, Section 128(2)

6. Ibid, Section 128(3)(a)

7. Transfer Pricing Regulations, 2020 (L.I. 2412), Regulation 4(1)

8. Ibid, Regulation 5(2)

9. Ibid, Regulation 5(3) & (4)

10. Ibid, Regulation 17

11. Ibid, Regulation 7(1)

12. Ibid, Regulation 7(3)

13. Ibid, Regulation 17

14. Ibid, Regulation 8(2)

15. Ibid, Regulation 9(1)

16. Ibid, Regulation 9(2)

17. Ibid, Regulation 10(2)(c)

18. Ibid, Regulation 11(1)

19. Ibid, Regulation 11(2)

20. Ibid, Regulation 12(1)

21. Ibid, Regulation 12(2)

22. Ibid, Regulations 12(3)(a) & 12(4)

23. Ibid, Regulations 12(3)(b) & 12(5)

24. Ibid, Regulation 14(1)

25. Ibid, Regulation 14(8) & Second Schedule

26. Ibid, Regulation 16(2) & Revenue Administration Act, 2016 (Act 915) (As Amended), Sections 72 & 73

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.