- 5 Marks
Question
The company is planning to expand its operations to Tanzania and South Africa in 2026. As a result, transactions between the head office in Ghana and the prospective foreign subsidiaries will likely take place, leading to potential international tax implications.
Required:
Briefly identify and explain TWO key issues to consider for the company to minimise total tax payable on the group profits.
Answer
The two key tax issues BOGML must consider in order to minimize total tax payable on the group profits are:
-
Transfer Pricing Regulations:
- International taxation laws require that transactions between related entities, such as the head office and its foreign subsidiaries, be conducted at arm’s length prices to prevent profit shifting.
- BOGML must comply with the transfer pricing regulations in Ghana, Tanzania, and South Africa to avoid tax penalties and ensure the pricing of goods, services, and intellectual property between entities reflects market value.
- Proper documentation of transfer pricing policies and intercompany transactions must be maintained to prevent disputes with tax authorities.
-
Double Taxation Agreements (DTAs):
- To avoid the risk of being taxed on the same income in multiple jurisdictions, BOGML must assess the tax treaties between Ghana, Tanzania, and South Africa.
- DTAs provide mechanisms for relief such as tax credits or exemptions, which help reduce the overall tax burden on the company.
- Strategic structuring of transactions to benefit from tax treaty provisions can help optimize tax liabilities.
- Topic: International financial management
- Series: Nov 2024
- Uploader: Salamat Hamid