Report

To: Tax Partner
From: Tax Intern
Date: July 7, 2020
Subject: Ghanaian Permanent Establishment

a) What Constitutes a Ghanaian Permanent Establishment:

Under the Income Tax Act, 2015 (Act 896), a Ghanaian permanent establishment could be any of the following:

1. A place in Ghana where a non-resident person carries on business or that is at the disposal of the person for business purposes.
2. A place in Ghana where a person is using or installing substantial equipment or machinery.
3. A place in Ghana where a person is engaged in construction, assembly, or installation for at least 90 days, including supervisory activities.
4. A place for providing services in Ghana.
5. A place in Ghana where an agent performs functions on behalf of a non-resident person’s business, except for a general agent of independent status acting in the ordinary course of business.

(4 marks)

b) Taxation Rules on Ghanaian Permanent Establishment:

1. Tax Treatment:
   A permanent establishment is treated as an independent entity and taxed accordingly in Ghana. Income attributable to the permanent establishment is subject to tax in the same manner as a resident company.
2. Branch Profit Tax:
   A Ghanaian permanent establishment may be subject to branch profit tax at the applicable rate if the income is remitted abroad.
3. Withholding Tax:
   The permanent establishment must withhold tax on payments made to non-residents and is entitled to claim tax credits on taxes withheld on its behalf.
4. Tax on Transactions:
   Transactions between a non-resident owner and the Ghanaian permanent establishment must satisfy the arm’s length principle. Interest on loans or debts between the non-resident owner and the permanent establishment may be recognized for tax purposes if it reflects in both books of accounts.
5. Asset and Liability Attribution:
   Assets used or employed in the activity of the permanent establishment are treated as its assets, and any liabilities arising from borrowing for the establishment’s activity are recognized as its liability.
6. Control and Business Activity:
   The law considers any business activity carried out by the non-resident that is similar to the permanent establishment’s operations as conducted by the permanent establishment.

(10 marks)

c) Economic Double Taxation and Juridical Double Taxation:

1. Economic Double Taxation:
   This occurs when the same income from an economic activity is taxed twice in the hands of different taxpayers. For example, the income of a corporation and the dividends distributed to shareholders may both be taxed, leading to economic double taxation.
2. Juridical Double Taxation:
   Juridical double taxation occurs when a taxpayer is taxed on the same income by two or more countries due to conflicting tax laws. This is common when a resident of one country earns income from another country and both countries claim taxing rights over the income. For example, a resident of Ghana receiving foreign income may face double taxation unless there is a tax treaty in place to avoid this.