Ghana has signed tax treaties, commonly referred to as double taxation agreements with 11 countries. These countries are the United Kingdom, France, Belgium, The Netherlands, Germany, South Africa, Italy, Switzerland, Denmark and very recently, with Mauritius, and the Czech Republic.
In 2010, Ghana started discussions with Iran for a tax treaty. It’s not known how far the discussions are at the moment.
An agreement on the avoidance of double taxation means that a foreign business in Ghana will not have its income taxed in Ghana and in the country of its origination. Depending on the agreement between the country or entity, it could be taxed in one country.
While Ghana’s Internal Revenue Act of 2000 (Act 592) makes provision for such agreements, for instance, Sections 68 and 111 of Internal Revenue Act, 2000 (Act 592), some tax experts, argue that Ghana’s case law on taxation generally is not as developed as that of other jurisdictions (particularly the United Kingdom and the United States of America), let alone that on tax treaties.
According to Tax expert, Ali Nakyea, by their very nature, tax treaties are impacted by both domestic law and international law, which creates complications as to the particular rules of interpretation regime to employ when disputes over treaty provisions arise.
“With the current increase in the number of double taxation agreements and arrangements Ghana enters into with other countries, the creation of a tax appeals division of the High Court and the Internal Revenue Act; questions on the interpretation of tax treaties are bound to come up sooner than later,” he said.
Mr. Nakyea further makes the points that tax treaties allow for the allocation of tax revenue between treaty partners; they create an environment of fiscal certainty which encourages trade and investment; they protect international shipping and air transport activities; they discourage the obvious forms of discriminatory taxation of foreign nationals and enterprises; they help prevent international tax avoidance and evasion, and provide direct benefits to the treasury of capital exporting countries.
He indicates that in much the same way as the nature of tax treaties is viewed differently, the purpose of tax treaties are equally variably viewed.
“From the government’s point of view, on the one hand, double taxation treaties have the purpose, first of all of avoiding double taxation and preventing fiscal evasion.
Recent trends however suggest other considerations such as free flow of international trade and investments, technology transfer, certainty in tax regimes, sharing of tax revenue, information exchange and a channel for economic co-operation,” he says.
Mr. Nakyea cited examples of some of the treaties that Ghana has signed.
“For instance, while the Ghana-UK tax treaty indicates its purpose in the title as a ‘convention…for the avoidance of double taxation and prevention of fiscal evasion”, that between Mauritius and India has its purpose as ‘a convention… for the avoidance of double taxation and prevention of fiscal evasion…and the encouragement of mutual trade and investment,’” he said..
Ghana’s tax agreement with the Republic of South Africa is titled “Convention between the Government of Ghana and the Republic of South Africa on the Avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income including capital gains,” he pointed out.
He noted that, generally the basic right of sovereign nations to impose taxes on extra-territorial basis leads to conflicts between tax jurisdictions.
There are no rules of international law which forbid double taxation, but three types of jurisdictional conflicts could arise from such taxation and needs to be addressed:
Conflicts of personal and ad rem jurisdictions i. e. the most common cause of double taxation is the coincidence of the claim of the taxpayer’s country of residence to tax his entire worldwide income with the claim of the country of source to tax all forms of income arising within its territory.
– Conflict of resident rules i. e. where an individual may be regarded as resident for tax purposes in more than one state and his income from each state concerned as well as his income from all sources will be taxed twice. Such conflicts result from diverging definitions of residence in national and international tax law.
– Conflicts of source rules i. e. two or more states may regard certain income as realized within their territories with the result that tax liability arises from both countries. It is however generally agreed that the country within which the income originates (country of source) is entitled to tax the income. But the question is at what rate?
He explains that some double taxation reliefs are unilateral and others are bilateral (by treaty) and in time some may even be multilateral. In unilateral double taxation reliefs two principal measures for the avoidance of double taxation that are applied by some capital exporting countries are:
-exemption of foreign income; and
– allowance of foreign tax credit.
– The former are used by scheduler system countries like France, which exempts foreign income, of its corporations with permanent establishments abroad from domestic tax.
As the number of countries that Ghana signs DTAs with increases, the question as to whether the country is increasing its capacity to monitor possible leakages, or to ensure that the country gets the full benefits of these agreements remains.
By Emmanuel K. Dogbevi
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