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PRESENTED BY: EDWARD A. GYAMERAH DEPUTY COMMISSIONER, LARGE TAXPAYER OFFICE 26/06/19 www.gra.gov.gh
PRESENTED BY: EDWARD A. GYAMERAHDEPUTY COMMISSIONER, LARGE TAXPAYER OFFICE
26/06/19
www.gra.gov.gh
hnwu www.gra.gov.gh
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1. Introduction
2. Tax Challenges related to the Digital Economy
3. Ghana’s current position and way forward in taxing the digital economy
OUTLINE OF PRESENTATION
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INTRODUCTIONThe Digital Economy represents the pervasive use of IT (hardware, software, applications and telecommunications) in all aspects of the economy.
The gradual shift from a physically oriented commercial environment to an internet-based regime poses serious legal and regulatory issues to taxation.
Digitization raises broad tax challenges, among which is the question of how taxing rights on income generated from cross-border activities in the digital age should be allocated among countries.
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Tax Challenges Related to the Digital Economy
1. Tax treaty Issues
The spread of digitization has not changed the fundamental nature of doing business.
Digital technology has had a significant impact on how business activities can be carried out at a very large scale, with high speed and without necessarily having a physical presence in the market country thereby avoiding payment of any tax in that jurisdiction.
This leads to the key question as to whether the present definition of Permanent Establishment (PE) under tax treaties based on physical presence is appropriate.
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Tax Challenges Related to the Digital Economy
Tax treaty Issues
The advent of modern telecommunication and the spread of digitization, the ability to effectively engage in substantial business activities in a country without a fixed place of business there, or to conclude contracts remotely through technological means with no involvement of individual employees or dependent agents, raises questions about the continuing suitability of existing PE or nexus rules.
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Tax Challenges Related to the Digital Economy
2. Location of Taxpayers
Existing tax systems tend to determine tax consequences on the basis of where the taxpayer is physically located. Modern telecommunication and digitization enables businesses to operate with very few physical locations.
Also some business assets, such as servers are not necessarily tied to a single physical location. The location of the server is not relevant for business and thus may not be a logical taxing point.
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Tax Challenges Related to the Digital Economy
3. Nature of Products (Digitised products)
Digitised products, such as e-books raise income tax issues regarding the type of revenue generated and how it is reported, as well as whether digital products are subject to traditional inventory rules.
In respect of indirect taxes, the question arises as to whether VAT or sales tax applies in respect of digitised products.
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4. Remote Workforce
The workforce of e-commerce entities may be spread across different tax jurisdictions. This raises the issue as to whether the presence of the employee in a particular tax jurisdiction creates tax obligations for the employer in that country.
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Tax Challenges Related to the Digital Economy
5. Nature of Some E-Commerce Transactions
E-commerce transactions are usually paperless and may involve the use of electronic cash. This raises administrative concerns for the tax authority as to whether transactions were properly reported, or whether an audit trail exists for the transaction
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Tax Challenges Related to the Digital Economy
6. New Types of Assets
Some new types of assets have been created by the use of the internet. Examples include, domain names (Uniform Resource Locators (URLS) and websites).
Income tax issues associated with these new assets are:
1.Uncertainty as to how to characterize the gain or loss from disposition of these assets.
2.Tax treatment of the cost of creating such assets.
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INDIRECT TAXES - VALUE ADDED TAX
Ghana`s VAT Act, 2013 (Act 870) has made significant interventions to address tax challenges posed by the digital economy:
Definition of Taxable Activity
Section 5 of the VAT Act defines a taxable activity as an activity which is carried on by a person (a) in the country, or
(b) partly in the country…
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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INDIRECT TAXES - VALUE ADDED TAX
…whether or not for pecuniary profit, that involves or is intended to involve, in whole or in part, the supply of goods or services to another person for consideration.
Secondly, the requirement for persons engaged in taxable activities to register has been expanded to include non-resident persons who provide telecommunication services or electronic commerce for use or enjoyment in Ghana under section 16 of the VAT Act.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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INDIRECT TAXES - VALUE ADDED TAXES
This means that both residents and non-resident persons who provide telecommunication services or e-commerce are required to register, charge and account for VAT on services they supply.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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INDIRECT TAXES - VALUE ADDED TAXES
Electronic Commerce has been defined under the VAT Act to cover business transactions that take place through the electronic transmission of data over the internet.
Supply of telecommunication services and electronic commerce include website supply, web-hosting, distance hosting of electronic programmes and equipment, image, text and information and making databases available, etc.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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INDIRECT TAXES - VALUE ADDED TAXES
The practical challenge with the VAT intervention is the absence of guidelines on the modalities for operationalizing the provisions of the VAT law which allow for taxing the digital economy.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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Ghana has expanded the scope of income taxation for residents from source to worldwide basis, and for non-residents to source basis. This has helped to broaden the tax base.
The definition of PE in the Income Tax Law
The current definition of PE in the Income Tax Act focuses on physical presence.
There is the need to reduce the exclusion provisions in the definition of PE under section 110 of Act 896 and to redefine PE to cover the digital economy.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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The definition of PE in the Model DTA
The definition of a PE in Article 5 of the Model Double Tax Agreement for Ghana should be reviewed to limit the exclusion provisions which typify the operations of e-commerce entities. Some of the exclusion provisions are:
• The use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise
• The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; etc.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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The definition of PE in the Model DTA
Additionally, the possibility of amending the definition of PE in existing DTAs must be explored.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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Digitization of Operational Processes in GRA
Work processes of the Revenue Authority continue to be digitized to keep pace with
the digital economy.
Capacity building and investment in technology in GRA should be intensified .
Implementation of the Fiscal Electronic Device Act, 2018 (Act 966).
Act 966 should be implemented fully to ensure that all business transactions are captured electronically.
Ghana’s Current Position and Way forward in Addressing the Tax Challenges of the Digital Economy
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AUTOMATIC EXCHANGE OF INFORMATION(AEOI)/EXCHANGE OF INFORMATION(EOI)
Ghana adopted the Common Reporting Standards (CRS) with the passage of the Standard for Automatic Exchange of Financial Accounting Information Act, 2018 (Act 967).
Ghana is scheduled to receive its first AEOI in September 2019 and that the bank account details of Residents in participating countries that GRA will receive will greatly help to address some of the challenges of the digital economy.
Way forward in Addressing the Tax Challenges of the Digital Economy
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The proposed revised TP regulations to make it clear that the legal ownership alone does not necessarily generate a right to all the return that is generated by the exploitation of intangible, but the group companies performing the important functions, contributing the important assets and controlling economically significant risk will be entitled to an appropriate returns.
Transfer pricing Regulations
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Some proposals in the OECD’s Base Erosion and Profit Sharing (BEPS) Action plan 1 which deals with the digital economy could be a guide in reviewing our tax laws. These include:
Modify and narrow the scope of activities considered to be of “preparatory or
auxiliary” character in the definition of PE.
Introduction of new anti-fragmentation rules to limit abuse of the exceptions
to the establishment of PE
Need to legislate to defeat commissionaire arrangements
Adopt EU VAT/GST Guidelines to ensure that taxpayers in the digital
economy do not avoid indirect taxes.
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THANK YOU.
CONTRIBUTIONS, QUESTIONS & ANSWERS
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