Understanding the beneficial owner concept in the tax system


One of the strategies of most tax organisations – including OECD, ATAF, WATAF and Oxfam – has been to proffer best practices for reducing tax evasion and abuse of tax incentives to the barest minimum. This has necessitated most of these organisations to offer technical support to countries – particularly tax authorities who have inadequate human resource capacity in dealing with complex tax manoeuvres by both local and MNE entities.

Despite the employment of complex tax avoidance strategies – including Transfer Pricing methods, Tax Residency dilemma, Treaty Shopping, Shareholders Financing etc. – the Beneficial Owner concept is the most prevalent yet difficult to ascertain without investigation.

A Beneficial Owner in summary is a person who enjoys the benefits of ownership though the property’s title is in another name. The OECD Module Tax Convention commentary considers a Beneficial Owner as a person who has the right to use and enjoy that income, and this right is unfettered by any contractual or legal obligation to pass on the income to another person.

In establishing or testing the Beneficial Owner in any tax arrangements, the OECD commentary recommends substance over form. However, different jurisdictional tax laws provide an avenue in dealing with this concept; including the Income Tax Act, 2015 (Act 896), VAT Act, 2013 (Act 870) as amended. Ghana’s tax laws do not limit the Beneficial Owner concept to only the passive  – i.e., Interest, Dividends and Royalties, but it also encompasses assets (i.e., shares, debt claims etc.).

In furtherance of the above, Ghana’s tax authorities determined the Beneficial Owner of passive income based on Act 896 and guidance from the OECD/ UN Module Tax Conventions. Understanding these concepts is very vital in preventing tax conflicts and ensuring smooth tax administration.

  1. Interest: As defined by section 133 of Act 896, Interest includes payment in the nature of a discount or premium made under a debt obligation that is not a return of capital. The Act exempts from tax Interest paid to individual by a resident financial institution, resident pension fund, bonds issued by the Government of Ghana, holder or member of an investment unit or trust scheme or mutual fund. Paragraph 8 of the first schedule stipulates that Interests paid to individuals shall be taxed at the rate of one percent and in any other case eight percent.
  2. Dividend: Act 896 defines dividend to mean among others payment derived by a member from a company, whether received as a division of profits in the course of a liquidation or reconstruction in a reduction of capital or redeemable preference shares or otherwise. The tax rate of dividend is 8 percent. The only exemption is where a resident company paid dividend to another resident company, and the company that received the dividend controls indirectly or directly at least twenty-five percent of the voting power of the company that paid the dividend.
  3. Royalties: Royalty is defined to include payment of a premium or like amount derived as consideration for the use of or right to use a copyright, artistic or scientific work, patent, trade design, secret formula or use of information concerning industrial or commercial or scientific equipment. The tax rate is fifteen percent.

These exemptions are applied in the strictest form, and where the Commissioner-General is of the opinion that a person might otherwise secure such benefits the Commissioner General has the power to adjust such arrangement to appropriately counteract the tax benefits (Section 99; Act 915).

Section 98 of the Revenue Administration Act, 2016 (Act 915) as amended provides that a Beneficial Owner in any International treaty ratified by parliament must satisfy the conditions of being a resident of the other contracting state, and fifty percent or more of the underlying ownership is not held by persons who are not resident of the other contracting state or Ghana. In any other case, the tax law provides that the Beneficial Owner must be the person with the wider interest of any transaction as enshrined in section 27; 32 of Act 896.

As the 2023 revenue target is daunting, it is imperative for GRA to enforce the concept of Beneficial Owner in both substance and form to curb the prevalence of tax evasion. This measure in addition to other tax compliance tools will make the tax revenue target easy to achieve as we aim at the 16.5 percent tax to GDP ratio.

>>>the writer has MSc Economic Policy, member of CITG, Big Data Analyst with specialty in Predictive Analytics, CISA trained and a staff of GRA

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