By Marilyn Asante OSEI
This Article provides an overview of Technology Transfer Agreements in Ghana. Technology Transfer Agreements in Ghana are governed by two main laws: the Ghana Investment Promotion Centre Act, 2013 (Act 865) and the Technology Transfer Regulations, 1992 (L.I. 1547). The State institution responsible for the registration and administration of Technology Transfer Agreements in Ghana is the Ghana Investment Promotion Centre (GIPC).
In simple terms, a Technology Transfer Agreement (hereinafter referred to as “TTA”) is an agreement between two companies for the transfer of technical skills, know-how, specialized knowledge, or intellectual property rights (patents, utility models, trademarks, copyright etc.) from one company to the other company. The transfer of the technology is typically from a foreign company to a local company. The local company leverages the technology for the manufacturing of goods and/or the provision of services.
In Ghana, a TTA[1] is defined as an agreement between a local and a foreign company for a period of not less than 18 months and not more than 10 years for the provision of the following services:
- the assignment, sale and licensing of all forms of industrial property, , except trademarks, service marks and trade names when they are not part of transfer of technology;
- the provision of technical expertise in the form of feasibility studies, plans, diagrams, models, instructions, guides, formulae, basic or detailed engineering designs, specifications and equipment for training, services involving technical advisory and managerial personnel and personnel training;
- the provision of technological knowledge necessary for the installation, operation and functioning of the plant and equipment, and turnkey projects; and
- the provision of technological knowledge necessary to acquire, install and use machinery, equipment, intermediate goods or raw materials which have been acquired by purchase, lease or other means;
The company transferring technology under the TTA is generally referred to as the Transferor and the beneficiary company is referred to as the Transferee.
Rationale
TTAs are viewed as legal arrangements through which companies introduce advanced or progressive technology into the country. The ultimate aim of a technology transfer is to utilize the imported technology to produce goods or provide services, thereby contributing to the nation’s overall economic development. Developing countries, in particular, take advantage of TTAs to import advanced technology from the developed world to their benefit in the long term.
Consequently, TTAs need to be effectively regulated to ensure that developed countries do not exploit or take advantage of developing countries seeking technological advancement. In the absence of an adequate legal, regulatory, and institutional framework, related companies can also use TTAs to shift profits, reduce taxation and deprive the state of much-needed revenue. In Ghana, the Ghana Investment Promotion Centre Act, 2013 (Act 865) and Technology Transfer Regulations, 1992 (L.I. 1547) provide the regulatory framework to ensure that Ghana gets the best out of TTAs.
Classifications of technology transfer agreements (TTAS) in Ghana
The law provides four categories or classes of TTA’s in Ghana. These classes of TTAs are:
- Agreements for the assignment, sale and licensing of all forms of Industrial Property such as trademarks, patents, utility models, patents and the like.
- Agreements for the provision of Technical Expertise in the form of feasibility studies, plans, diagrams, models, instructions, guides, formulae, basic or detailed engineering designs and specifications.
- Agreements for the provision of Know-How relating to the provision of technological knowledge necessary to acquire, install and use machinery, equipment, intermediate goods or raw materials which have been acquired by purchase, lease or other means.
- Agreements for the provision of Management Services to cover the day-to-day management of a Ghanaian enterprise.
Registration of technology transfer agreements in Ghana
Companies are at liberty to enter into any TTA they deem appropriate; however, every TTA should be submitted to and registered with the GIPC.[2]
Prior to registering a TTA, the GIPC reviews the contents of TTA to ensure that the contents of the TTA are consistent with the laws of Ghana. The review process also enables GIPC to monitor and ensure that the parties to the TTA comply with the terms and conditions of the TTA even after registration.
Also, there are certain terms and conditions that every TTA should meet before it can be registered.[3] These terms and conditions guide the GIPC in reviewing the TTAs submitted. Some of these conditions include;
- The TTA must have a duration of not less than 18 months and not more than 10 years.
- The technology being transferred under a TTA should not be one that is freely and easily available in Ghana. The technology should be unique or bespoke.
- There must be a clause on the provision by the Transferor of requisite training for the Transferee and its personnel in the effective utilization of the technology.
- Every TTA must include a detailed training schedule on the technology which shall guide and be adhered to by the Transferor in the provision of the training for the entire duration of the TTA.
- For renewal applications, the duration of a technology transfer agreement must not exceed 5 years.
- There should be a forecast of fees to be paid by the Transferee to the Transferor for the duration of the TTA.
- The Transferor must provide a full description of the technology and all necessary documentation/information in the English language.
- The governing or applicable law to the TTA shall be Ghanaian law.
- The TTA should be approved by the regulator of the relevant sector such as the Bank of Ghana, Environmental Protection Agency (EPA), and Gaming Commission among others.
- Every TTA shall provide that taxes due on royalties shall be paid by the Transferor.[4]
Repartriation of funds under technology transfer agreements
Repatriation of funds is a crucial component of technology transfer agreements. It involves the transfer of profits, royalties, or payments by the Transferee to the Transferor. Repatriation ensures that Transferors receive fair compensation for the use of their technology, intellectual property among others.
In Ghana, as is the case in numerous other nations, the repatriation of funds under a TTA is closely monitored by regulatory bodies and has specific limitations. These restrictions exist to safeguard national interests and foster economic development.
In that vein, the TTA Regulations place some restrictions on the amount of funds that can be transferred under a TTA to the Transferor. It sets out a range of fees that a Transferor can charge for services and technology being provided to or transferred to the Transferee.[5]
These are as follows:
| Class of TTA | Allowable Fees |
| Industrial Property | 0-6% of Transferee’s Net Sales |
| Technical Services (including Know-How) | 0-5% of Transferee’s Net Sales
Fee for Technical Service/Assistance (including know-how) shall range between 0% to 5% of net sales. The parties shall have the option of allowing “running” or “lump sum” fee considering the nature of the technical service, its duration and dependence of the transferee on continued foreign technical expertise. |
| Technical Services only | 0-3% of Transferee’s Net Sales |
| Know-how only | 0-2% of Transferee’s Net Sales |
| Management Services | 0-2% of Transferee’s Profit before tax
The level of payments here shall be reduced pro rata if the Transferor has 60% or more of the equity share capital of the Transferee company. Management services of projects for which profit is not anticipated during the early years shall attract a fee ranging from 0% and 2% of net sales during the first 3 to 5 years. |
Where a Transferor provides Management / Technical services in addition to patents know-how and trademarks, the total fee shall not exceed 8% of net sales.[6]
As seen in the above table, the range of fees depends on the kind of services that are being provided under a TTA and is usually a specified percentage range of the Net Sales.
The TTA Regulations defines Net Sales as the “ex-factory selling price of the product exclusive of sales tax and excise duties levied by the Government” OR “the net income accruing from a service, minus the landed cost or payment for any component, materials and supplies imported from the technology supplier other than initial capital equipment and the first round of components, materials and supplies imported therefrom”.[7]
The definition of Net Sales is in two parts. The first part of the definition; “Net sales” is defined as the “ex-factory selling price of the product exclusive of sales tax and excise duties levied by the Government”. This applies to companies that are into the production or manufacturing of goods.
The second part of the definition; “net sales” is defined as “the net income accruing from a service, minus the landed cost or payment for any component, materials and supplies imported from the technology supplier other than initial capital equipment and the first round of components, materials and supplies imported therefrom. This applies to companies that engage in the provision of services.
The definition of Net Sales in the TTA Regulations is key because the GIPC adopts the above definition of Net Sales in determining the fees that can be transferred as payment for the technology by the Transferee to the Transferor. Any calculation that is not in conformity with the Net Sales definition will be rejected by GIPC.
Also, any Transferor who seeks to charge fees higher than those specified must obtain the approval of the GIPC.[8] The Transferor will only be allowed to charge higher fees after successfully demonstrating to the GIPC the reason for charging higher fees beyond the rates provided.
Benefits of registering technology transfer agreements with GIPC
One major benefit of registering a TTA is that it allows the Transferor to transfer fees and charges in free convertible currency unless otherwise provided in the Foreign Exchange Act, 2006 (Act 723).
Also, for Management Services the fees and charges transferred in respect of TTAs is on the profits before tax. This implies that the Transferor company saves a lot of money as fees and charges will be treated as an expense by the Transferee company in Ghana and deductible from profit before tax.
Sanctions for failing to register technology transfer agreements
The GIPC Act does not explicitly state that failure to register a TTA amounts to an offence. However, it provides that any entity that contravenes the provisions of the GIPC Act (which includes the failure to register a TTA as per the above definition) will be liable to a fine ranging between GHS6,000 and GHS12,000 in respect of each day that the offence continues.
In addition to this, GIPC could make the following orders;
- cancel or suspend the GIPC registration of the company.
- order the payment or part-payment to the appropriate agency of fees, taxes, duties and other charges in respect of which benefits were granted to the enterprise;
- revoke some or all of the incentives granted to the enterprise; advise the Bank of Ghana to suspend any remittance including transfer of capital, profits and dividends from or by that enterprise; and
- take any other action that it considers appropriate.
Repatriation of funds under unregistered technology transfer agreements
There is a school of thought that maintains that funds repatriated under an unregistered TTA should be disallowed, added to the profits and taxed accordingly. This is in addition to the penalties imposed by GIPC for repatriating funds under an unregistered TTA.
There is another school of thought that takes the view that funds repatriated under an unregistered TTA should be treated as an allowable expense i.e incurred wholly, exclusively and necessarily in the generation of its income. Therefore, such funds should not be subject to tax.
This was the subject matter of discussion in the case of BEIERSDORF GHANA LIMITED V. GRA, SUIT NO. H1/140/2019. The facts of the case were as follows;
GRA conducted a tax audit of Beiersdorf Ghana Limited (BDF Ghana) for 2014-2016 accounting period. In the course of the tax audit, GRA observed that funds had been repatriated from BDF Ghana to its parent company under an unregistered TTA. The said payments or transfers had been treated as an allowable deduction i.e expenses incurred wholly, exclusively and necessarily in the production of its income. However, GRA found that funds repatriated under an unregistered TTA should not be treated as an allowable expense. Hence, GRA disallowed all tax deductions in respect of payments made by BDF Ghana to its parent company under an unregistered TTA. Additionally, GRA imposed penalties on BDF Ghana for repatriating funds under an unregistered TTA. At the end of the tax audit, the Commissioner-General rendered a decision imposing a total tax liability of GHC 1,698,149.34.
The Court of Appeal, held that royalty payments made by BDF Ghana to its parent company overseas pursuant to an agreement between the parties should be treated as an expense wholly, necessarily and exclusively incurred in the generation of its income.. Therefore, it should be treated as an expense deductible from its income for tax purposes. In that regard, although the repatriation was made under an unregistered TTA, it was treated as an allowable expense.
Notwithstanding the above decision, the Bank of Ghana has subsequently issued a directive to all commercial banks directing them not to permit any repatriation of funds under an unregistered TTA. This is to ensure that funds are not repatriated under an unregistered TTA.
Marilyn is a senior associate at AB Lexmall & Associates, a full-service commercial law firm in Accra, Ghana. She specializes among other things on the nature and registration of TTAs.
[1] Section 43 of Act 865
[2] Section 37 of Act 865
[3] Regulation 4 of L.I 1547
[4] Regulation 6 of L.I1547
[5] Regulation 14-16 of L.I 1547
[6] Regulation 17 of L.I 1546
[7] Regulation 20 of L.I 1546
[8] Regulation 18 of L.I 1546
