The Organisation for Economic Cooperation and Development (OECD) has been developing its Base Erosion and Profit Shifting (BEPS) package for a number of years. If you’ve been involved in discussions about your company’s international operations, it is almost inevitable that “OECD” and “BEPS” come into the conversations.
BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.
What you may not know is that the standards and framework developed by the OECD, especially in relation to its BEPS initiative, are developed by finance ministers and representatives from only the largest economies in the world.
Earlier this year, the OECD made an unprecedented announcement by opening its doors and offering developing and developed countries the opportunity to participate in standard setting framework discussions.
Should Ghana agree to join the OECD, it would be on “equal footing” with the current members. But, is this a good idea for Ghana?
A step back
Currently, Ghana is ranked 106 (out of 189) in the PwC and World Bank annual Paying Taxes publication. What does that exactly mean? The publication looks at a variety of factors to determine the administrative burden of paying taxes. Those countries with an emphasis on efficient tax compliance and straightforward tax regimes continually rank the highest in the annual report.
The position 106 may not sound good, but considering neighbours (Cote d’Ivoire – 176, Togo - 163, Nigeria – 181, and Burkina Faso – 153) Ghana is in better shape than its peers. Regardless, at 106, there is room for improvement.
That is not to say that Ghana has not shown efforts to improve taxpayer “friendliness.” In 2009, the Ghana Revenue Authority was formed; which consolidated the previously fragmented taxing divisions.
Also in 2009, Ghana joined the Africa Tax Administration Forum (“ATAF”).
ATAF currently has 36 countries across the continent. ATAF was established in an effort to ”create a platform to promote and facilitate mutual cooperation among African Tax Administration and other relevant and interested stakeholders with the aim of improving the efficiency of their tax legislation and administration.
Unfortunately, membership to ATAF has provided little benefit to Ghana. With countries across Africa competing for foreign investment, government priorities have been more focused on promotion through tax incentives, rather than coordinating tax efforts across Africa.
Perhaps, instead of asking whether or not Ghana joining the OECD is a good idea, we need to consider if Ghana is ready.
Membership in the OECD is not without its costs. Members must commit to implement and abide by many of the standards produced by the OECD.
For example, one of the concepts recommended by the OECD is that of “Cooperative Compliance.” It is intended to be a means to improve tax compliance based on a trusting relationship between taxpayers and the tax authority.
The objective is to ensure that taxpayers pay the right amount of tax due on time; thus lowering the cost of enforcement and compliance by the tax authorities and tax departments, respectively.
Based upon the idea of cooperative compliance, the OCED’s Forum on Tax Administrations suggested that tax authorities should have effective risk-management processes in place in order to effectively and efficiently allocate personnel to higher-risk taxpayers.
Tax authorities were encouraged to create these trusting relationships with taxpayers by:
• Understanding the business based on commercial awareness;
• Being impartial;
• Acting in a proportionate manner;
• Being prepared to be transparent; and
• Being responsive.
Based on a survey of PwC offices, only South Africa has implemented a cooperative compliance model in its risk management strategies.
PwC survey respondents in other African countries identified the following challenges to achieving the cooperative compliance objective:
• Lack of suitably qualified and experienced tax officials;
• Poor quality record keeping at the tax authority;
• Delays in tax assessments and audits;
• Difficulty or delays in obtaining clarifications and responses to issues;
• Burdensome tax system, time demanding for preparation and submission of tax returns;
• Lack of information technology (IT) infrastructure at the tax authorities;
• Lack of transparent guidelines from the tax authorities;
• High rate of tax evasion; and
• No timely revision of tax legislation.
Our own Ghana Revenue Authority (GRA) is not guilty of all of these, but it is not completely innocent either. Membership in the OECD would require some significant changes in the behaviour of the tax authorities.
So should Ghana join?
As taxpayers, that depends on your level of trust with the GRA to implement the requirements of the OECD model.
As a government, that depends on your willingness to commit to the OECD framework – even if your neighbouring countries are providing outlandish tax incentives to drive foreign investment.
Is Ghana ready? Perhaps. With or without Ghana, the OECD framework will be developed – so it depends if we want Ghana to be a part of it.