Taxation of Capital Gains and

Liabilities
Theophilus Tawiah (Copyright)
James Anaya
Lecturer, UPSA Law School
 Introduction
•Resistance to tax is of two main kinds, that is, tax
avoidance and tax evasion.
•The general view is that tax evasion involves
illegality and judges have always abhorred it. It
involves breaking the law in an attempt to reduce
one’s tax liability. Tax avoidance on the other hand is
the act of dodging tax without breaking the law.
•This position is tenable only in situations where
there are no anti-tax avoidance legislation.
• Tax avoidance is simply a legal means of reducing taxes achieved
through careful planning. In other words, it is changing one’s
behaviour so as to reduce one’s tax liability.
• The idea is to pay the legally required tax and not more.
• There is nothing illegal about tax avoidance as noted by Judge
Learned Hand in COMMISSIONER V NEWMAN where it was stated
“Over and over again courts have said that there is nothing
sinister in so arranging one’s affairs so as to keep taxes as low as
possible. Everybody does so, rich or poor; and all do right, for
nobody owes any public duty to pay more than the law demands:
taxes are enforced exactions, not voluntary contributions. To
demand more in the name of morals is mere cant.”
• Tax avoidance thus refers to the art of dodging tax
without actually breaking the law or the lawful
carrying out of a transaction which was either entered
into or which took a particular form for the purpose of
minimizing taxation.
• Prof. Wheatcroft defines tax avoidance as a
transaction:
1. Which avoids tax;
2. Is entered into for the purpose of avoiding tax or
which adopts some artificial or unusual form for the
same purpose; and
3. Is not a transaction which the legislature has
intended to encourage.
 Tax avoidance has been criticized on the ground that it is as bad
as tax evasion. It is said that tax avoidance results in the
following:
 Leads to a loss of revenue.
 It flies in the face of one of the canons of taxation as stated by
Adam Smith, that is, each person must pay tax according to his
means.
 It undermines tax payer morale since not all taxpayers have the
know-how or the means to indulge in it.
 Tax avoidance infringes the spirit of the law.
 Pimson considers it as non-sensical to consider tax
avoidance as a social evil to be legislated against. He argues
that tax avoidance is a natural consequence of the fact that
there are often more than one way of achieving the same
result.
 He also adds that tax avoidance sometimes arises because
legislation is so hasty and ill-conceived or essential reforms
are so long delayed.
In recent times most jurisdictions have anti-
avoidance legislation of one kind or the other
and a breach of the provisions of such anti-
avoidance legislation amounts to illegal
conduct.
Section 34(2) of Act 896 defines tax avoidance
schemes to include “an arrangement, the main
purpose of which is to avoid or reduce tax
liability”.
Lord Norman has warned on tax avoidance in
VESTRY’S EXECUTORS V IRC [1949] 31 TC 1
in the following words:
Tax avoidance is evil but it will be greater evil if
the courts were to stretch the language of the
statute in order to subject to taxation people whom
they disapprove. There has therefore been a lot of
controversy over the limits to legitimacy of tax
avoidance since it is an admitted evil.
.
 Lord Sumner reechoed the acceptability of tax avoidance in
IRC V FISHER’S EXECUTORS [1926] AC 395 in the
following words:
 “My Lords, the highest authorities have always recognised
that the subject is entitled so to arrange his affairs as not to
attract taxes imposed by the Crown, so far as he can do so
within the law, and that he may legitimately claim the
advantage of any expressed terms or any omissions that he
can find in his favour in taxing Acts. In so doing, he neither
comes under liability nor incurs blame.”
 Approaches to Tax Avoidance
The courts have over the years adopted a
number of approaches to addressing tax
avoidance schemes. These include:
The Traditional Approach,
The Modern Approach, and
The Doctrine of Form and Substance.
 The Traditional Approach
 This approach was echoed by Lord Cains in
PATTINGTON V ATTORNEY-GENERAL [1969] LR 4
HL 100 in the following words:
 As I understand the principle of fiscal legislation it is
this- if the person sought to be taxed comes within the
letter of the law he must be taxed however great the
hardship may appear to the judicial mind to be, on the
other hand if the Crown seeking to recover the tax
cannot bring the subject within the letter of the law the
subject must be free however apparently within the spirit
of the law the case might otherwise appear to be.
 The Spirit and the Letter of the
Law
In the Classic expression of Rowlatt J in CAPE
BRANDY SYNDICATE V IRC:
In the taxing Act one has to look at what is clearly
said. There is no room for intendment; there is no
equity about tax. There is no presumption as to
tax. Nothing is to be read in, nothing is to be
implied, one can only look fairly at the language
used.
In AYSHIRE PULLMAN MOTORS
SERVICES V IRC [1929] 14 TC 754 Lord
Clyde L.P declared that:
No man in this country is under the smallest
obligation, moral or other so as to arrange his
legal relations to his business or property so as
to enable the Inland Revenue to put the largest
possible shovel into his stalls.
Lord Tomlin sealed it all in IRC V DUKE OF
WESTMINSTER [1936] AC 1 as follows:
Everyman is entitled if he can, to order his affairs so
that the tax attaching under the appropriate Act is
less than it otherwise would be. If he succeeds in
ordering them so as to secure this result then
however unappreciative the Commissioner of Inland
Revenue or his fellow taxpayers may be of his
ingenuity he cannot be compelled to pay an
increased tax.
The rules applied by the courts have
however shifted and the sympathies of the
judiciary now lie more with fiscal policy
considerations than with the taxpayer. Lord
Greene MR in HOWARD DE WALDEN
V IRC [1942] 1 KB 389 issued a stern
warning to would be tax avoiders in the
following words:
 For years a battle of manouver has been waged between
the legislature and those who are minded to throw the
burden of taxation off their own shoulders onto those of
their fellow subjects. In that battle, the legislature has
often been wasted by skill, determination and
resourcefulness of its opponents of whom the present
appellants has not been the least successful. It would not
shock us in the least that the legislature is determined to
put an end to the struggle by imposing the severest of
penalties. It scarcely lies in the mouth of the taxpayer
who plays with fire to complain of finger burns.
 Modern Approach
Lord Denning was an outstanding exponent of
the anti-avoidance campaign. In GRIFFITH V
J. P HARRISON (WATFORD) LTD. [1963]
AC 1, Lord Denning delivered a portentous
dissenting judgment describing tax avoiders as:
Prospectors digging for wealth in the
subterranean passages of the revenue,
searching for tax repayments.
In addition to Lord Denning’s caution, there still
appeared to be an unceasing judicial hostility to the
tax avoider. Stamp J in IN RE WESTON’S
SETTLEMENTS observed “…There must be some
limit to the devices which this court ought to
countenance in order to defeat the fiscal intentions of
the legislature. In my judgment, these proposals
overstep that limit…I am not persuaded that this
application represents more than a cheap exercise in
tax avoidance which I ought not to sanction, as
distinct from a legitimate avoidance of liability to
taxation.”
 READ: GREENBERG V IRC [1971] 3 ALL ER 136 where
Lord Reid stated “We seem to have travelled a long way
from the general and salutary rule that the subject is not to be
taxed except by plain words. But I must recognise that plain
words are seldom adequate to anticipate and forestall the
multiplicity of ingenious schemes which are constantly being
devised to evade taxation. Parliament is very properly
determined to prevent this kind of tax evasion and, if the
courts find it impossible to give very wide meanings to
general phrases, the only alternative may be for Parliament
to do as some other countries have done, and introduce
legislation of a more sweeping character which will put the
ordinary well-intentioned person at a much greater risk than
is created by a wide interpretation of such provisions as
those which we are now considering…”
 READ W.T. RAMSAY LTD V IRC [1982] AC 300 where
Lord Wilberforce observed “Given that a document or
transaction is genuine, the court cannot go behind it to some
supposed undelying substance. This is the well known
priniciple in Inland Revenue Commissioners v Duke of
Westminster [1936] AC 1. This is a cardinal principle but it
must not be overstated or overextended. While obliging the
court to accept documents or transactions, found to be
genuine, as such, it does not compel the court to look at a
document or a transaction in blinkers, isolated from any
context to which it properly belongs.
If it can be seen that a document or transaction was intended to
have effect as part of a nexus or series of transactions, or as an
ingredient of a wider transaction intended as a whole, there is
nothing in the doctrine to prevent it being so regarded: to do so is
not to prefer form to substance, or substance to form. It is the task
of the court to ascertain the legal nature of any transaction to
which it is sought to attach a tax or tax consequence and if that
emerges from a series or combination of transactions, intended to
operate as such, it is that series or combination which may be
regarded…”

See also the case of INLAND REVENUE COMMISSIONERS

V BURMAH OIL COMPANY LTD [1982] STC 30; FURNISS
V DAWSON [1984] 1 ALL ER 530.
 It is noted that the courts are now concerning themselves not
merely with the genuineness of a transaction, but with the
intended effect of it on fiscal purposes. No one can now get
away with a tax avoidance project with the mere statement
that there is nothing illegal about it. This is exactly the
import of section 112 of Act 592, to prevent the use of
fictitious arrangements or arrangements that do not have a
substantial economic effect or arrangements the form of
which does not reflect the substance to deny the State of its
much needed tax revenue.
 Whose Job Is It to Fill the Gap
 Lord Denning restated his position on tax avoidance more
effectively in SEAFORD COURT ESTATES V ASHER as
follows:
 When a defect appears a judge cannot simply fold his arm and
blame the Draftsman. He must set to work on the constructive task
of finding the intention of parliament and must do this not only
from the language of the statute but also from considerations of
special conditions which gave rise to it, and the mischief with
which it was passed to remedy … A judge must ask himself how if
the makers of the Act have themselves come across the suck of the
texture of it, they would not straighten? He then does as they
would have done. The judge must not alter the material of the Act
it is woven with, but he can and should iron out the creases.
Lord Denning reiterated the above position
in MAGOR & ST. MELLONS RDC V
NEWPORT [1951] only to be taken to task
on appeal by a unanimous decision of the
House of Lords in which Lord Simmonds
described the Denning approach as “a naked
usurpation of the legislative function. If a
gap is disclosed the remedy lies in amending
the law”.
The Doctrine of Form and Substance
Before a taxing statute can be applied in
relation to any given transaction the revenue
or court must first ascertain the effect of the
transaction as between the parties’ i. e the
rights and obligations created by the
transaction, must first be determined in
accordance with the general principles of
law. See IRC V DUKE OF
WESTMINSTER
The facts of the case are that the Duke had
executed a series of seven-year deeds of
covenant in favour of his employees, under
which the employees received the same
amount they would have received as wages
and salaries whilst receiving payment under
the deed.
The rational of the scheme was to mitigate
the Duke’s liability to surtax.
The covenanted payment would run as annual payment
and as such could be deducted from the Duke’s total
income for the purpose.
The Revenue contended that although the transaction was
in the form of a grant of an annuity or annual payment, in
substance, the transaction was an agreement by the
employee to continue in his service at his normal salary.
The Court of Appeal and the House of Lords rejected the
Revenue’s contention that the payments were in substance
remuneration for services rendered to the Duke.
Lord Tomley stated the position as follows:
It is said that in revenue cases there is the doctrine
that the courts may ignore the legal position and
regard what is called the subset of the matter and
that here the sub-set of the matter is that the
annuitant was serving the Duke for something
equal to his former salary or wages and that
therefore while he is serving, the annuity must be
treated as salary or wages.
This supposed doctrine seems to rest its support on
the misunderstanding of the language used in the
earlier cases. The sooner this misunderstanding is
dispelled and the doctrine given its quietus the
better it will be for all concerned … The so called
doctrine of substance seems to me to be nothing
more than an attempt to make a man pay
notwithstanding that he has so ordered his affairs
that the amount of tax sought from him is not
legally claimable.
The Duke’s case, however, did not
destroy the doctrine of substance
altogether but broadly refuted the
allegation that judges should fill the gap.
A number of rules crystallized over the
years and became the modern version of
the doctrine.
 Rule 1
Descriptions attached to a transaction by the
parties to it are not decisive of its true nature as in
SECRETARY OF STATE IN COUNCIL FOR
INDIA V SEOBLE [1903] AC 209, in which
installment payments were described as an
annuity but was held that it would not determine
the rate of the payment for tax purposes.
Section 34 of Act 896 deals with this rule in
Ghana.
 Rule 2
Rights and liabilities created by sham
transactions are utterly disregarded, as in
JOHNSON V JEWITH [1961] 40 TC 231,
in which a flagrant attempt to create an
artificial loss was rejected by the Court of
Appeal as a cheap exercise of “fiscal
conjuring and bookkeeping fantasy” per
Donovan LJ. This rule is in accord with
section 34 of Ghana’s Act 896.
 Rule 3
Whilst rights and liabilities created by genuine
transactions cannot be disregarded, the surrounding
circumstances are used in determining those rights
and liabilities. Yet Lord Denning and other judges in
the United Kingdom have stood by the doctrine of
that substance prevails over form. There are recent
developments on the doctrine that suggests a
redefinition of aspects of it.
See IRC V HORROCKS [1968] 3 ALL ER 296
Anti-Tax Avoidance Legislation
 Ghana and most other countries have enacted provisions in
their tax laws to combat, either directly or indirectly, tax
avoidance schemes as well as to provide very stiff penalties
as a deterrent to tax evasion.
 Lord Morton once described the struggle between parliament
and the taxpayer’s advisers as undignified game of chess:
 Parliament imposes a charge; the adviser finds a way to
avoid it. Parliament enacts anti-avoidance legislation,
advisers device a more elaborate avoidance as in Chapman
v Chapman [1942] AC 429 at 468.
There is some uncertaintly as to whether or not anti-
avoidance legislation has the potential of affecting
innocent bystanders and its effect on the business
plans of bona fide taxpayers.
Act 896 has a number of provisions which in one way
or the other help serve as anti-tax avoidance
measures. These provisions can be found in sections
34 (General Anti-Avoidance Provision) and some
Specific Anti-Avoidance Provisions in Sections 31,
32, 33.
 GENERAL ANTI-AVOIDANCE
PROVISION: SECTION 34
Section 34 of the Act makes a general provision as a
guide to anti-avoidance as follows:
(1) For the purpose of determining liability to tax
under this Act, the Commissioner may re-
characterise or disregard an arrangement or part of
an arrangement that is entered into or carried out as
part of a tax avoidance scheme:
a. Which is fictitious or does not have a substantial
economic effect, or
b. The form of which does not reflect its substance.
 See JOHNSON V JEWITTE
 HARRISON V GRIFFITHS
 CHAPMAN V CHAPMAN
 CROWN BEDDEN CO. LTD V IRC
 A.R. V CIT
 IRC V WESLEYAN & GENERAL ASSURANCE
 WT RAMSAY
 HORROCKS V IRC
 IRC V JOINER
 By “arrangement” is meant any arrangement, action, agreement, course of
conduct, promise, transaction, understanding, or undertaking, whether
express or implied, whether or not enforceable by legal proceedings and
whether unilateral or involving more than one person.
 “Tax avoidance scheme” is explained to include an arrangement, one of the
main purposes of which is the avoidance or reduction of liability to tax.
 Artificial Transactions: The C-G would classify any transaction as artificial
or fictitious if he thought the main purpose was to avoid or reduce tax.
 See PETROTIM SECURITIES LTD V AYRES
 CHALLENGE CORPORATION V IRC
 Income Splitting
 Income splitting involves transfers of value from one taxpayer to
another, which transaction usually occurs between related parties.
 Under section 32 of the Act, where a person attempts to split income
with another person, the C-G has discretion to adjust the chargeable
income of both persons to prevent a reduction in their tax position as a
result of splitting their income.
 A person is treated as having attempted to split an income if:
a. He transfers income, directly or indirectly, to an associate, or
b. Transfers property, including money, directly or indirectly, to an
associate with the result that the associate receives or enjoys the
income from that property.
In either case, the reason or one of the reasons for the
transfer should be the lowering of the total tax payable
on the income of that person and the associate.
The value given by the associate for the transfer is an
important consideration in determining whether there
is income splitting or not.
Transfers to an associate through the interposition of
one or more entities are considered as an indirect
transfer.
 One reason for the transfer is to lower the total tax payable
upon the income of that person and the associate. After the
income split, the parties in the aggregate are financially
better off by the tax savings from the transaction.
 If a transaction serves no genuine purpose besides tax
avoidance, the GRA may disallow the tax consequences
intended by the parties.
 Where a person attempts to split income with another person
the Commissioner General may adjust the chargeable
income of both persons to prevent a reduction in tax payable.
 Transfer Pricing
 Transfer pricing comprises pricing relating to transactions not
conducted at arm’s length between persons who are associates. This is
normally a practice among transnational corporations and their
subsidiaries or divisions. Such companies can shift income among
members through their pricing structure for inter-company
transactions.
 For a proper appreciation of transfer pricing one has to understand the
nature of the arrangements vis-à-vis the particular legal rules involved,
and this goes for both domestic and international business transactions.
 First it has to be understood that a transfer or company price is a price
set by a taxpayer when selling to, or buying from, or sharing resources
with a related person (for the purpose of Ghana tax law an associate).
 This in itself is not an illegality or an avoidance scheme,
however, the manipulation of the transfer price such that it is
not at arm’s length is what is of concern to revenue
authorities as it leads to the base erosion of profits (BEPS)
leading to tax avoidance loss to the State.
 For example, if Company P manufactures goods in country
A and sells them to its foreign affiliate, F, organized in
Country B, the price at which that sale takes place is called a
transfer price.
 A transfer price is normally contrasted with a market price,
which is the price set in the market place for transfer of
goods and services between unrelated persons.
 Second, unless prevented from doing so by anti-avoidance
legislation, related persons engaged in such transactions can
avoid income tax through their manipulation of the transfer
prices.
 For example, in the example above, company P might avoid
paying tax in Country A by setting a price on the sale of its
manufactured goods to F that results in earning little or no
profit.
 Therefore in a well-designed income tax system, the tax
authorities should have the power to adjust in appropriate cases
the transfer prices set by the related persons.
 Under section 31 of the Act the C-G has the power, in
transactions between associates, to distribute, apportion or
allocate inclusions in income deductions, credits and personal
reliefs between them to reflect their chargeable incomes or tax
payable by them if their transaction were conducted at arms
length (not between associates).
In the case of a Permanent Establishment (PE) of a
non-resident person, if the C-G is not satisfied with its
return filed under section 72 of the Act, he can adjust
the income of the PE so that it reflects the following
amounts:
a. Total Consolidated income of the non-resident and all
associates of that non-resident, except individuals,
irrespective of residence;
b. Take into account the proportion which the Turn Over
(T/O) of the PE bears to the total consolidated T/O of
the non-resident and those associates; and
c. Take into account any other relevant considerations in
determining the proportion of the total consolidated
income which should be attributed to the PE.
 The C-G is however enjoined to re-characterise the source of
income and the nature of any payment or loss as revenue,
capital or otherwise.
 The Transfer Pricing Regulations, 2012 (LI 2188) sets
guidelines on the application of section 70 of Act 592. It sets
out principles governing related party transactions to ensure
that transactions between associated persons are conducted at
arm’s length, that is, the terms of the transaction do not differ
from the terms of a comparable transaction between
independent persons.
 It spells out the application of the Regulations to transactions
between persons in controlled relationship; dealings between
a permanent establishment and its head office; as well as
between taxpayers in controlled relationships or in an
employment relationship. The Regulations also set out the
transfer pricing methods approved by the Commissioner
General. They are:
 The Comparable Uncontrolled Price Method: This is used to
determine the arm’s length range by comparing the price
charged for property or services transferred in a controlled
transaction to the price charged for property or services
transferred in a comparable uncontrolled transaction.
 The Resale Price Method: This is used to determine the arm’s
length range by comparing the resale margin that a producer of
property in a controlled transaction earns from reselling that
property in an uncontrolled transaction with the resale margin
that is earned in comparable uncontrolled purchase and resale
transactions.
 The Cost-Plus Method: This is used to determine the arm’s
length range by comparing the mark up on those costs directly
and indirectly incurred in the supply of property or services in a
controlled transaction with the mark up on those costs directly
and indirectly incurred in the supply of property or services in a
comparable uncontrolled transaction.
 The Transactional Profit Split Method: This is used to determine
the arm’s length range by comparing the net profit margin relative
to an appropriate base (eg, costs, sales, assets) that an enterprise
achieves in a controlled transaction with the net profit margin
relative to the same base achieved in comparable uncontrolled
transactions.
 The Transactional Net Margin Method: This is used to determine
the arm’s length range by allocating to each associated enterprise
participating in a controlled transaction the portion of common
profit (or loss) derived from the transaction that an independent
enterprise would expect to earn from engaging in a comparable
uncontrolled transaction.
 The C-G may use a method other than the above, or in writing
permit a person to use a method other than those above if the C-G is
of the opinion that considering the nature of the transaction none of
the above is appropriate in determining the arm’s length price.

 Thin Capitalisation
 Investments are normally financed through the capital assets of a company
(equity) or through borrowing (debt). In most cases investments are financed
through a mix of both debt and equity. The quantum of debt to equity ratio in
investments have a number of implications for tax purposes.
 In normal corporate transactions interest is paid on any debt incurred while a
dividend is a return paid to equity shareholders.
 In Ghana as in most other jurisdictions interest paid on a debt incurred for
producing an income is an allowable deduction, while dividend paid to a
shareholder is a taxable income. In addition, the company pays a corporate tax
just as its individual shareholders pay tax on their earnings as dividends.
 Therefore when you finance an investment through equity you are exposed to
many more levels of taxes than if the investment were financed through debt
(such as a loan).
 In the latter case you are entitled to a deduction of the interest
paid from your income on the loan. In the context of Ghana tax
law, financing a resident company with debt is considerably
more effective in reducing the source country tax than
financing with equity. The major reason being that interest is
an allowable deduction, whereas dividends are not deductible.
 In addition a resident company can repay a loan (redeem
shares or reduce capital) at any time without triggering tax,
whereas a company may not be able to repay equity
investments without triggering a taxable dividend.
 Therefore most companies, to avoid tax, prefer a higher debt to
equity arrangement in business financing. Several countries
including Ghana have developed thin capitalization rules as a
response to the bias in favour of debt compared with equity.
Under these rules, the deduction for interest paid by a resident
company is denied to the extent that the company is financed
excessively by debt.
 Under section 33 of Act 896, an Exempt-Controlled Resident Entity
(which is not a financial institution), which has an Exempt debt-to-
exempt equity ratio in excess of 3:1, will not be allowed a deduction
for any interest paid or any foreign exchange loss incurred by that
entity on the part of the debt or loss otherwise deductible.
 An Exempt-Controlled Resident Entity is defined by the Act to
mean a Resident Entity in which an Exempt person holds 50% or
more of underlying ownership or control. The Act further defines
an exempt person to include:
 Non-Resident, and
 Resident person for whom interest paid to that exempt person by
an Exempt-Controlled Resident Entity (ECRE) or for whom any
foreign exchange gain realized with respect to debt claim against a
ECRE:

a. is exempt income or

b. Not included in ascertaining the exempt persons Annual Income.

 Underlying ownership is defined in section 133 of the Act 896 in
relation:

a. In relation to an entity, means membership interests owned in the

entity directly or indirectly through one or more interposed entities,
by individuals or by entities in which no person has a membership
interest; or

b. In relation to an asset owned by an entity, is determined as though

the asset is owned by the persons having underlying ownership of
the entity in proportion to that ownership of the entity.
Undistributed Profits of Companies (s. 59)
A company controlled by five (5) or less
persons and their associates that does not
distribute to its shareholders as dividends a
reasonable part of its income from all sources
for a basis period within a reasonable time
after the end of the basis period, could have
the Commissioner-General treating part of
their income as dividends paid.
 In determining whether a company has distributed a reasonable part
of its income from all sources for a basis period, the C-G shall
consider:
 The current requirements of the company’s business after accounting
for any adjustments which the C-G may make; and
 Any other requirements necessary or advisable for the maintenance
and development of the business.
 The basic principle here is that the profits deemed to have been
distributed should be apportioned among the participants according
to their respective interests in the company and the tax withheld
accordingly. Failure to distribute the profits therefore amounts to
avoidance.
Further Anti-Avoidance Provisions
 Change in Accounting date (Section 24)- This Section deals with
Year of Assessment and Basis Periods. Subsections 1 & 2 provide
the yardstick for the measurement of assessable income for all
classes of taxpayers and from commencement to cessation.
 Subsections 3 & 4 provide that a company or body of persons shall
not change its accounting date unless it obtains prior approval in
writing from the Commissioner and complies with any conditions
attached to the approval. Failure to comply with the conditions set
will lead to the withdrawal of the approval.
 In effect therefore, subsections 3 & 4 permit companies and body of
persons to change their accounting dates. However, to counteract
any artificial and fictitious manipulations with the view to avoiding
tax, they are required to obtain prior approval from the
Commissioner who may also attach conditions to ensure that they do
not obtain any favourable tax advantages as a result of the change.
 Collateral Benefits (Section 53)
 Change in Control (Section 62)
 Where the underlying ownership of an entity changes by more than fifty percent at any time within
a period of three years, the assets and liabilities of that entity immediately before the change is
deemed to be realised.
 The entity shall not be allowed to deduct finance costs carried forward that were incurred by the
entity before the change.
 tax loss before the change will not be eligible for deduction
 the entity will not be able to carry back a loss that was incurred after the change to a tax year before
the change.
 Profit or Dividend Stripping (Section 55)- Dividend stripping is another form of tax avoidance
scheme which aims at stripping the dividend of its real value so as to pay the minimum of tax.
 Anti-Treaty Shopping Provision (Section
 Tax Evasion
 Illegal means to reduce taxes. This is a crime punishable
under Ghanaian law.
 Tax evasion is failing to pay legally due taxes.
 It is a crime and an old problem as centuries ago Plato
observed, “Where there is an income tax, the just man will
pay more and the unjust less on the same amount of
income”.
Some of the common ways people commit tax evasion are
as follows:
Keep two sets of books to record business transactions.
One records the actual business and the other is shown to
the tax authorities. Some evaders use two cash registers.
Working an extra job for cash. Of course, there is nothing
illegal in working an extra job, however, in many cases the
income received on such jobs is paid in cash rather than by
cheque, hence there is no legal record, and the income is
not reported to the tax authorities.
Engaging in barter trade. “I will write up your books
for you as an accountant if you give me two bags of
rice every month”. When the payment is made in kind
as above instead of money, it is legally a taxable
transaction; however, such income is seldom
reported.
Dealing in cash transactions, which is paying for
goods and services with cash or cheques, made out to
“cash” and not the payee’s name makes it very
difficult for the GRA to trace transactions.
 Since tax evasion is by its very nature an illegal act a number
of provisions are provided in Part III of Division II of
subdivisions B and C for interest, penalties and offences as a
deterrent to tax evasion. These constitute part of the
administrative mechanisms for ensuring compliance with tax
laws.
 Failure to comply with certain provisions of the Act attracts
penalties and interest. Notable provisions are sections 141 to
146 as follows:
 Failure to maintain records under section 122 attracts a
penalty of 5% of the tax payable;
 Failure to furnish a return within the time required attracts an
interest at the Bank of Ghana rediscount rate plus 5% of
amount of unpaid tax; and further attracts a penalty in the
case of a company one penalty unit and in the case of an
individual half penalty unit for each day of default;
 Failure to pay tax on the due date;
 Understating or underestimating tax payable by installment;
 Making false or misleading statements; and
 Aiding and abetting respectively.
 Under section 147 of the Act, the C-G has the power of
assessment of the amount of interest and penalties that are
payable.
 Sections 148 to 154 make provisions for offences by individual
taxpayers and Entities. These offences include:
 Failure to comply with the provisions of the Act;
 Failure to pay tax;
 Making false or misleading statements;
 Impeding Tax Administration;
 Offences by authorized and unauthorized persons;
 Aiding and Abetting; and
 Criminal liabilities of tax entities.
Provision is made in the Act in section 155 giving
the C-G the power to compound an offence, except
offences under section 152 committed by authorized
and unauthorized person to facilitate tax evasion.
An offence is compounded where the C-G permits
the offender to pay an amount not exceeding the
amount of fine specified by the offence in lieu of
prosecution.
 Tax Clearance Certificate
 A tax clearance certificate is one of the mechanisms by
which tax evasion is prevented. The possession and
production (if required) of the said certificate is a
prerequisite for a number of important business transactions.
 Section 118(7) defines a tax clearance certificate as a
certificate issued by the C-G to a person stating that no tax is
due under this Act by that person in respect of the periods
stated in the certificate or that that person has made
arrangements satisfactory to the C-G for payment of the tax.
Section 118 provides for a number of situations in which a
tax clearance certificate is required:
a. An alien who has been resident in Ghana or has a tax
liability due under the Act or has income which accrued in
or is derived in Ghana chargeable to tax is not permitted to
depart from Ghana unless he produces a tax clearance
certificate to the Immigration Officer at the port of
departure.

b. The commissioner of Customs Division of the GRA shall

not permit any importer or any other person to clear goods
in commercial quantities or used for commercial purposes
from any port or factory if the person fails to produce a tax
clearance certificate.

c. A tax clearance Certificate is needed for the award of a

contract where public funds are involved in the contract
sum; and
d. Any authority or person empowered by law to register a
document conferring a title to land shall not effect that
registration unless the person registering the title produces a tax
clearance certificate issued in that year of assessment.

There are similar provisions made in other enactments such as

the production of a tax clearance certificate before one is
eligible to register to contest presidential and parliamentary
elections.