Mashood Abdul-Mumuni, Esq.
LLM International Tax Law, University of Florida, USA
LLM Oil & Gas Law, University of Ghana
LLB, University of Ghana
Email: [email protected]
Taxation of the digital economy is a Sphinx: Lessons from the developed
and developing countries to guide Ghana.
Abstract: This paper explores Ghana’s existing fiscal policy and regulations on taxation of the digital economy and draw on the experiences of some developed and developing countries to make proposals for policy and legislative amendments. It reviews a range of features, legislative provisions and other operational arrangements. The analysis will provide a number of useful lessons for the design of the fiscal rules on digital businesses as well as mobile transactions taxes. That the GRA has missed its revenue target for 2018 by 5.5 percent is no news because of obvious loopholes in the tax structure that we have. The government requires revenue to drive its policy of ‘Ghana beyond aid’. The digital economy offers the GRA a stream of untaxed revenues, the possibility of which should be exploited and seriously pursued. Superficially, the existing tax regime stands challenged by current complexities of economic digitalization. The change from face-to-face or traditional mode of economic transactions has given way to faceless or ‘dark’ transactions in all spheres of the Ghanaian market. The fiscal implication of these kinds of economic activities is base erosion of taxable revenues.
“In normal economic times, the UK government should run an overall budget surplus, so the country is better prepared for whatever storms that lie ahead. In short, we should always fix the roof while the sun is shining”. 
The significance of this statement lies in prudent economic management and fiscal discipline which are systematic and characteristic of most developed countries. Unfortunately, this statement cannot be said of Ghana. Ghana has never experienced budget surplus for well over fifty years. The budget deficit of Ghana is over 4 percent with the 2019 Budget targeting a deficit of 4.2 percent. The debt to GDP ratio is 63.7 percent in 2018 and current inflation is around 9.8 percent. With these weak macro-economic fundamentals, the desire to increase domestic revenue mobilization has always been the aim of successive governments. The diversification of the economy is on-going and new sources of revenues such as digital services tax on digital businesses and mobile transactions tax are emerging. Whilst the economy is fertile for the introduction of mobile transactions tax, that cannot be said of digital economic businesses. Be that as it may, the paper intends to do situational analysis of the existing fiscal legislations relative to that of some developed and developing countries to identify some lessons that will provide benchmarks for reforms of our revenue regimes, particularly in the area of electronic transactions.
Objectives of the Paper
Faced with substantial economic difficulties of a lower middle-income country, Ghana is in search of innovative means to tax the revenues of digital transactions. The search for these ingenious ways informs the study of this subject which will review digital services tax proposals of some developed and developing countries as well as the EU to achieve the following objectives:
- To provide Ghana with an attractive policy alternative on taxation of electronic transactions.
- To uncover the uncertainties in digital economy taxation in Ghana and to proffer or develop the appropriate legal and regulatory proposals drawing on experiences from other countries.
- To explore the mechanisms of the digitalized economy in the developed world and to identify their structural features and relate that to Ghana.
Taxing Issues of the Digitalized Economy
The growth, integration, and sophistication of information technology and communications has changed the world’s economy. Consumers now routinely use computer networks to identify sellers, evaluate products and services, compare prices, and exert market leverage. Businesses use networks even more extensively to conduct and re-engineer production processes, streamline procurement processes, reach new customers, and manage internal operations.  In 2014, the OECD in its report on the BEPS Project, adopted a broad and inclusive definition of the digital economy consisting of a range of digital and tangible goods and services, including inter alia smartphones, tablets, computers, telecommunication digital content, availability of user data, cloud based services, the Internet of Things, virtual currencies, advanced robotics, 3D printing, and peer to peer sharing of goods and services through the internet. However, the report acknowledged the difficulty trying to ring-fence the digital economy for tax purposes since in its observation traditional businesses are also using digital technologies. That even if it were possible to ring-fence the digital economy, it will still be difficult to determine the jurisdiction in which value creation occurs. 
The discussion of the international tax jurisprudence is focused on the OECD Model Tax Convention (MTC) and the UN Model Double Tax Convention (UN-MDTC), particularly, articles 5 and 7 on permanent establishment (PE) and profit allocations respectively. Although Ghana is not a member of the OECD, it is believed that it uses the MTC and UN MDTC as basis for negotiating Double Taxation Treaties (DTTs) with other countries and so it is important we understand how these rules affect and limit any plans the GRA may harbor to tax the digital economy.
Permanent Establishment Rights
Article 5 on permanent establishment under the OECD and UN Model Tax Conventions include the definition of the treaty concept of PE, which is primarily used for the purpose of allocating taxing rights when an enterprise of one state derives business profits from another state. For purposes of emphasis, the said article provides inter alia , that the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on and especially includes a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well etc.  This provision also contains a long list of exclusions or circumstances that would not be deemed to be a PE. In effect, what constitute a PE requires facts and circumstances.
Despite the long history of the concept of PE, its practical application in digital transactions raises a number of issues. For generations, the concept of the traditional PE is grounded upon the principle that allowing a corporation to take part in the economic environment and making use of the economic resources and infrastructure of a state to generate profits, gives the origin state the legitimate claim to impose tax on such profits. Unfortunately, the dynamism of the economic environment has challenged this principle almost rendering it inapplicable but the delay in its amendment to include the recognition of “virtual presence” may be largely due to geo-political idiosyncrasies and technical challenges.
If the rationale behind the PE rule is that taking part in the economy of a market jurisdiction, gives that jurisdiction a legitimate claim to tax the income, it does no longer make any sense to apply a nexus rule based on physical presence alone when markets can be accessed without having a physical presence at all. The current PE threshold does not serve as a guidance on when significant economic involvement is present and so not very helpful in the current scheme of affairs.  Whilst Article 5 is still an important provision, it remains to be seen how it can be applied to cross-border digital business activities. The perceived shortcomings of this traditional framework and in particular the failure to account for any value creation attributable to user activity, form a large portion of the asserted need for digital services tax. Stated differently, digital taxes authorize the source country or market jurisdiction to impose tax on business profits of a digital corporation that, under the current and existing traditional framework, are not attributable to a PE within their country. 
Traditional Profit Allocation Rights
Closely associated with article 5 in terms of the effect on taxation of digital commerce and which together forms the bane of the international community is article 7. This article provides among others that the profits of an entity doing business in another country shall be taxed only if that entity carries on the business through a PE as elucidated by article 5 supra. The profits generated by the entity through its PE may be taxed only to the extent of the profits attributable to that PE.  Further, the article provides that the profits attributable to the PE in the other or source state shall be expected to be proportional as if the PE were a functionally distinct and independent entity carrying on the same or similar business activities under same or similar condition(s) in that state. These profits shall be determined yearly unless there is a contrary reason to do otherwise and in determining the profits attributable to that PE, the entity shall be allowed as deductions, expenses which are incurred for purposes of the PE. Also, germane to the subject-matter of this paper is that no profits shall be attributed to a PE by reason of the mere purchase by that PE of goods or merchandise for the enterprise. 
In acknowledging the ongoing debate among international tax policymakers, the OECD in its Public Consultation Document (2019) has made some proposals, noting that the existing transfer pricing methods would not be appropriate in allocating profits of digital corporations. Instead, a new type of residual profit split method could be mandated, relying on more simplified conventions for determining such profit and approximate results consistent with an application of the arm’s length principle. This seemingly new method of profit split will only be applicable to profits attributable to user participation and marketing intangibles, whilst the existing profit allocation rules would continue to apply to transactions. This profit allocation proposal is not new to what has been said over the years. This profit allocation proposal will be to user or market jurisdictions and be apportioned on an agreed allocation metric which should be a reasonable proxy for the relative value created in each jurisdiction and be administrable by tax authorities alike.  Whilst consensus and agreeable solutions seem far away, it is not gainsaying that efforts to deal with the issue are forthright.
OECD’s Policy Note’s Proposals
The OECD in January 2019 released a Policy Note which hinted on the way forward for addressing the challenges of the digital economy taxation. The OECD Policy Note outlined a two pillar approach. Pillar one addresses the broader challenges of the digital economy and focuses on the fundamental premise of allocation of taxing rights.  Here, the proposals being considered address the nexus and profit-allocation issues, specifically allocating more taxing rights to market or user jurisdictions. This would attract taxing rights to the jurisdiction in which value has been created by the users of digital services such as user data collected by a search engine or social network and to the jurisdiction which holds any market intangibles. This proposal varies from the current regime for allocating profits. The Inclusive Framework committee acknowledges that such changes may require reconsideration of current permanent establishment and transfer pricing rules. This pillar will analyze nexus based on significant economic presence or significant digital presence, which would require taxation if a certain threshold of connection such as sales is met. 
The second pillar addresses the remaining base erosion and profit shifting (BEPS) issues which will be designed to deal with the continued risk of profit shifting to entities subject to no or very low taxation through developments of inter-related rules on income inclusion and tax on base eroding payments. 
Taxation of the Digital Economy in Ghana
The 2019 Budget Statement revealed that domestic revenues as at September 2018 excluding grants was GH¢31,675.5 million accounting for about 11 percent of GDP and of this amount, total tax revenue accounted for GH¢25,853.7 million. It was estimated that by the end of 2018, total revenue including grants from donor support will be GH¢46,807.5 million, equivalent to 15.7 percent of GDP. The overall budget deficit is around 4.5 percent and in real terms, the public debt to GDP ratio is 57.2 percent. Again, total crude oil lifted by the Ghana National Petroleum Corporation (GNPC) on behalf of the state was 6,896,208 barrels which translated to US$604.09 million (GH₵2,720.71 million) in 2018. However, total petroleum receipt which includes: royalties, carried and participating interest, corporate income tax, surface rentals etc. was US$723.55 million (GHȻ3,292.20million).  Overall, the GRA missed its revenues target by 5.5 percent in 2018. Thus, whilst the reforms at the GRA is aimed at broadening the tax base to include the informal sector, it is noteworthy to consider activities in the digital economy including mobile transactions. But before any in-depth analysis of the GRA’s existing legislations can be done on this subject, it is important that we understand the models of the digital economy and how they operate throughout the world.
Secondary digital commerce
Secondary digital commerce is purely sales of goods and services through the internet where customers make their orders and the goods or services are delivered using the courier services in the case of goods and in the case of services, the said service is performed with the aid of electronic equipment. In either case, payments are done electronically. The illustration is that, a customer in Ghana buys a tangible good or orders for the performance of a service from an entity resident in UK through an App or the website. The good is subsequently delivered from a warehouse located in Ghana or directly delivered to the customer from UK using the postal services. This is the business operating model of Jumia, Amazon and some accounting and legal firms etc. Secondary digital commerce is also referred to as Indirect digital commerce. 
Primary digital commerce
Primary digital commerce is the situation where an entity provides its digital services or products such as live football or soccer games, movies etc. to customers in a completely digital form. Here, the digital service provider may be within the jurisdiction or outside it. For instance, an entity in South Africa selling streamed media materials to customers in Ghana and the service is done through the internet or some other telecommunication science and the final output is characteristically digital in nature. DSTV, Skysports, Netflix and the various App stores are some examples. This kind of service is often called Direct digital commerce. 
Commercialization of data
The third kind of digital trade is the commercialization or monetization of data. This is where digital corporations provide users with free contents in exchange for their biodata information which are analyzed using various algorithms. The results of these analyses are sold to companies who have direct access to the users of the free contents for purposes of advertising products specific to the needs of the users without any physical interactions. Examples of these kinds of content providers in exchange for data are Facebook, WhatsApp, Twitter, Youtube, Instagram and many more. 
Cloud computing business model
Another model of the digital economy is cloud computing which is basically computing services provided by digital corporations usually without a permanent establishment to other corporations, businesses and individuals throughout the world for a consideration, mostly payments. Cloud computing include the use of servers, storage, databases, networking, software, analytics etc. over the internet to offer various services the importance of which cannot be underestimated. In Ghana today, it will not be surprising to know that most companies especially those in the telecommunications and the digital sectors subscribe to cloud computing services. What is the tax consequences of the payments made to these corporations for their services since they do not have PEs in the country? Well, that is part of the Sphinx which is yet to be unraveled. For now, we shall see later to what extent Ghana’s revenue laws can apply.
Analysis of some relevant GRA legislations
Prior to 2009, the agency responsible for tax administration in Ghana was the Internal Revenue Service (IRS). However, the law was repealed together with those of the Customs, Excise & Preventive Service (CEPS) and the Value Added Tax Service (VATS) and replaced by the Ghana Revenue Authority (GRA), which was established as a single body corporate with perpetual succession and a common seal and may sue and be sued in its corporate name.  The GRA is established among others to promote efficient mobilization of revenue and the equitable distribution of tax burden by assessing and collecting taxes, interest and penalties on taxes due the Republic with optimum efficiency.  The GRA is responsible for the administration of over 21 different Tax Laws/Acts. This paper will review some of these laws under two broad categories - Direct and Indirect Taxes to determine whether there are express or implied provisions with the potentials of providing GRA with legal justification to be able to roll-out digital services tax on transactions of that nature.
The principal direct tax legislation is the Income Tax Act, 2015 (Act 896). This Act provides the basis for the taxation of residents and non-residents in Ghana. Generally, residents are taxed on their worldwide income  whilst non-residents are taxed on income which traced its source to Ghana if it accrues in or is derived therefrom.  Furthermore, an individual is resident for tax purposes if he meets the following conditions: Present in Ghana for an aggregate period of 183 days or more in any 12 month period that commences or ends during the year; a citizen including one who is temporarily absent from Ghana or has a permanent home outside Ghana etc. 
For partnership, the law requires any of the partners to reside in Ghana at any time during the year to qualify as a resident whilst for companies, the law requires incorporation in Ghana under the Companies Act, 1963 (Act 179) or its place of effective management to be in the country to qualify as a resident.  Thus, a person, partnership or a company having not satisfied these requirements is prima facie deemed to be a non-resident person, partnership or a company as the case may be. Importantly, and for purposes of emphasis, a non-resident company may be taxable in Ghana during the year of assessment only if it has its place of effective management in Ghana. When this happens, the chargeable income (business or net profits) of the company will be taxed at a flat rate of 25 percent. However, companies engaged in mining and upstream or on-shore petroleum businesses will be taxed at the rate of 35 percent. 
The general tax implication of the law on residency is that, non-resident companies in business in Ghana without a PE are not taxable and this is consistent with the international taxing principles. However, if these companies operate through PEs, they will be taxed at either 25 or 35 percent on their business profits attributable to the PE depending on the kind of business.  For this reason, it is clear that the concepts of ‘digital presence’ (DP); ‘significant economic presence’ (SEP); ‘significant digital presence’ (SDP) etc. are not known in the tax parlance of Ghana. The imposition of tax on revenues generated by non-residents in the digital economy generally raises some issues, two of which will be discussed: The first is characterization of income earned from the use or alienation of goods and services particularly software, other intangibles or electronic goods and the use of digital platforms for advertising purposes. The concern is whether the income from such sources are royalties, business income, or capital gains. The second issue is the question of what is a PE in Ghana? This is important in that if the GRA could categorize non-residents business activities to constitute PE in Ghana based on the concept of virtual PE and the likes then it could attribute their income to the PE and tax it accordingly.
The issue of income characterization even in the developed world is very thorny and complex but, it has been settled both in statutes and in case law. It is obvious that Tech and communication companies in Ghana transact overseas businesses which require payments. The tax consequences of the income earned by non-residents from these transactions will generally depend on characterization of such income. Usually, business profit qualifying as royalty is taxable only when it is attributable to a PE and the reverse is true. Similarly, fees for technical services are also taxable to the extent that those fees are attributable to a PE. However, in determining whether a payment amounts to a royalty for purposes of tax, the existing laws in Ghana are not helpful. The kind of royalty mentioned in Act 896 is completely different from royalty in the digital world. In effect, the direct tax legislation has no provisions on income characterization which is very important in digital commerce. In this regard, Ghana must amend Act 896 which should wholly adopt the provisions of Articles 12 and 12A of the 2017 UN Model Double Taxation Convention between Developed and Developing Countries which deal with the taxing matters of royalties.
Understanding permanent establishment in Ghana
Act 896 in section 110 borrows this concept of PE from the international best practice, especially articles 5 of the OECD MTC and the UN-MDTC. The provision categorizes the following activities, when undertaken within Ghana could give rise to a PE or could potentially trigger a PE status:
- A place in the country where a non-resident person carries on business or is at the disposal of the person for that purpose;
- A place in the country where a person has, is using or is installing substantial equipment or substantial machinery;
- A place in the country where a person is engaged in a construction, assembly or installation project for ninety days or more, including a place where a person is conducting supervisory activities in relation to that project;
- The provision of services in the country;
- A place in the country where an agent performs any function on behalf of the business of a non-resident person including the collection of premiums or the insurance of risks situated in the country and excluding the case involving a general agent of independent status with its own legal personality acting in the ordinary course of business.
On these requirements, a non-resident company will only be taxed if it satisfies the PE rules. The definition of PE from the Ghanaian perspective has absolutely nothing to do with the digital economy and so emerging concepts such as ‘business connection’, ‘digital presence’, ‘significant economic presence’, ‘virtual PE’, ‘user participation’, ‘value creation’ etc. are legal nonentities or alien to the tax jurisprudence. As a consequence, the country may be losing revenues from base eroding and profit shifting activities because of either the pervasiveness of e-commerce or the lack of proactiveness of the legal system.
The BEPS Action Plan, particularly Article 1 on taxation of the digital economy put forward three options for countries that intends to tax the digital economy. These options could either be adopted into their domestic laws or tax treaty framework whilst recognizing their international obligations. One such proposal is the recognition of ‘virtual permanent establishment’ which basically, provides a justification for countries to bring companies within their taxing authorities that have significant economic presence through internet-based activities.  If Ghana wants to exploit any taxing opportunities in this regard, it could either amend its laws or re-negotiate its Double Taxation Treaties (DTTs). Unfortunately, Ghana has not entered into a lot DTTs with the rest of world. The few DTTs entered with France, Germany, the UK, South Africa, Italy, Belgium, the Netherlands, Switzerland and Denmark provide relief from double taxation of income that accrues to residents of the contracting states within their respective countries under the treaty. The DTTs with Czech Republic, Singapore, Mauritius, Morocco and Ireland are yet to be ratified by the parliament.  Renegotiating treaties is not the best option under this circumstance.
Mobile Transaction Tax (MTT)
The telecommunications sector plays an important role in the delivery of digital services in the country. Statistics show that as of 2018 the mobile penetration rate is around 120 percent and in real figures over 34 million phones are operational in a population of about 30 million. There are tax implications for e-commerce activities being delivered through mobile phones but at this moment not much has happened. Mobile money transactions have taken off in many countries in Sub-sahara Africa, South-east Asia and the Latin America offering millions of people with a faster, cheaper and more efficient way to send and receive cash and engage in digital economic activities both domestically and internationally.  The mobile phones have become platforms for advertisements by businesses through numerous social media tools and various Apps that collect demographic information of people all over the world.
Whilst mobile money tax is just a tip of the iceberg, the broader issues of digital economy taxation which are still unresolved is the use of digital platforms provided by mobile phones for access to goods (including intangibles) and services. Nonetheless, designing a legal regime for mobile transactions tax is long overdue. Mobile money tax was first introduced in Kenya but had since gone viral in many other countries such as Tanzania, Uganda, Cote d’voire, Zimbabwe etc. What is deduced succinctly from their tax legislations is the incidence of the tax. It varies in that in some countries, it is the individual who request for the service who bears the burden of the tax but some, it is the final consumer or the beneficiary of the transfer. In conventional online banking transfers where both banks for the originating service and the destination service charge fees for their services, the mobile transactions tax in Ghana should be designed to apply to both originating services (transfer fees) and fees on destination or withdrawal services provided by the service providers.
Sales of Goods Act, 1962 (Act 137)
Ghana’s Sales of Goods Act has sadly, remained as it is 57 years after its enactment. This law which was more of a carbon copy of the UK’s sales of goods law then was established to regulate both domestic and international sales of goods as well as high purchase transactions. However, whilst the UK’s law has been amended a couple of times, that of Ghana is stagnant. Reference to this law in search of legal basis for Ghana’s desire to tax the digital economy is very relevant because of high-scale cross-border sale of goods and services using electronic means. Indeed, Australia, one of Great Britain’s colony has Goods and Services Tax (GST) which imposes a 10 percent withholding tax on digital services and intangibles.  Unfortunately, Ghana’s own is not of any use in this subject.
Ghana practices the unitary system of government and so indirect taxation is not complex relative to countries with semi-autonomous states or counties. The locus classicus legislation for indirect taxation is the Value Added Tax, 2013 (Act 870) together with its amendments and the Value Added Tax Regulations, 2016 (L.I. 2243). The VAT Act imposes a tax on supply of goods or services made in Ghana as well as imports of goods or services. The tax is charged where the supply is a taxable supply and made by a taxable person in the course of a taxable activity.  Thus, the scope of Act 870 contains three technical terms: ‘taxable supply’, ‘taxable person’ and ‘taxable activity’. The last two terms suffice for purposes of analyzing their structural significance to digital economy taxation.
Whether consciously or unconsciously, Act 870 explains taxable activity to mean an activity carried on by a taxable person in Ghana. The definition is so broad but for this paper two of the inclusions are germane and deserve some comments. First is the inclusion of data processing; and second the supply of information or similar services and the sale, transfer, assignment or licensing of patents, copyrights, trademarks, computer software and other proprietary information.  This is the closest attempt in the over 21 legislations of the GRA that Ghana comes to taxing the digital economy. But as will be shown later, this effort was strangled to death by the same law long before it came into force, unfortunately. It seems, that parliament just expanded the definition of taxable activity to include some elements of digital services without any proper understanding of the complexities involve.
Another term of art under Act 870 is ‘taxable person’. The law makes it clear that VAT will only be applied to a taxable person engaged in taxable activity(ies) in the country. Indeed, it stipulates that a taxable person is a person who is registered to undertake a taxable activity.  This presupposes that the requirement of registration must be satisfied in accordance with the law to qualify a person or entity as a taxable person/entity. The criteria for the registration are: A person with a business turnover that exceeds GH¢120,000 over a 12 month period or a business turnover that exceeds GH¢30,000 over a 3 month period.  Thus, non-residents without PE that supply digital services to Ghanaians fall outside the scope of the VAT law even where the turnover of those businesses meet these thresholds. However, if the law were to recognize the activities of digital service providers under the concepts of significant economic presence or business connection, then the GRA could somehow be justified to impose VAT. Even though, the law compels telecommunication and e-commerce service providers to register in Ghana for purposes of administering the VAT, owing to the fluidity of the digital commerce, it will be difficulty, if not impossible for the GRA to deal with.
Review of Independent Actions of some Countries
In 2015 the OECD addressed digital economy challenges in action 1 of its base erosion and profit-shifting plan, and ultimately determined that it would be impossible to ring-fence the digital economy for tax purposes. The BEPS action 1 report did not offer any guidance on how countries could benefit from the profits of digital corporations engaging in economic transactions without PE’s. Whilst the OECD and the UN Committee of Experts on International Cooperation in Tax Matters have been slow in dealing with this international fiscal issue, tax administrators of many countries appeared to have run out of patience and had decided to roll-out various digital services tax or some form of that. A few of these will be analyzed to see whether they can provide guidance to Ghana.
Her Majesty Revenue & Customs (HMRC)
Generally, the international tax regime is based on the principle that the profits of a business should be taxed in countries in which it creates value. Whilst the UK continues to support this principle it, however, believes that a country should be entitled to tax the profits of a business that result from activities, human enterprise and innovation that take place within its jurisdiction, irrespective of where the business’s goods and services are ultimately sold. With this new emerging idea, the UK finds it extremely incomprehensible why the digital businesses should escape UK taxes whilst the international tax rules provide no support. 
In response, the UK first introduced the Diverted Profit Tax (DPT) in April, 2015 which basically, applies to transactions of multinational corporations (MNCs) which meet any of the following two-prong test or what may be dubbed ‘the brightline test’: The first is transactions in the supply chain involving low or no tax entities lacking economic substance; and secondly, arrangements by multinationals with the main purpose of avoiding UK corporate tax of 20 percent. The relevance of this tax to the discussions is that the scope of the law is expanded to include what the HMRC established as a diverted profit of a corporation which does not have a PE in UK and accordingly not taxed at 25 percent. This double non-taxation is what is considered to be an affront to the existing international fiscal regime. The tax targets transnational corporations that use artificial arrangements to divert profits overseas. 
Additionally, the HMRC will be introducing Digital Service Tax (DST) in 2020 which is estimated to generate about £400 million ($500 million) a year. The UK is targeting large, profitable companies, with global revenue of at least £500 million ($641 million). The new levy would constitute 2 percent of such company’s revenue in the U.K. The tax would affect businesses generating U.K. revenue from services including search engines, social-media platforms and online marketplaces. This clearly makes the ad-selling businesses of Google and Facebook particularly vulnerable to this tax. However, the tax would not impact sales of digital music or movies. Experts believe that for giants like Alphabet, Amazon.com Inc. and Facebook, the U.K. tax would amount to a relatively small amount of additional tax. Nonetheless, its significance is the signaling of protection of the UK tax base and concretization of the steps of all the global attempts by governments to tax the digital economy based on value creation. 
Australia’s Tax Office (ATO)
The concept of virtual permanent establishment or digital economic presence as preferred by others has gained momentum within the last few years. It is on this basis that the Australian Tax Office (ATO) also introduced their domestic anti-avoidance tax legislation to deal with base erosion and profit shifting in electronic transactions. There is high digital penetration of the Australian society which increased the need for the ATO to implement the Multi-anti Avoidance Legislation (MAAL) in 2017 and the Goods and Services Tax (GST). 
Essentially, MAAL strengthens the integrity of Australia’s PE rules and it does this by imposing a 40 percent penalty rate on MNCs that avoid Australia’s corporate tax by diverting profits offshore. This penalty applies to significant global entities (SGEs), i.e. MNCs with annual global income of $1 billion or more. Again, MAAL prevents SGEs from structuring their affairs to avoid tax by adopting an ‘operate here, bill overseas’ business model.  Apart from MAAL, Australia has amended its Goods and Services Tax (GST) imposing a broad-based tax of 10 percent on most goods, services and other items sold or consumed in Australia. Relevant for this paper is that the GST applies to sale of electronic or digital services by non-resident providers to Australian consumers. The GST expansion specifically deals with digital transactions such as: streaming or download of music, films, apps & games; e-books; online professional services; Online web, cloud and storage services as well as providing taxi or uber-like services.  The Australian GST is based on user participation and the value that comes with that.
Indian Income Tax Department (ITD)
In 2018, India amended its Finance Act to extrapolate the PE rules and give recognition for tax purposes to non-resident business transactions taking place within its territory. The new law provides that agents who habitually exercise an authority to conclude contracts or play role leading to the execution of contracts in India for a non-resident shall constitute ‘significant economic presence’ (SEP) and therefore, a business connection in India. On what constitutes ‘significant economic presence’ (SEP), the law explains it in a very broad and dramatic way. It listed a number of circumstances under which the requirements of SEP will be satisfied.  The Indian tax provides further evidence of the common theme running through jurisdictions seeking taxation for digital businesses operating within their territories base on value creation or user participation. The challenge for the Indian government is that it needs to renegotiate for the inclusion of the new nexus rule of SEP in all its income tax treaties otherwise the existing PE regime on cross-border profits will continue to be utilized and render the administration of the new nexus rule difficult. 
The Indian government previously applied an equalization levy (EL) of 6 percent “on considerations received or receivable for any specified services”. These “specified services” were defined to include “online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement.” Since then, the government has expanded the scope of “specified services” to include among others, cloud computing, website design hosting and maintenance, digital platforms for sale of goods and services and several other services. User participation and value creation are the concepts underlying the application of the Indian EL. The EL is applicable to transactions which have an aggregate consideration of more than US$ 1,500 in a financial year and the transaction must be between an Indian resident or a non-resident having a PE in India, and a non-resident service provider not having a PE. 
EU’s Digital Services Tax (DST)
On 21 March 2018, the European Commission (EC) proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU. According to the EC the basis for these proposals stem from the failure of the current tax rules to recognize the new ways in which profits are created in the digital world and in particular the role that users play in generating value for digital companies. The EC says that there is a disconnect or mismatch between where value is created and where taxes are paid. The resultant effect of the failure or the disconnect are two proposals: The first aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels and this forms the Commission's preferred long-term solution. The second proposal responds to calls from several Member States for an interim tax which covers the main digital activities that currently escape tax altogether in the EU. 
The first proposal would enable Member States to tax profits that are generated in their territory, even if a company does not have a physical presence. The new rules would ensure that online businesses contribute to public finances at the same level as traditional 'brick-and-mortar' companies. A digital platform will be deemed to have a taxable 'digital presence' or a virtual permanent establishment in a Member State if it fulfils one of the following criteria: It exceeds a threshold of €7 million in annual revenues in a Member State; it has more than 100,000 users in a Member State in a taxable year; and over 3000 business contracts for digital services created between the company and business users in a taxable year. This measure could eventually be integrated into the scope of the Common Consolidated Corporate Tax Base (CCCTB) where proposal for profits allocation reflects value creation. 
Of immediate importance to this paper, is the second EL proposal on DST which would apply to companies with both: total annual worldwide revenues of €750 million ($868 million); and total EU revenues of €50 million ($58 million). The DST would be a turnover tax levied by individual countries at a rate of 3 percent on revenues derived from the selling of advertising space, digital intermediary activities like online marketplaces, and sales of user collected data. These revenue sources are specifically identified by the commission as revenues created from activities where users play a major role in value creation. The 3 percent DST is designed in such a way that it could impact a broad swath of companies doing business in Europe because the true economic incidence of the tax would fall on users and companies that purchase ads and place their products on online market places. Ultimately, just as VAT, it is the end users who will bear the cost of this tax. 
The Way Forward for Ghana
With the emergence of digital transactions which keep mutating, tax administration has become a difficult issue as citizens are using the fluidity of technology to advance means through which their tax obligations will be reduced, if not eliminated. There is no doubt that the government needs to raise substantial tax revenue to fund its ‘Ghana beyond aid’ policy. Whether the GRA decides to explore the ways for introducing digital services and mobile transaction taxes, the following policy, legal and institutional issues should be considered:
Considering the volatility and the tensions characterizing the discussions on how to fix this sphinx, as policy measures, the government should consider the following proposals notwithstanding the general tax policy issues of administration, equity and economic efficiency.
- The first is to remain indifferent as it appears to be case now whilst the OECD Inclusive Framework and the developed countries devise the appropriate remedial measures thereafter, the GRA will see what exactly it has to do.
- The second, is for the GRA to recognize the existence of an untapped revenue source and begins preparatory discussions in anticipation of implementing proposals that the OECD will release in 2020. Early discussions and preparations will position the GRA to respond in a more efficient way in the adoption and implementation of OECD’s solutions. In this regard, a committee should be established with the principal objective of preparing the GRA for this transformation. Giving the specialized nature of the issues and the complexities involve, persons in the committee should be persons with considerable international knowledge and appreciation of how the digital economy operates relative to the taxing issues.
- The third, is for the government to decide whether to join the bandwagon of countries with independent digital services taxes. If government decides to propose a digital services tax, this will require the establishment of a fiscal regime for that because the existing legislations are completely numbed to the issues on digital commerce.
- An important policy issue that should also be addressed if the GRA rolls out a digital service tax is the incidence of the tax or who bears the burden. Just like the VAT and most taxes, the final consumers in this case Ghanaians will bear the brunt of this new tax. Would that be justified? The answer is yes, because it will bring a lot of Ghanaians into the tax bracket who were, hitherto, not taxed. There will be enough justification for Ghanaians to carry the burden of this tax.
- Another important policy issue that the government may want to explore is ‘digital tax haven’. Studies and literature are still being reviewed on the operation of this model as well as its fiscal implications. However, it is possible for the government to deliberately design policies and laws to brand the country as a digital tax haven. For this to be successful and to attract high-tech digital corporations which may be contemplating having offices in Africa, the government in addition to zero percent digital activities tax, should also reduce corporate tax for these corporations as incentives.
If the Ministry of Finance and the GRA in the short to medium term intend to tax the digital economy through digital services tax, the following issues are worth considerations:
- The definition of permanent establishment in section 110 of Act 896 should be amended. The new amendment should recognize digital presence or significant economic presence and user participation as generating value which value ought to be recognized and taxed accordingly. This change will set the ground for the GRA to impose tax on business activities of non-resident companies. The activities of these companies will come under the business connection or digital presence test.
- The definition of taxable person in section 4 of Act 870 should also be amended. The existing provision only recognizes persons registered in Ghana as taxable persons. Thus, the scope of taxable person should be broadened so as to include non-businesses without registration yet operates in the Ghanaian market. In this case, where these businesses are not registered in Ghana, they nevertheless will fall within the tentacles of the GRA.
- Even though the definition of taxable activity in Act 870 is broad and includes some elements of digital transactions, it still needs to be amended to include provision of digital services of any kind, transfers and business transactions of any type using digital means and recognition of user participation as generating economic values etc.
- In the long term, the government should visit the Sales of Goods Act, 1960 (Act 137) which has been calling for amendments for some years now. It should be amended to Sale of Goods and Services Act and include provisions on sales or transfer of services and intangibles.
- Again, in the long term international measures will affect existing bilateral and multilateral treaties. Fortunately for Ghana, the Double Taxation Treaties (DTTs) are few and government should expect that these treaties will be re-negotiated to reflect the dynamics of digital economic activities.
- The modus operandi of digital economic transactions has collateral national security implications which have been overlooked. Almost every youth in Ghana today has subscribed to Facebook, Instagram, Twitter, Uber, Jumia etc. with these companies having substantial demographic information of Ghanaians which can be used for all kinds of purposes including security planning. This is where Act 843, the law establishing the Data Protection Centre needs to be reviewed. The Centre should be strengthened to protect the data of Ghanaians and to have a say in the commercialization of data by these digital platform providers.
Under the existing structure, the GRA has three broad divisions – Customs, Domestic Tax Revenue and Support Services Divisions. Of particular importance for purposes of restructuring is the Domestic Tax Division. Considering the complex nature of digital activities, this paper proposes for consideration as part of the reforms on-going at the GRA that a Department of Digital Commerce be created with the sole responsibility for the administration of digital transactions tax in Ghana. In the short term, this Unit should be responsible for the administration of the Mobile Transactions Tax (MTT) which is currently being considered.
The Unit should be headed by a Director who should be made to report directly to the Commissioner and equipped with highly skilled Ghanaians with professional qualifications of digital tax administration and policy matters. The on-going discussions at the international level and the measures being proposed will require the administration and synchronization of complex international and domestic tax rules on digital commerce. For instance, proposals that specialized transfer pricing rules be developed for profit allocation will require officials with depth appreciation of how transfer pricing works and more importantly how it will be applied to digital transactions.
The Ghana Revenue Authority (GRA) in its 3rd Strategic Plan for 2019-2021 identifies the development of mechanisms for taxation of digital transactions. Fortunately for the GRA, one of its directors is a member of the UN sub-committee for international cooperation in tax matters working on addressing the concerns of developing countries on this subject. The GRA last year missed its revenue target by 5.5 percent and this year it is expected to raise about GH¢54 million. The inability to collect the needed revenue from domestic resources has resulted in overreliance on external funding since independence resulting in uncountable IMF bail outs. This has affected government’s ability to take certain decisions of its own because of conditionalities. The paper has reviewed the direct and indirect tax legislations and exposed the loopholes inherent in them. The GRA should study and operationalize the OECD guidance for the effective collection of VAT as well as the VAT system of the EU which are designed in a manner that allow the collection of VAT/GST from suppliers that are not resident in member countries. Experience shows that these issues are better dealt with by organizations and this is where the African Union (AU) should be up and doing.
Basically, all the unilateral proposals on taxing the digital economy some of which have been discussed above fall under the following four categories: First, those that rely on the application of the significant presence or the virtual permanent establishments tests; second, those that apply withholding taxes which require broader definition of royalties (not the kind of ‘royalty’ in Act 896); third those that adopt equalization levies on internet advertisements; and forth, those that implement Diverted Profit Taxes notably the UK and Australia and the Base Erosion Anti-Abuse Tax (BEAT) of the US.  Thus, it is important to mention that the policy, legal and institutional proposals/recommendations which have been discussed supra are the lessons or by-products of the review of these unilateral measures as well as the relevant GRA tax legislations.
 George Osborne, UK Summer Budget, July 8, 2015
 Thomas L. Mesenbourg, Assistant Director for Economic Programs, U.S. Bureau of the Census, Measuring the
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University of Oslo. Available at: https://www.duo.uio.no/handle/10852/60534 ; and Sullivan & Cromwell
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 Baumann, Anton, “Digital Economy: The Future of International Taxation of Business Income” p. 15
 Taxation of the digitalized economy: A policy paper designed to educate, enlighten and stimulate discussion
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 Supra note 11
 Budget Statement & Economic Policy of Ghana, 2019
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 Baumann, Anton, “Digital Economy: The Future of International Taxation of Business Income” Supra note 7, p. 11.
 Ghana Revenue Authority Act, 2009 (Act 791). Section 1
 Ibid, section 2 and 3
 Income Tax Act, 2015 (Act 896), section 111
 Ibid, section 101(1)
 Ibid, section 101(3) & (4)
 PWC, ‘Navigating taxation: A quick guide to taxation in Ghana – 2018 tax facts and Figures’ (2018); Available at:
 Supra note 30; section 107(1)
 ‘Digital Economy in India: Direct and Indirect Taxation’. Nishith Desai Associates, (March, 2018) Available at:
 Supra note 34, PWC, p. 18
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 The Australian Tax Office (ATO); website: https://www.ato.gov.au/business/gst/
 The Value Added Tax, 2013 (Act 870), section 1
 Ibid, section 5
 Ibid, section 4
 Ibid, section 6
 HM Treasury, ‘Corporate tax and the digital economy: Position paper update’ (March, 2018); Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/689240/corporate_tax_and_the_digital_economy_update_web.pdf
 ‘Diverted Profits Tax’, (2015); Baker & Mckenzie. Available at: https://www.bakermckenzie.com/-/media/files/insight/publications/2015/01/diverted-profits-tax/files/read-publication/fileattachment/ar_london_dpt_jan15.pdf
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 The Australian Tax Office website: https://www.ato.gov.au/business/gst/ .
 India Finance Act, (2018), section 4
 Robert Sledz, ‘India Enacts Digital PE and other BEPS Measures’, (July, 2018). Thomson Reuters. p. 2 Available at: https://tax.thomsonreuters.com/blog/india-enacts-digital-pe-and-other-beps-measures/
 ‘Digital Economy in India: Direct and Indirect Taxation’ (March, 2018). Nishith Desai Associates. p.9-10 Available at http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/DIGITAL_ECONOMY_IN_INDIA-web.pdf .
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