MAERSK DRILLSHIP IV SINGAPORE V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY MAERSK RIGWORLD V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (High Court Ruling)

 (APPEAL TO THE COURT OF APPEAL)

Citation: Unreported Judgment of the Court of Appeal (Suit No H1/67/2023) 19th October 2023

Digital Citation:

Brief Facts 
Maersk Drillship IV Singapore PTE LTD (the Appellant) is a company incorporated in Singapore and registered in Ghana as an external company. The Appellant is engaged in the business of providing services to the Upstream Petroleum Industry in Ghana and provided services at the Deepwater DP Drilling Rig for a period of 2 years, between January 2015 and December 2017.
The Appellant obtained a Petroleum Commission Permit to provide services to the Upstream Petroleum Industry in Ghana and operated in the OCTP block in Ghana as a subcontractor to ENI, using rigs and a rig team.
The Respondent is the head of the Ghana Revenue Authority (GRA), responsible for tax administration and revenue collection in Ghana. In 2018, the Respondent commenced a tax audit into the affairs of the Appellant and issued a Final Tax Audit Report on 20th November 2020.The Respondent issued a Final Objection Decision on 27th September 2021, imposing a total tax liability of US$ 28,357,065.17 on the Appellant. The Appellant was dissatisfied with the assessment and filed an appeal to the High Court.

Grounds of Appeal:
The appeal was mounted based on the following grounds:

  1. The Respondent wrongly construed Articles 12(1), 12(3) and 26 of the Offshore Cape Three Points Petroleum Agreement (OCTP) and Sections 27 and 39 of the Petroleum Income Tax Law, 1987 (PNDCL 188) by applying the provisions of the Internal Revenue Act, 2000 (Act 592) and the Income Tax Act, 2015 (Act 896) to the Appellant.
  2. The Respondent erred in law by subjecting the Appellant’s income to further taxes after the 5% final withholding tax.
  3. The Respondent was liable for breach of the provisions of the OCTP Agreement by assessing the Appellant to Corporate Income Tax (CIT) and Branch Profit Tax (BPT) under Act 592 and the Income Tax Act (Act 896).
  4. The Respondent wrongly imposed tax of US$103,300.22 on the Appellant in respect of PAYE taxes when the Appellant had a tax overpayment.
  5. The Respondent erred in law by rejecting some of the VAT Relief Purchase Orders (VRPOs).
  6. The Respondent erred in the reconciliation of figures.
  7. The Appellant sought declarations and orders including a proper interpretation of the OCTP agreement, that the BPT and CIT which they opined that they were are not applicable to them, an order for reconciliation of figures and a refund of monies paid.

Issues

  1. Whether or not the Respondent erred in law in subjecting the Appellant’s income to further taxes after the 5% withholding tax?
  2. Whether or not the Appellant is exempt from Corporate Income Tax (CIT) and Branch Profit Tax (BPT) under the OCTP agreement?
  3. Whether or not the Respondent wrongly imposed tax of US$103,300.22 on the Appellant in respect of PAYE taxes?
  4. Whether or not the Respondent erred in rejecting some of the VAT Relief Purchase Orders (VRPOs).
  5. Whether or not there was an error in the reconciliation of figures?
  6. Whether or not the Appellant was entitled to the reliefs sought?

Areas of Tax Law Considered

  • Corporate Income Tax (CIT)
  • Branch Profit Tax (BPT)
  • Withholding Tax, Pay As You Earn (PAYE) tax and Value Added Tax (VAT).
  • Interpretation of fiscal stability clauses in petroleum agreements and their impact on tax obligations of subcontractors.
  • Tax implications of providing services in the upstream petroleum industry under a petroleum agreement.

Arguments

 Appellant (Taxpayer)

  1. The Appellant argued that under the OCTP agreement and the Petroleum Income Tax Law, 1987 (PNDCL 188), their income is exempt from further taxes after the 5% withholding tax.
  2. They contended that the agreement created a fiscal enclave for ENI and its subcontractors, including the Appellant.
  3. The Appellant argued that the general tax laws of Ghana are ousted by the specific provisions of the Petroleum Agreement.
  4. They asserted that the Respondent erred in assessing them to CIT and BPT.
  5. The Appellant argued that they had a tax overpayment and that the Respondent failed to recognize tax receipts in respect of PAYE.
  6. The Appellant contended that the Respondent wrongly rejected some VAT Relief Purchase Orders and sought for reconciliation of figures.

 Respondent (Ghana Revenue Authority)

  1. The Respondent argued that the general tax laws such as Act 592, in addition to PNDCL 188, apply to all persons unless specifically exempted.
  2. The Respondent contended that Article 12(1) of the PA does not preclude the state from imposing taxes not specifically related to Petroleum Operations.
  3. The Respondent argued that the provisions of the PA and any other contract cannot oust the general tax laws of Ghana.
  4. The Respondent stated that the Appellant is a permanent establishment in Ghana, and liable to pay taxes under Act 896.
  5. The Respondent stated that the Appellant was liable for the payment of CIT and other taxes not connected to services under the PA.
  6. The Respondent argued that Section 39(5) of PNDCL 188 vests power to enable them to apply general tax laws in addition to PNDCL 188.

Ruling

  1. The court dismissed the Appellant’s claims that the Respondent erred in subjecting their income to further taxes, and that the CIT and BPT assessments were inapplicable.
  2. The court declared that the Respondent was barred from imposing any income tax under any other tax law on the Appellant’s income emanating from services carried out in the OCTP block under the Petroleum Agreement except under the relevant provisions of the Petroleum Income Tax Law, 1987 (PNDCL 188) and ENI’s Petroleum Agreement (PA).
  3. The court ordered that an independent auditor be appointed to reconcile accounts between the parties in respect of the Appellant’s VAT/NHIL liability, PAYE, and withholding tax figures.
  4. The court deferred determination of reliefs relating to a revised tax assessment and refund until submission of the auditor’s report.
  5. Claim for general damages was dismissed.

Reasoning

  1. The court found that the 5% withholding tax does not constitute the entirety of the Appellant’s tax obligations.  The Appellant is a permanent establishment in Ghana and subject to general tax laws. The court made it clear that the Respondent is not barred from imposing taxes on the income of the Appellant as a corporate entity, that is not directly related to their activities as a subcontractor.
  2. The court emphasized that the fiscal stability clauses in the PA are intended to mitigate the cost exposure of the contractor and not the subcontractor.
  3. The court reasoned that while the Appellant, as a subcontractor, is an intended beneficiary of the PA, they are not a party to it and therefore cannot claim all the benefits thereunder.
  4. The court stated that the Appellant can only seek shelter under the favorable provisions accorded to the contractor for the service that is directly related to the PA.
  5. The court noted that Section 135 of Act 896 seeks to insulate the provisions of PNDCL 188 that are covered by a binding agreement from the general provisions of Act 896.
  6. The appointment of an independent auditor to reconcile the figures in respect of PAYE, Withholding tax, and VAT/NHIL, would be the only way to verify the tax liability of the Appellant.

Principles for Tax Practitioners

  1. Subcontractors, while intended beneficiaries of Petroleum Agreements (PA), are not parties to them and cannot claim all the benefits accorded to the contractor.
  2. The 5% withholding tax does not necessarily absolve a subcontractor from all other tax liabilities. A company that has a permanent establishment in Ghana (an external company) will be subject to Ghanaian tax laws.
  3. The fiscal stability clauses are primarily intended for the benefit of the contractor, not necessarily the subcontractor, who can only seek shelter under the favourable provisions of a PA for services directly related to work carried out under the PA.
  4. The court has the power, suo motu to order an independent audit to reconcile complex accounts to ascertain the actual tax liability of a party.
  5. The general tax laws of Ghana will apply unless a specific exemption is provided under the law.

References

Constitutional and Statutory

  • The 1992 Constitution of Ghana.
  • The Contracts Act, 1960 (Act 25).
  •  High Court, Civil Procedure Rules, 2004 (CI 47).
  • The Income Tax Act, 2015 (Act 896).
  • The Income Tax Decree, 1975 (SMCD 5).
  • The Internal Revenue Act, 2000 (Act 592).
  • The Petroleum Income Tax Law, 1987 (PNDCL 188).
  • The Revenue Administration Act, 2016 (Act 915).
  •  The Value Added Tax Act, 2013 (Act 870)
  • Rights in Ghana Law

Books

  • The Case for the Enforceability of Third-Party Contractual Rights (Kunbuor, B., Ali-Nakyea, A., & Demitia, W. (2017)). Law of Taxation in Ghana. Type Publishers.