BUMI AMARDA GHANA LTD VRS THE COMMISSIONER-GENERAL (GHANA    REVENUE AUTHORITY)

Citation: Unreported Judgment of the High Court – Commercial Division (Civil Suit No. CM/TAX/0225/2022) dated 8 February 2022.

Digital Citation:  

Brief Facts:

Bumi Armada Ghana Ltd (the “Appellant”) is a company incorporated under the laws of Ghana as a wholly owned subsidiary of Bumi Armada Offshore Holding Ltd (BAOH), also wholly owned by Bumi Armada Berhad (BAB). The company is a subcontractor under a Petroleum Agreement with Eni Ghana Exploration and Production Ltd and the Government of Ghana. The respondent is the Commissioner General of the Ghana Revenue Authority.

 The Company had relied on an earlier a private ruling from the Respondent in the year 2014 (June) on the cascading effect of withholding tax as it related to payments made by a subcontractor under its Petroleum Agreement to the subcontractor’s affiliates or third-party subcontractors; in this application, the respondent (Commissioner-General of GRA) and stated that the subcontractor had no obligations under Section 27 of the then Petroleum Income Tax law, 1987 (PNDC Law 188) to withhold tax from any payments to such a person in respect of Eni’s Petroleum Agreement.

In 2021, GRA performed an audit on Bumi Amarda which resulted in a $4,451,653.32 . This amount was challenged and revised to $3,750,011.19. The bulk of this liability stemmed from the Appellant’s reliance on the earlier private ruling leading to a failure to withhold tax on payment to associated sub contractors to the Appellant.

The Appellant, dissatisfied with the revised tax liability of $3,750,011.19, filed an appeal at the High Court. This instant appeal was against the tax decision by the respondent of $3,750,011.19.

Ground of Appeal:

  1. The Respondent erred in law by interpreting the scope of the Eni Ghana Exploration and Production Limited’s Petroleum Agreement to exclude contracts for the supply of services between the Appellant and its sub-subcontractors.
  2. The Respondent erred in law by classifying payments made by Bumi Armada to its sub-subcontractors for the services, including manpower services as subject to withholding tax and/or pay as you earn (PAYE) payments.
  3. The Respondent misdirected itself in the assessment of withholding tax for the 2015-2019 assessment years
  4. The tax decision of the Respondent is against the weight of evidence..

Issues:

  1. Whether or not the appellant has duly invoked the jurisdiction of the Court
  2. Whether or not the Respondent erred in law by interpreting the scope of the Eni Ghana Exploration and Production Limited’s Petroleum Agreement to exclude contracts for the supply of services between the Appellant and its sub-subcontractors.
  1. Whether or not the Respondent erred in law by classifying payments made by Bumi Armada to its sub-subcontractors for the services, including manpower services as subject to withholding tax and/or pay as you earn (PAYE) payments.
  1. Whether or not the Respondent misdirected itself in the assessment of withholding tax for the 2015-2019 years of assessment.
  • Whether or not the ruling of the Commissioner General dated 1st October 2014 on the application of PNDCL 188 has any legal effect.

Areas of Tax Law Considered

  • Jurisdiction of the Court in Tax Appeals
  • Cascading effect under PNDC Law 188
  • Retrospectivity of Tax Laws
  • Tax Assessments under Petroleum Agreements
  • Withholding Taxes and Pay as You Earn (PAYE) in relation to 3rd party non resident companies.

Arguments

Appellant (Taxpayer):

  1. The Appellant signed a charter party with Eni Ghana for the provision of patrol vessels. Due to this agreement, Eni Ghana in a letter dated 14th June 2014 requested a private ruling from the respondent on the cascading effect of withholding tax as it relates to payments made by a sub-contractor under the Petroleum Agreement to its affiliates or to 3rd party sub-subcontractors.
  1. The respondent’s reply in a letter dated 1st October 2014 indicated that the subcontractor had no obligations under section 27 of PNDCL 188 to withhold tax under the agreement with Eni Ghana Limited. The respondent further provided that in agreements with 3rd parties who were non-resident under the agreement, which gives rise to income accruing in or derived in Ghana, the subcontractor should give a notice to the respondent in writing in 30 days of entering the contract to determine the treatment of such tax issues arising out of the contract.
  1. The respondent failed to respond to such a request from the Appellant, two years after such a request was made by the Appellant (first letter written on 12th January 2017 and a reminder sent on 19th January 2019).
  1. The respondent in a response dated 20th January 2020 indicated that a contract for the supply of services with a non-resident company does not fall under the Eni Agreement. The letter also indicated that the Cascading rule afforded the appellant under PNDCL 188 has been abolished by the introduction of the Income Tax Act 2015 (Act 896) and the Income Tax Regulations 2016 (LI 2244). Thus, the Appellant is required to deduct withholding taxes when dealing with services from non-resident companies who are providing services under the Eni Agreement.
  • The Appellant appealed against this decision arguing that the revocation of the cascading rule should have a prospective and not a retrospective effect.

Respondent (Commissioner General)

  1. The appellant failed to provide any proof of its compliance with Order 54 rule 4 (1) and (2) of the High Court Civil Procedure Rules 2004 (C.I.47), which renders the suit incompetent and must be dismissed.
  2. Tax Appellant could not come under omnibus grounds in a tax appeal.
  3. GRA argued that the said private ruling had been revoked by L.I 2244.
  4. The Respondent further argued that the Appellant relied on a revoked private ruling and also the ruling was specifically issued to Eni Ghana to avoid payment of certain taxes; “the unmasking of which resulted in the bulk of the Appellant’s tax liability”.

Ruling:

  1. The High Court’s jurisdiction has been properly invoked to entertain the matter between the parties
  2. In the ruling of the honourable court, it was upheld that the Agreement between the Appellant and its sub contractor(s) preceded the passage of LI 2244 and hence the revocation of the cascading effect does not apply retrospectively to it.  
  1. Section 106(5)(b) of the Revenue Administration Act 2016 (Act 915) makes it clear “the amended or revoked part of a private or class ruling and does not apply to arrangements commenced after the amendment or revocation”. Grounds 1 upheld.
  1. The Court Upheld Grounds 2 that “the Respondent erred in law by interpreting the scope of the Eni Ghana Exploration and Production Limited’s Petroleum Agreement to exclude contracts for the supply of services between the Appellant and its sub-subcontractors”.
  1. The Appellant provided further information to the effect that the manpower was not their employees but persons that the 3rd sub contractors used to perform the service. It is  not the responsibility of the Sub-contractor (Appellant) to deduct PAYE on the 3rd Sub-contractor employees. manpower services as subject to withholding tax and/or pay as you earn (PAYE). This ground of appeal succeeded.
  2. On Ground 3, the Court directed the Parties to appoint an independent auditor to perform a reconciliation of the discrepancies.
  3. The provisions of Order 54 of C.I 47 on Tax Appeals do not provide modifications to the rules to admit of omnibus grounds of appeal. This appeal failed.

(Note: The parties finally applied to the court to do the reconciliation between themselves and after the reconciliation, the Court Adopted the report and the liabilities there in in a later ruling in a SUIT NO.: CM/TAX/0100/2022, 19 October 2022).

Reasoning of the Court:

  1. The Agreement between the Appellant and its sub contractor(s) preceded the passage of LI 2244 and hence the revocation of the cascading effect does not apply retrospectively to it.  
  2. Section 106(5)(b) of the Revenue Administration Act 2016 (Act 915) makes it clear “the amended or revoked part of a private or class ruling and does not apply to arrangements commenced after the amendment or revocation”. Grounds 1 upheld.
  3. The Court Upheld Grounds 2 that “the Respondent erred in law by interpreting the scope of the Eni Ghana Exploration and Production Limited’s Petroleum Agreement to exclude contracts for the supply of services between the Appellant and its sub-subcontractors”.
  4. The Appellant provided further information to the effect that the manpower was not their employees but persons that the 3rd sub contractors used to perform the service. It is  not the responsibility of the Sub-contractor (Appellant) to deduct PAYE on the 3rd Sub-contractor employees.
  • The appellant had made a payment of the sum of $1,335,490, which when compared with the initial tax assessment of the respondent, constitutes about 35.6 of the tax amount, which is above the one-quarter provision under order 54 of C.I.47. This is on the authority of Biesdorf Ghana Ltd v The Commissioner General.
  • The applicable laws at the time of the tax audit were Act 915, Act 896 and LI 2244. Section 71(4) of Act 896 is in pari-materia with section 27 (1) of PNDCL 188 to the effect that a contractor under a petroleum agreement is required to withhold tax on any payments due to a subcontractor under the same contract. The revocation of the ruling on the cascading effect by the respondent is not applicable to arrangements between the subcontractor and sub-subcontractor that entered into force before the passage of LI 2244. Section 106 (5) (b) of the Revenue Administration Act,2016 (Act 915) are in tandem with article 107 (b) with the 1992 Constitution which prohibits retrospectivity of laws.
  • The contract between the appellant and its sub-subcontractors was one for the provision of services by way of the provision of manpower services by which they provided their own staff for the execution of the contracts and hence, were responsible for the payment of their taxes. Thus, the payment of withholding tax and or PAYE is not applicable.
  • The rules on tax appeals are clearly set out in Order 54 of C.I.47 and nowhere in the rules are provisions made for omnibus tax appeals based on the provisions of Rule 3(2) of Order 54 of C.I 47.

Principles for Tax Practitioners:

  1. Assessments are not done on the trail balance but on the Income Statement, Statement on Financial Position, cashflow and statement and notes to the financial statement. When in doubt, a professional auditor should be consulted for assistance.
  2. Tax appeals must be specifically drafted and not to be considered on omnibus grounds as this will not succeed.
  3. Tax laws may also be prospective and provisions of new tax legislations must be studied to ensure that it either prospective or retrospective.
  4. Article 107(b) of the 1992 Constitution prevents the imposition of limitations and burdens retrospectively, hence the revocation does not apply to arrangements which were made before the passage of the new laws.

LAW REFERENCES:

Constitutional

Article 107 (2) of the Constitution 1992

Statutory references

  • Income Tax Regulation 2016 (LI2244)
  • Section 106 (5) (b) of the Revenue Administration Act,2016 (Act 915)
  • section 27 of the Petroleum Income Tax Act, 1987 (PNDCL 188)
  • Order 54 of the High Court Civil Procedure Rules 2004 (C.I.47)
  • Income Tax Act, 2015 (Act 896),
  • Income Tax Regulation, 2016 (L.I 2244)
  • Section 27 (1) of PNDCL 188

Caselaw:

  1. Biesdorf Ghana Ltd v The Commissioner General.
  2. Republic V. Commissioner of Income Tax; Ex Parte Maatschappij De Fijnhouthandel N.V. (Fynhout) [1976] 1 GLR 380-386
  3. Adu Kofi Djin v. Seidu Musa Baako (2007 – 2008) SCGL page 686
  4. Charlse Queye V. Joseph Nii Teiko Amuzu
  5. Standard Chartered Bank V. Cal Bank Ltd (2020) CA Suit No. H1/1/2019