MAERSK DRILLSHIP IV SINGAPORE V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (APPEAL TO THE COURT OF APPEAL)

Citation:  Unreported Judgment of the Court of Appeal (Commercial Division.

H1/67/23) dated 27th October 2023.

Brief Facts

This is an appeal against the ruling of the High Court, (Commercial Division) Accra dated 19th October 2022 which decision upheld in part. Maersk Drillship IV Singapore (“the Appellant”) brought the appeal against the Final Objection Decision of the Commissioner-General of the’ Ghana Revenue Authority (“the Respondent) dated 27th September 2021. The dispute between the parties concerns the interpretation and application of Articles 12(1) and (3) as well as Article 26 of the Offshore Cape Three Points Petroleum Agreement, Sections 27 and 39(3) of the Petroleum Income Tax Act, 1987 (PNDC Law 188), the

Internal Revenue Act, 2000 (Act 592) and the Income Tax Act 2015 (Act 896). The instant appeal requires that this Honourable Court properly construe and apply the above provisions. This is because the central contention of the Appellant in this appeal is that on a true and proper construction of the provisions above considered in the appropriate context, the Appellant is not liable to pay any other tax under any other tax law after a 5% final withholding tax is withheld on its behalf by ENI. Specifically, the Appellant avers  that the Honourable High Court erred when it held that the Respondent was right in imposing income tax on its earnings for the period 2015-2017 and branch profit tax on same.

In 2018, the Respondent commenced a tax audit into the affairs of the Appellant and issued a Final Tax Audit report dated 20th November 2020 (Exhibit MDS 6). In this report the Appellant was assessed with a total direct tax liability of US$ 20, 185,531.36 and an indirect tax liability of US$8,441,746.18, making a total tax liability of US$28,627 ,295.54.

The Appellant, dissatisfied with the tax assessment, and following failed attempts to resolve the dispute with the Respondent, lodged an objection against the assessment dated 15th January 2021. On 27th September 2021, the Respondent issued its Final Objection Decision in response to the objection in which the direct tax liability was revised downwards to US$ 19,915,318.99.

Still dissatisfied, on 8th November 2021, the Appellant filed an appeal against the decision of the Respondent at the High Court. On 24th December 2021, the Respondent filed its Reply to the appeal pursuant to Order 54 Rule 7 of C.I. 47. In its appeal, the Appellant sought reliefs including the following;

  1. A declaration that the assessed Branch Profit Tax of US$ 17,103,923.20 is not applicable to the Appellant and therefore the assessment is extinguished.
  2. A declaration that the assessed Corporate Income Tax of US$2,370,959.33 is inapplicable to the Appellant and therefore the assessment is extinguished.
  3. A declaration that the Respondent erred in law when he unjustifiably assessed the Appellant to additional Corporate Income Tax in the amount of US$ 2,370,959.33.
  4. A declaration that the Respondent is barred from imposing any income tax under any other law on the Appellant’s income emanating from its services carried out in the Offshore Cape Three Points block under the Petroleum Agreement except under the tax provisions of ENI’s Petroleum Agreement.

On 8th July 2022, the Honourable High Court delivered its judgement in relation to reliefs (i), (ii) , (iii), (iv), (v), (vi), (ix) and (xii) and ordered the parties, in consultation with the Registrar of the Honourable High Court, to appoint an independent auditor reconcile accounts regarding the Appellant’s VAT/NHIL liability, PAYE and Withholding Tax Figures, in consultation with the Registrar of the Court, in order to ascertain the actual liability of the Appellant in respect of reliefs (vii) and (viii).

The reconciliation was carried out and on 30th September 2022, a reconciliation report was filed by the parties. Counsel for the Appellant also filed an application for clarification of the decision of the Court on relief (vi) seeking clarity as to whether the Respondent could impose branch profit tax on the Appellant’s income emanating from the OCTP block under the petroleum agreement.

NOTICE OF APPEAL

The Appellant, aggrieved by the decision of the High Court, brought the instant appeal before this Honourable Court on the following grounds;

  1. The Judgement is against the weight of the evidence.
  2. The learned Judge erred in law by holding in her judgement dated 8 of July 2022 and her ruling dated 2nd October 2022 that the Appellant’s aggregate amount (income) earned from its works and services carried out under the Offshore Cape Three Points (OCTP) Petroleum Agreement is subject to branch profit tax after being subjected to 5% final withholding tax.
  3. The learned Judge misdirected herself in her judgement dated July 8, 2022, by holding that the Respondent was right in imposing additional taxes including branch profit tax on the aggregate amount earned by the Appellant from its works and services under the final OCTP Petroleum Agreement after subjecting the aggregate amount to a 5% final withholding tax.

Arguments of the Appellant (Taxpayer)

  1. The learned High Court decided in its favour and contends that the decision of the High Court means that “…the Respondent IS ONLY PERMITTED to impose income tax under the relevant provisions of
  2. PNDCL 188 on the Appellant’s income from its services carried out in the Offshore Cape Three Points Block under the Petroleum Agreement” (emphasis the Appellant’s). The Appellant further contends that this means that the Respondent is prohibited from imposing any income tax under any other law on the Appellant’s income emanating from the services carried out on the OCTP block under the petroleum agreement; referencing his argument to portions of Section 27 of PNDCL 188 and argues that section 27(4) of PNDCL 188 bars the application of Act 592 and other subsequent tax laws to the Petroleum Agreement and the subcontract, whilst Section 27(5) of PNDCL 188 prohibits the application of other tax laws to Appellant as a subcontractor to ENI for services in connection with the Petroleum Agreement. 
  3. MAERSK DRILLSHIP IV SINGAPORE V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (APPEAL TO THE COURT OF APPEAL) - TaxNob RahAppellant further cited portions of the judgement of the High Court Judge at page 190 and 191 of the record wherein the learned justice states, “That said, I think a combined reading of the above quoted positions presents a clear and unassailable meaning that once 5% of the payments due the subcontractor for work and services provided under the P.A. is withheld by the Contractor, the Subcontractor is not liable to pay tax under any law, on that aggregate amount unless and until the occurrence of any of the events listed under Section 135(2) of Act 896. To that extent, I agree with the Appellant that Article 12(1) and (3) of the PA created a legitimate exception that no tax or impost will apply to the income of the Appellant other than the 5% withholding tax for works and services rendered as a Subcontractor under the PA.”
  4. The Appellant then argues that the combined operation of the Articles 12.1, 12.3 and 26.2 of the Petroleum Agreement, the government guaranteed fiscal stability to ENI, the contractor, and its subcontractors, including the Appellant, in respect of activities related to Petroleum Operations.

The Appellant contends that the holding of the Court amounts to a misdirection because neither PNDCL 188, nor the Petroleum Agreement provide for Branch Profit Tax.

  1. On the second ground of appeal, Ground B, the Appellant is of the view that the learned High Court Justice erred by holding that the Appellant’s aggregate income from its work carried under the OCTP Petroleum Agreement is subject to branch profit tax after being subjected to final withholding tax. The Appellant states that the learned High Court judge erred in law by not treating the 5% withholding tax as the only tax that the Appellant is liable to pay and not declaring that the no other tax law in Ghana is applicable to the Appellant. The Appellant is also of the view that the learned High Court Judge erred when she subjected the Appellant’s aggregate income from its works and services under the OCTP Petroleum Agreement to branch profit tax under Act 592 and Act 896, contrary to the provisions of section 27 of PNDCL 188.
  2. The Appellant contends that the High Court misconstrued the legal effect of a final withholding tax. The Appellant says that a final withholding tax is a payment in which a tax withheld satisfies the final tax liability of the withholdee or the recipient. The Appellant states, such a taxpayer is not liable to pay any more tax “under any circumstance whatsoever”.
  3. The Appellant contends that since it was already subjected to the 5% withholding tax, it was not liable to pay any more tax, and thus the learned High Court Judge erred when she found that the Appellant was liable to pay additional taxes such as the branch profit tax. In support of this position, the Appellant points to Section 27(3) of PNDCL 188 in support of this.

MAERSK DRILLSHIP IV SINGAPORE V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (APPEAL TO THE COURT OF APPEAL) - TaxNob RahThe Appellant continues by averring that the court below was wrong to use Section 6(2) of Act 896 to impose branch profit tax on the Appellant and adds that even if Section 6(2) of Act 896 was applicable, the Court erred by failing to consider Section 6(2)b of Act 896, which the Applicant contends excludes persons who have been subject to withholding tax from the application of Section 6(2).

It is the Appellant’s case in sum that the High Court differently constituted gave judgment to the effect that it was wrong of the Respondent to impose further tax including corporate income tax on the Appellant from 2016 when Act 896 came into force.

Arguments of the Respondent (GRA)

  1. MAERSK DRILLSHIP IV SINGAPORE V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (APPEAL TO THE COURT OF APPEAL) - TaxNob RahResponding to the arguments of the Appellant, the Respondent averred that the Court below was right in imposing additional taxes in the form of branch profit tax on the aggregate amount earned by the Appellant. The Respondent submitted that the Court below properly construed and evaluated articles 12.1, 12.3 and 26 of the OCTP Petroleum Agreement as well as sections 27 and 39(5) of the Petroleum Income Tax Law, 1987 (PNDCL 188) in arriving at her conclusion that the Appellant was subject to branch profit tax on the income subject matter of the present dispute.
  2. The Respondent further submitted that the treatment of 5% withholding tax payment on services or works under a petroleum agreement as final tax under section 27 of PNDCL 188 does not preclude the payment of other taxes such as branch profit tax on the same income derived by the Appellant.
  3. The Respondent further goes on to state that the 5% withholding tax, referred to in article 12.3 of the Petroleum Agreement, treated as final tax in section 27 of PNDCL 188 is a business income tax on income earned by the Appellant. The Respondent is of the view that the finality of that tax does not extend to investment income or employment income. In support of this position, the Respondent cites the dictum of the learned High Court Judge at page 28 of the judgement wherein she stated, “The trap the Appellant seems to have fallen in, with respect, is the misapprehension that the tax imposed on the Appellant in respect of its specific business activities (under the PA) extends to cover taxes payable by its shareholders. “
  4. The Respondent also opines that PNDCL 188 in section 39(5) empowered the Respondent to apply general tax law such as the Internal Revenue Act, 2000 (Act 592) and Income Tax Act, 2015 (Act 896) to impose taxes not covered by PNDCL 188 such as branch profits tax, which the Respondent says is considered by PNDCL 188 to be a tax on investment income.

The Respondent says that this means that the persons engaged in petroleum operations in Ghana may be subject to other income taxes such as investment income tax and branch profit tax in addition to business income tax.

LAW AND ANALYSIS

To render what could be a quite complex dispute manageable and comprehensible, the Court attempted to break it down to its simplest foundational issues. And in order to make a determination on this matter, the Court answered a three (3) questions:

  • Firstly, this Honourable Court is tasked with determining whose income is subject of the assessment in dispute before this honourable Court.
  • Secondly, the Court has to determine if the income at hand is Assessable Income.
  • Finally, the Court has to determine whether or not the income is exempt from income tax.

“Every facet of this dispute comes down to the answer to these three ostensibly simple questions. Consequently, the analysis of this will follow those questions in that order”.

WHOSE INCOME IS THE SUBJECT MATTER OF THE DISPUTE

From the analysis of evidence provided by the parties, the Honourable Court agreed that the Respondent (GRA) was right to treat the (the Appellant) a Ghanaian-registered external company as a permanent establishment of Maersk Drillship IV Singapore – The Branch (Permanent Establishment) and the Parent (Drillship IV Singapore) are separate legal entities. To the Court, whilst Maersk Drillship IV Singapore’s Ghanaian Permanent Establishment has earned income from Petroleum Operations under the said agreement with government; Maersk Drillship IV Singapore itself (the Parent of the Branch) has earned repatriated profits, which is comparable to dividends, from its Ghanaian Permanent Establishment and the provisions of sections 60 & 63 of Act 896 will apply.

IS THE INCOME IN DISPUTE ASSESSABLE INCOME

The Court haven resolved the issue income is the subject matter of the dispute, determined whether that income is assessable income. The Court found that,  a “non-resident person who earns income that has a source in Ghana, or whose income is earned through a Ghanaian permanent establishment regardless of where the income is sourced, have incomes that is assessable under the Ghanaian tax las. The  income earned by Maersk Drillship IV Singapore being a repatriated income (Branch profit income) from the Ghanaian permanent establishment, the income is thus assessable income. The Court arrives that the branch profit as income earned from a permanent Establishment is an Assessable income. This leads to the third and final question.

IS THE INCOME IN DISPUTE EXEMPT INCOME?

The Court arrived that, the Branch Profit (being profit earned by the parent company (Maersk Drillship) from its Ghanaian Permanent Establishment being  income, is not exempted from tax by the provisions of the Petroleum Agreement. Therefore, branch profit earned by the Parent (Maersk Drillship IV Singapore), a non-resident entity its  Ghanaian permanent establishment is tax under Section 60 of Act 896 (as amended).

Finally, the judgment of the High Court dated 19 th October, 2022 is hereby affirmed subject to the variation in respect of the second ground of the cross-appeal.

RULING

The judgment of the High Court dated 19th October, 2022 is hereby affirmed subject to the variation in respect of the second ground of the cross-appeal. The Appeal Dismissed.

NOTE:

Our Team understand that the Appellant has appealed at the Supreme Court and the ruling has been delivered in favour of the appellant. On this note, further commentary is withheld and to be provided pending receipt of the full judgement and reviews application by the respondent.

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.