MAERSK RIGWORLD V COMMISSIONER GENERAL AND THE GHANA REVENUE AUTHORITY (High Court Ruling).

Citation: Unreported Judgment of the High Court (Suit No CM/TAX/0099/2022) 8th July 2022

Brief Facts
Maersk Rigworld V Commissioner-General (GRA) (the Appellant) is a limited liability company engaged in offshore drilling and associated services in the petroleum industry. The Appellant entered into a subcontract agreement with ENI Ghana Exploration and Production Limited (ENI) for the provision of Deepwater DP Drilling Rig services. The Commissioner-General of the Ghana Revenue Authority (GRA) (the Respondent) conducted a tax audit of the Appellant for the period 2015 to 2017. The Respondent issued a Final Tax Audit Report, which included direct and indirect tax liabilities of the Appellant and subsequently issued an objection decision maintaining its position. The Appellant, dissatisfied with the Objection Decision, appealed to the High Court.
The grounds of appeal included disallowance of Withholding Tax Credit Certificates, disallowance of input VAT, and rejection of VAT Relief Purchase Orders (VRPOs). The Appellant had been contracted by ENI, who were in turn contracted by the Government of Ghana in a Petroleum Agreement.

Grounds of Appeal

  1. The Respondent erred in law by disallowing Withholding Tax Credit Certificates amounting to US$291,174.81 (which was later abandoned)
  2.  The Respondent wrongly assessed the Value Added Tax (VAT) and National Health Insurance Levy (NHIL) (which was later abandoned).
  3. The Respondent erred in law by disallowing the input VAT amount to US$3,888,216.60.
  4. The Respondent erred in Law by rejecting the VAT Relief Purchase Orders issued to the Appellant for services rendered to ENI.

Issues

  1.  Whether or not the Appellant, as a subcontractor, is subject to a final 5% Withholding Tax under the Petroleum Agreement (PA).
  2.  Whether or not the Respondent was right to disallow Withholding Tax Credit Certificates.
  3. Whether or not the Respondent was correct to disallow input VAT claims.
  4. Whether or not the Respondent was right to reject VAT Relief Purchase Orders (VRPOs).
  5.  Whether or not the stabilisation clause in the Petroleum Agreement extended to the Appellant as a subcontractor.
  6.  Whether or not the Appellant was required to present tax invoices in a prescribed format, and if not, whether it could rely on other invoices.

Areas of Tax Law Considered

  • Withholding Tax
  • Value Added Tax (VAT)
  • National Health Insurance Levy (NHIL)
  • Corporate Income Tax

Arguments

 Appellant (Taxpayer)

  1. As a subcontractor under the Power Agreement (PA) between the Government of Ghana, GNPC, and ENI, the Appellant is subject to a final 5% Withholding Tax.
  2. The combined effect of Articles 12.1, 12.3 and 26.2 of the PA is that, for the term of the PA, the State is prohibited from imposing any tax other than the 5% withholding tax on the Appellant.
  3. The Appellant is an intended beneficiary of the stabilisation clause (Article 26.2) in the PA, which guarantees the stability of the terms and conditions of the agreement.
  4.  The Appellant was entitled to deduct input VAT.
  5. The Appellant’s tax invoices, though photocopies, should have been accepted by the Respondent.
  6. The VAT Relief Purchase Orders (VRPOs) issued to the Appellant were valid and should have been considered.
  7. The Respondent did not consider all the Withholding Tax Credit Certificates provided.

 Respondent (Ghana Revenue Authority)

  1. The stability clause in the Power Agreement (PA) applies only to the contractor (ENI), not the subcontractor (the Appellant).
  2. The 5% Withholding Tax is not the final tax, and the Appellant is liable for other taxes including corporate income tax.
  3. The Appellant was required to withhold taxes as a non-final tax.
  4. The Respondent disallowed the input VAT claims because the Appellant did not provide the correct invoices, and the customs entries were not in the name of the Appellant.
  5. The Respondent argued that the Appellant had not proven it had authorisation to issue tax invoices differently to those prescribed by law.
  6. The Respondent argued it was correct to disallow VAT Relief Purchase Orders where the amount on the VRPO exceeded the underlying VAT invoice amount.

Ruling

  1. The court upheld the appeal in part on ground 1, finding that the 5% Withholding Tax is the final tax for the Appellant.
  2. The court held that tax certificates listed by the Appellant were considered by the Respondent. However, it was erroneous for the Respondent to impose further tax including the Corporate Income Tax on the Appellant from 2016 when Act 896 came into force. Thus, the tax liability resulting from the further imposition ought to be reversed after the 5% Withholding Tax on the Appellant.
  3. The court ruled against the Appellant stating that the Respondent was right to disallow the tax invoices because they did not conform with the regulations and the Appellant did not prove that they had the authority of the Commissioner-General to issue invoices.
  4. The court ordered a reconciliation of the figures concerning the VAT Relief Purchase Orders, stating that the VAT invoice should be the basis for the VRPO.

Reasoning

  1. The court adopted the purposive approach to interpret that the Petroleum Agreement (PA) to determine the intentions of the parties to the Agreement. The court reasoned that the stabilisation clause in Article 26 of the PA applies to the Appellant as a subcontractor as they were intended to be third party beneficiary of the Agreement.
  2. The court noted that laws do not operate retrospectively except in procedure, evidence, and declaratory laws. The Appellant’s rights accrued under PNDCL 188 and that Act 896 could not operate retrospectively to impose further tax. The court stated that a statute is retrospective if it takes away or impairs a vested right acquired under existing laws or creates a new obligation, or imposes a new duty, or attaches a new disability in regard to events already passed.

Principles for Tax Practitioners

  1. The case clarifies that a stabilisation clause in a Petroleum Agreement can extend to subcontractors, protecting them from additional taxes beyond a specified withholding tax.
  2. The ruling highlights the importance of adhering to the prescribed form for tax invoices, and the need to obtain the necessary authorization from the Commissioner-General.
  3. The case underscores the legal principle that statutes should not be applied retrospectively to alter existing rights or obligations.
  4. The court’s decision on the VAT Relief Purchase Orders (VRPOs) reinforces the need for reconciliation where discrepancies exist between the amounts claimed and the underlying tax invoices.
  5. The judgment supports the purposive approach to interpretation, emphasizing that the intention of the parties and the context are important for the interpretation of contracts.

References

Constitutional and Statutory references

  • Articles 1(2), and 107 of the 1992 Constitution,
  • section 5(1) Contracts Act, 1960 (Act 25)
  • sections 166 and 167 Evidence Act, 1975 (NRCD 323)
  • Income Tax Act 2015
  • Interpretation Act, 2009 (Act 792)
  • Petroleum Income Tax Act, 1987 (PNDCL 188)
  • Petroleum Income Tax Act, 2015 (Act 896)
  • Petroleum Exploration and Production Act, 2016 (Act 919)
  • sections 41(1), 41(3), 48(1), 48(5), 48(6), 92(2) of the Value Added Tax Act, 2013 (Act 870)
  • Value Added Tax Regulations, 2016 (L.I. 2243)

Case Law

  • Access Bank Ltd V. Market Direct and Others (2018) JELR 63866 (HC)
  • Adjei-Ampofo V. Attorney-General & The President of the National House of Chiefs. 2 SCGLR 1104
  • Ata Textile Co. V. Estate of Zotolov 41 (1) P.D. 282
  • Fenuku And Another V. John Teye and Another SCGLR 985
  • Hossain V. JMU Properties, LLC, 147 A.3D 816 (D.C. 2016)
  • Rep V. High Court, Accra; Ex-Parte: Expandable Polystyrene Products Ltd 1 GLR 98
  • The Republic V. Nana Osei Kwadwo II DLSC 6238
  • Tsatsu Tsikata V. Tullow Ghana Ltd DLCA7824
  • Yew Bon Tew V. Kandeeran Bas Mara 3 ALL ER 833