Judgment summary
Perseus Mining (Gh) Ltd appealed against a High Court (Commercial Division), Accra judgment dated 08/02/2022 which had affirmed a tax assessment made by the Commissioner General. The dispute concerned the tax treatment of gold forward sales contracts entered into by the appellant with Macquarie Bank Ltd and Credit Suisse AG, and the calculation of royalties paid to Franco Nevada Corporation and to the Government of Ghana.
The Court of Appeal reviewed the evidence, the Revenue Administration Act 2016 (Act 915), the Income Tax Act, 2015 (Act 896), the Internal Revenue Act, 2000 (Act 592), the Internal Revenue Regulations, 2001 (L.I. 1675), the Minerals & Mining Act, 2006 (Act 703) as amended, and the 1992 Constitution.
The court allowed the appeal on almost every ground, save for the ground alleging abuse of discretion under Article 296(c) of the 1992 Constitution, which it disallowed. It set aside the High Court judgment in its entirety and granted the appellant all the reliefs sought in its original notice of appeal dated 12 April 2021.
Background
The appellant is engaged in the business of mining, namely the production and sale of gold.
In 2013 the Ghana Revenue Authority, through the respondent, conducted a tax audit of the appellant's business activities for 2010 to 2012. A tax audit report was issued on 04/09/2013 and revised on 25/11/2013 (pp 21-38 Vol. 3 [roa]). The appellant objected to parts of the revised report on 21/01/2014 (pp 40-54 Vol. 3 [roa]).
It was not until 2019 that the respondent responded to that objection, by carrying out a second tax audit covering 2010 to 2017. This produced a tax liability of US$8,725,387.49 (p 134A Vol. 4 [roa]). The appellant objected again and, pursuant to Section 42(5) of Act 915, paid 30% of the disputed tax, being US$2,501,902.88 (also recorded as US$2,501,902.00), pending determination of its objection.
After further meetings, correspondence and reconciliation of figures, the respondent issued a final objection decision of US$10,207,164.17, revised upward from the initial US$8,725,387.49. After deducting the 30% precondition payment of US$2,501,902.00, the outstanding balance stood at US$7,509,110.29, which became the Objection Decision (p 158 Vol. 3 [roa]).
The appellant appealed the Objection Decision to the High Court (Commercial Division), Accra, which affirmed the respondent's assessment on 08/02/2022 (pp 180-183 Vol. 4 [roa]). The appellant then appealed to the Court of Appeal.
Core dispute
The appellant challenged the High Court's affirmation of the respondent's decision to re-characterise its gold forward sales contracts (with Macquarie Bank Ltd and Credit Suisse AG) as a tax avoidance scheme and as related party transactions under Section 34 and Section 31 of the Income Tax Act, 2015 (Act 896).
The appellant argued that losses from the forward sales contracts were business losses deductible under Section 7(2) of the Internal Revenue Act, 2000 (Act 592) (in pari materia with Section 5(2) of Act 896), not investment losses under Regulation 10(2) of the Internal Revenue Regulations, 2001 (L.I. 1675) as the respondent contended.
A further dispute concerned whether the appellant used two different gold prices, spot price and forward contract price, for calculating royalties payable to Franco Nevada Corporation and to the Government of Ghana respectively, and whether this constituted evidence of a related party arrangement or tax avoidance.
The appellant also disputed the High Court's approach to the burden of proof under Section 92(1) of the Revenue Administration Act, 2016 (Act 915), and raised whether the respondent's exercise of discretion to re-characterise the contracts met the requirements of Article 296(c) of the 1992 Constitution.
Court findings
The Court of Appeal found that the lower court had failed to resolve material facts and had reached conclusions unsupported by the evidence, including that Franco Nevada Corporation was a related party, when the respondent itself had admitted on the record that Franco Nevada Corporation, though a third party, was not related to the appellant (pp 145-147 Vol. 3 and p 159 para. 2 Vol. 3 [roa]).
On Section 92(1) of Act 915, the court held that the lower court erred in treating the Commissioner General's own evaluation of documents as determinative of whether the taxpayer's proof was sufficient in law, describing this as a dangerous proposition that would render the statutory right of appeal redundant.
On the deductibility of losses, the court held that Regulation 10(2) of L.I. 1675, being subordinate legislation, could not override Section 7(2) of Act 592 (the parent legislation, in pari materia with Section 5(2) of Act 896). Since the forward sales contracts were effectively connected to the appellant's gold mining and sale business, any resulting income or loss was business income or loss, deductible from business income, not investment income under Section 6 of Act 896.
On royalties, the court distinguished payments to Franco Nevada Corporation, which arose under the Sale and Purchase Mining Lease with AngloGold Ashanti (later assigned to Franco Nevada Corporation) and were priced by reference to spot gold price under Clause 4.1 and 4.3 of that agreement, from statutory royalties payable to the Government of Ghana under Section 25 of the Minerals & Mining Act, 2006 (Act 703) as amended by Act 794 and Act 900, at the rate of 5% of total revenue earned from minerals obtained.
On discretion under Article 296(c), the court found no clear evidence that the respondent had abused its discretionary power, though it found the respondent had applied the wrong method of assessment.
On the omnibus ground, the court held the judgment was against the weight of evidence, given the respondent's own admission regarding Franco Nevada Corporation royalties and the statutory method for computing Government royalties.
Outcome
The Court of Appeal allowed the appeal in its entirety, save for the ground concerning the exercise of discretion under Article 296(c) of the 1992 Constitution, which it disallowed.
The court set aside the entire judgment of the High Court (Commercial Division), Accra dated 08/02/2022, and granted the appellant all the reliefs set out in its notice of appeal filed in the High Court dated 12th April 2021.
The appellant's costs were assessed at Ghc50,000.00.
Tp method highlighted
The court considered whether payments and transactions between the appellant and Franco Nevada Corporation, Macquarie Bank Ltd and Credit Suisse AG were controlled or related party transactions requiring application of the arm's length standard under Section 31 of the Income Tax Act, 2015 (Act 896), read with the definition of controlled relationship in Section 128 of Act 896.
The court found that Franco Nevada Corporation was not a related party or affiliate of the appellant, based on the respondent's own admission, and that Macquarie Bank Ltd and Credit Suisse AG were independent third parties. The court therefore concluded that Section 31 of Act 896 did not apply to re-characterise the forward sales contracts as controlled or related party arrangements.
Major issues / areas of contention
- Whether the lower court properly resolved primary facts before applying the law, including whether Franco Nevada Corporation was a related party to the appellant.
- Whether the respondent correctly invoked Section 34 of the Income Tax Act, 2015 (Act 896) to treat the forward sales contracts as a tax avoidance scheme.
- Whether the lower court misconstrued Section 92(1) of the Revenue Administration Act, 2016 (Act 915) regarding the burden of proof and the role of the Commissioner General's own evaluation.
- Whether losses from the forward sales contract were deductible business losses under Section 7(2) of the Internal Revenue Act, 2000 (Act 592), or non-deductible investment losses under Regulation 10(2) of the Internal Revenue Regulations, 2001 (L.I. 1675).
- Whether the appellant used two different gold prices, spot price and contract price, to calculate royalties payable to Franco Nevada Corporation and to the Government of Ghana, and whether this indicated a related party transaction.
- Whether the respondent properly exercised its discretion to re-characterise the forward sales contract in accordance with Article 296(c) of the 1992 Constitution.
- Whether the forward sales contract constituted a related party or controlled transaction under Section 31 and Section 128 of the Income Tax Act, 2015 (Act 896).
- Whether the judgment of the lower court was against the weight of the evidence on record.