Judgment summary
This appeal concerned a dispute between Maersk Drillship IV Singapore Pte Ltd, a Singaporean company registered in Ghana as an external company, and the Commissioner-General of the Ghana Revenue Authority over tax assessed for the years 2015 to 2018 (paras 7, 13).
The Respondent's Final Tax Audit Report dated 20 November 2020 assessed a total tax liability of US$28,627,295.54, later revised in a Final Objection Decision dated 27 September 2021 to US$28,357,065.17, comprising direct tax of US$19,915,318.99 and indirect tax of US$8,441,746.18 (paras 13-14).
The direct tax included underpayment of PAYE of US$103,300.22, a penalty of US$427.75, withholding tax of US$336,708.49, Corporate Income Tax of US$2,370,959.33 and Branch Profit Tax of US$17,103,923.20 (para 15).
The Appellant argued that, as subcontractor to ENI under the Offshore Cape Three Points Petroleum Agreement ratified by Parliament in 2006, it was protected by the fiscal stability clause in Article 26.2 and the taxation provisions in Article 12, and was liable only to a 5% final withholding tax under Section 27 of the Petroleum Income Tax Law, 1987 (PNDCL 188) (paras 24-31).
The Respondent contended that Section 39(3) of PNDCL 188 had been repealed by the Internal Revenue Act, 2000 (Act 592), that the stability clause benefited only the Contractor (ENI) and not subcontractors, and that Branch Profit Tax under the Income Tax Act, 2015 (Act 896) was properly imposed (paras 32-41).
The High Court and Court of Appeal both found the Appellant to be a beneficiary of the Petroleum Agreement's stability clause but nonetheless upheld the imposition of Branch Profit Tax and Corporate Income Tax, treating the Appellant's Ghanaian permanent establishment as a separate entity from the Appellant (paras 18-21).
By majority (Tanko Amadu JSC, with Asiedu JSC concurring, and Gaewu JSC and Darko Asare JSC concurring), the Supreme Court allowed the appeal, holding that the two lower courts had acted inconsistently in recognising the Appellant as a beneficiary of the stability clause while still applying subsequent fiscal legislation to it (paras 77-89).
Sackey Torkornoo CJ dissented, holding that the Appellant had conflated its own income as subcontractor with dividend income earned through its majority shareholding in Maersk Rigworld Ghana Limited and income earned by its Ghanaian branch, and that the assessment of Branch Profit Tax and Corporate Income Tax was correctly upheld by the courts below (paras 38-64 of the dissent).
Background
In 2005, the Government of Ghana, acting through GNPC, and Heliconia Energy Ghana Limited entered into a Petroleum Agreement over the Offshore Cape Three Points Contract Area for a 30-year term, ratified by Parliament on 15 March 2006 (para 9).
Heliconia later assigned its interest to ENI Ghana Exploration and Production Limited as the new Contractor pursuant to Article 25 of the Petroleum Agreement (para 10).
On 30 January 2015, ENI entered into a Subcontract Agreement with the Appellant, Maersk Drillship IV Singapore Pte Ltd, for services at the Deepwater DP Drilling Rig for 42 months from around 1 July 2015 to December 2017 (para 11).
The Appellant is registered in Ghana as an External Company under Section 304 of the Companies Act, 1963 (Act 179) and Section 23(15) of the Petroleum Exploration and Production Law, 1984 (PNDCL 84) (para 7).
The Respondent carried out a tax audit of the Appellant's affairs for 2015 to 2018 under the Petroleum Income Tax Law, 1987 (PNDCL 188) and the Revenue Administration Act, 2016 (Act 915), leading to the Final Tax Audit Report and subsequent Final Objection Decision (para 13-14).
The dissenting opinion noted that the Appellant executed the ENI subcontract through a joint venture with Maersk Rigworld Ghana Limited, a Ghanaian company owned 65% by the Appellant and 35% by Rigworld International Services Limited, with the Appellant responsible for 85% of subcontract costs and revenue and Maersk Rigworld responsible for 15% (paras 2, 4 of dissent).
Core dispute
The central issue was whether, by virtue of the fiscal stability clause in Article 26.2 of the Petroleum Agreement and the taxation provisions in Article 12, the Appellant as a subcontractor was liable only to a 5% final withholding tax under Section 27 of PNDCL 188, or whether it remained subject to Branch Profit Tax and additional Corporate Income Tax under the Internal Revenue Act, 2000 (Act 592) and the Income Tax Act, 2015 (Act 896) (paras 4-6, 52).
A related issue was whether the Appellant's Ghanaian permanent establishment (registered as an external company) was to be treated as a separate legal entity from the Appellant for tax purposes, and whether income repatriated to the Appellant constituted taxable investment income or dividend (paras 19, 27, 34-36).
The Appellant also challenged the Court of Appeal's formulation of the issues for determination and alleged that the judgment was against the weight of the evidence (paras 22, 28-30).
Court findings
The majority (Tanko Amadu JSC) found that both lower courts had correctly held the Appellant to be an intended beneficiary of the stability clause in Article 26.2 and the taxation provisions in Article 12 of the Petroleum Agreement, yet had inconsistently still applied Act 896 and Act 592 to impose Branch Profit Tax and additional Corporate Income Tax on the Appellant (paras 73-79, 88).
The majority held that Article 12.1 of the Petroleum Agreement prohibited the imposition of any tax, duty, fee or other impost on the Contractor, its Subcontractors or Affiliates other than as expressly provided in that Article, and that the Agreement, having been ratified by Parliament, was binding and could not be overridden by subsequent legislation without breaching the State's contractual obligations (paras 60-66, 78-81).
The majority found the Court of Appeal's distinction between the Appellant as an external company and its Ghanaian permanent establishment as a separate legal entity to be erroneous, holding that an external company is the same entity as its foreign parent and not a separate legal person (paras 27, 58-59 of the lead judgment; paras 8.3-9.0 of Asiedu JSC's concurrence).
Asiedu JSC, concurring, held that Section 27(3) of PNDCL 188 and Article 12.1 and 12.3 of the Petroleum Agreement meant that once the 5% withholding tax was deducted, the subcontractor was not liable for tax under any other law in force in the Republic, and that the stability clause was a 'freezing clause' limiting taxation to that specified in Article 12 (paras 5, 7-8 of Asiedu JSC's opinion).
Sackey Torkornoo CJ, dissenting, found that the Appellant earned three distinct types of income in Ghana: (i) subcontractor income from ENI, subject only to withholding tax under Article 12.3; (ii) dividend/investment income as majority shareholder in Maersk Rigworld Ghana Limited, which was separate and taxable; and (iii) income of the Appellant's Ghana branch, which as a permanent establishment was taxable as a separate entity under Section 107 of Act 896 (paras 59-63 of the dissent).
The dissent further found that the protection for dividends under Section 39(3) of PNDCL 188 (via SMCD 5) had already become 'spent' by the repeal of SMCD 5 through Act 592 in 2001, before the Petroleum Agreement was even signed in 2005, and that Article 12.3 of the Petroleum Agreement only referenced Section 27(1) of PNDCL 188 and did not extend to insulate the Appellant from all other forms of taxation (paras 43-58 of the dissent).
Outcome
By majority, the Supreme Court allowed the appeal and set aside the concurrent judgments of the High Court and Court of Appeal (para 89).
The Court declared that, upon a true and proper interpretation of Article 12(1) and (3) of the Offshore Cape Three Points Petroleum Agreement and Sections 27 and 39(3) of PNDCL 188, the Appellant's income is exempted from further taxes after the 5% final withholding tax, and that the provisions of the Internal Revenue Act, 2000 (Act 592) and the Income Tax Act, 2015 (Act 896) are not applicable to the Appellant (para 89(i)-(ii)).
The Court declared the assessed Branch Profit Tax of US$17,103,923.20 not applicable to the Appellant and extinguished that assessment, and similarly extinguished the additional Corporate Income Tax assessment of US$2,370,959.33/US$2,370,595.33, holding that the Respondent had erred in law in unjustifiably assessing this additional Corporate Income Tax (para 89(iii)-(v)).
The Respondent was directed to issue a revised tax assessment for the Appellant for the 2015 to 2017 years of assessment taking into account these declarations, and to refund any excess/tax credit arising from the revised assessment within 30 days of the judgment (para 90).
Sackey Torkornoo CJ dissented and would have dismissed the appeal in its entirety, finding no need to disturb the figures and orders of the Court of Appeal, which had been reviewed by the parties together with an agreed auditor prior to entry of judgment in the High Court.
Major issues / areas of contention
- Whether the fiscal stability clause in Article 26.2 of the Petroleum Agreement, ratified by Parliament in 2006, exempted the Appellant as subcontractor from all taxes other than the 5% final withholding tax under Section 27(1) of PNDCL 188.
- Whether the Internal Revenue Act, 2000 (Act 592) and the Income Tax Act, 2015 (Act 896), being enacted or amended after the Petroleum Agreement, could be applied to impose Branch Profit Tax and Corporate Income Tax on the Appellant.
- Whether the Appellant's Ghanaian permanent establishment (registered external company) was properly treated as a separate legal entity distinct from the Appellant for tax purposes.
- Whether income repatriated to the Appellant constituted business income under the Petroleum Agreement or investment income/dividend subject to Branch Profit Tax under Section 60 of Act 896.
- Whether Section 39(5) of PNDCL 188 permitted the general tax laws of Ghana, including Act 592 and Act 896, to apply to the Appellant's petroleum operations.
- Whether the Appellant, as a non-party subcontractor, was entitled to enforce the stability clause and taxation provisions of the Petroleum Agreement as a third-party beneficiary.
- Whether the Court of Appeal's formulation of the issues for determination amounted to a misdirection occasioning a miscarriage of justice.
- Whether the Appellant's income as subcontractor to ENI was distinct from its income as majority shareholder in Maersk Rigworld Ghana Limited, a separate Ghanaian joint venture company (raised in the dissent).