Case Brief: Bumi Armada Ghana Ltd v. The Commissioner-General (GRA)
Citation: Suit No. CM/TAX/0225/2021
Court: High Court of Justice (Commercial Division), Accra
Date: 8th February 2022
Judge: His Lordship Justice Constant K. Hometowu
Flynote
Tax Law — Petroleum Income Tax — Withholding Tax (WHT) — Cascading Ruling — Whether a sub-subcontractor under a Petroleum Agreement is exempt from withholding tax based on a “Cascading Ruling” — Statutory Interpretation — Section 27 of PNDCL 188 — Administrative Law — Validity of retrospective revocation of a private tax ruling.
Facts
The Appellant, Bumi Armada Ghana Ltd, operated as a subcontractor under a Petroleum Agreement between Eni Ghana Exploration and Production Limited and the Government of Ghana. In 2014, the Ghana Revenue Authority (GRA) issued a “Cascading Ruling” stating that under Section 27 of the Petroleum Income Tax Law, 1987 (PNDCL 188), a subcontractor had no obligation to withhold tax from payments made to its affiliates or third-party sub-subcontractors for services connected to the Petroleum Agreement.
However, following a tax audit for the period 2015–2019, the GRA issued a tax liability of $3,750,011.19. The GRA argued that the Cascading Ruling had been revoked by the introduction of the Income Tax Act, 2015 (Act 896) and Income Tax Regulations, 2016 (L.I. 2244). The GRA contended that the Appellant was now required to withhold tax on payments to its non-resident sub-subcontractors and that the previous ruling did not apply to these specific service contracts.
Issues
- Scope of Petroleum Agreement: Whether the GRA erred in interpreting the Eni Petroleum Agreement to exclude service contracts between a subcontractor (Appellant) and its sub-subcontractors.
- Withholding Tax Liability: Whether payments to sub-subcontractors for services (including manpower) were subject to Withholding Tax or PAYE.
- Retrospective Revocation: Whether the GRA could retrospectively revoke the “Cascading Ruling” to impose liabilities for past periods.
- Preliminary Objection: Whether the appeal was incompetent due to alleged non-compliance with Order 54 Rule 4 of C.I. 47 regarding the mandatory tax deposit.
Held (Judgment)
The High Court allowed the appeal in part and ruled as follows:
- Preliminary Objection Dismissed: The Court found the Appellant had paid approximately 35.6% of the assessed tax, exceeding the statutory requirement of one-quarter (25%) under Order 54 Rule 4.
- WHT Exemption Confirmed (Ground A & B): The Court held that the GRA erred in law by excluding sub-subcontractors from the scope of the Petroleum Agreement. The “Cascading Ruling” applied, meaning the Appellant was not required to withhold tax on payments to its sub-subcontractors for services related to the Eni project.
- Reconciliation (Ground C): The Court ordered the parties to appoint an independent auditor to reconcile discrepancies regarding withholding tax for services not connected to the Petroleum Agreement.
- No Retrospectivity: The Court affirmed that tax rulings cannot be revoked with retrospective effect to the detriment of a taxpayer who relied on them.
Relevant Legal Provisions Considered
- Petroleum Income Tax Act, 1987 (PNDCL 188):
- Section 27(1): Requirements for withholding tax by persons liable to make payments to subcontractors.
- Section 27(2): Exemption from further tax liability once an amount has been withheld under subsection (1).
- Income Tax Act, 2015 (Act 896):
- Section 71(4): Provisions regarding withholding tax for contractors under petroleum agreements (in pari materia with PNDCL 188).
- Revenue Administration Act, 2016 (Act 915):
- Section 36: Power of the Commissioner-General to conduct audits.
- High Court (Civil Procedure) Rules, 2004 (C.I. 47):
- Order 54 Rule 4: Conditions for appealing a tax assessment, specifically the requirement to pay a portion of the tax in dispute.
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