Section 9D(1) defines a FBE as a fixed place of business which is conducted through one or more physical structures (e.g. office), which is suitably staffed and equipped and has suitable facilities— all to such a degree that it allows the CFC to conduct the primary operations of its business.

The supreme court of appeal (“SCA”) recently considered the definition of FBE in Commissioner for the South African Revenue Service v Coronation Investment Management SA (Pty) Ltd [2023] 2 All SA 44 (SCA). The somewhat controversial judgement caused significant uncertainty and concern amongst South African multinational enterprises which operate via subsidiaries in foreign countries.

The case dealt with the question of whether the operations of an Irish subsidiary (“the CFC”) of the respondent constitutes a FBE as defined. In applying this definition, the SCA was required to identify the primary business operations of the CFC. The CFC held a licence issued by the Central Bank of Ireland authorising it to conduct collective investment management (including investment management, administration and marketing). The CFC opted to outsource the management of collective investment schemes to service providers outside of Ireland and therefore had no staff in Ireland to perform the outsourced functions. The respondent argued that the primary business operations of the CFC were that of fund manager (as distinct from investment manager) and maintaining its business licence in Ireland.

The SCA noted that the CFC’s Memorandum of Association and its business licence entitled it to conduct the wider business of fund management and investment management and the fact that it decided to outsource its investment management functions implied that it did not conduct its primary business via the office in Ireland. The SCA rejected the notion that the primary business is determined with reference to how the CFC chooses to operate. The SCA acknowledged that there are many functions which a company may choose to legitimately outsource, but it cannot outsource its primary business. The court found that the FBE exemption did not apply to the income of the CFC.

While the Tax Court and the SCA reached different factual conclusions, the judgments both shine a sharp light on the requirement for a FBE not only to involve having substance abroad but also that the relevant CFC’s primary operations need to be exercised through that infrastructure, especially where the CFC outsources to a third party that is not based in the same jurisdiction.

If you wish to discuss these topics, please contact:

 WTS Renmere, South Africa

However, the instruction specifying the suitable transfer pricing method in Senegal is under process (Cf. Senegal – Transfer pricing country sheet, February 2022). Meanwhile, doctrinal opinion No. 4907/MEFP/CAB/CT/JK of July 17th, 2019 by the General Directorate of Taxes and Domains (DGID) and published in October 2022, suggests that Senegalese tax authorities prefer a method based on local comparable for determining transfer prices.

This opinion emerged post a general accounting audit for the 2013 fiscal year concerning crude groundnut oil sales prices charged with a related entity.

The taxpayer opposed the tax authorities’ accusations of non-adherence to the arm’s length principle, as the price was based on “quoted” prices in Cost-Assurance-Freight (CIF) Rotterdam values using the “MUNDI” index, instead of the “Free On Board (FOB)” value used by auditors.

Responding to the appeal, tax authorities noted the OECD’s 2015 recommendation of “quoted” price for commodities like crude groundnut oil, but believed such comparable are only viable in absence of a relevant local comparable, which they considered better reflects company profitability. In the said opinion, tax auditors’ preference for relevant local comparable over the quoted price in detecting indirect profit transfer was deemed correct.

From this, two conclusions arise:

• Transfer pricing is an international and a local issue. Tax authorities remain sovereign in applying OECD principles as long as they have not been incorporated into domestic law.
• Though the arm’s length principle is recognized in Senegalese law, application conditions aren’t yet clear in Senegal’s tax system, posing tax security issues for multinationals here. Open, pragmatic, and educative interactions with Senegalese tax authorities are crucial to evade tax reassessments.

A primary defense against tax reassessment risk is establishing thorough transfer pricing documentation to justify the group’s pricing policy. Beyond documentation, forging advance pricing agreements with tax authorities is essential to mitigate the mentioned tax risk.

In our view, the first line of defense against the risk of tax reassessment of the company’s pricing policy is to put in place relevant transfer pricing documentation that is sufficiently detailed to justify the group’s pricing policy. Over and above this documentation, the use of advance pricing agreements with the tax authorities is now necessary to reduce the level of exposure to the above-mentioned tax risk.

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 FACE Africa Tax & Legal

Based on the above, where diplomats or diplomatic missions and international organisations pay VAT on goods purchased or services rendered, such diplomats and organisations will be entitled to a refund of the VAT paid at the point of purchase. This is premised on the established principle that goods and services purchased by Diplomats are zero-rated.

Qualified Parties and transactions for refund

The transactions that qualify for refund under the Guidelines are as follows – VAT paid on goods and services purchased or imported by Diplomats, Diplomatic Missions and International Organisations. Persons or Organisations eligible to apply for refund of VAT are Diplomats (foreign employees of embassies/missions not below the rank of third secretary), Diplomatic Mission (Embassies and High Commissions), International Organisations conferred with diplomatic immunities and privileges by the Honourable Minister of Foreign Affairs by an Order published in a Federal Gazette pursuant to the Diplomatic Immunities and Privileges Act.

Refund Process

The Ministry of Foreign Affairs conducts all interactions with qualified Diplomats and Diplomatic Missions and collaborates with FIRS during refund process to ensure efficiency and transparency.

International Organisations

The process for refunds under this sub head is different as all applications for refunds on goods purchased by International Organisations (conferred with diplomatic immunities and privileges by the Honourable Minister of Foreign Affairs by an Order published in a Federal Gazette) are to be made to the Executive Chairman, Federal Inland Revenue Service (FIRS) and to ensure seamless refunds, the application must be accompanied with proper documentation.

Conclusion

The Guidelines on VAT refund is a welcome development that has created opportuities for diplomats and qualified international organisations to exercise some of the priviledges granted them as a result of their status. It will be interesting to see the implementation of the Guidelines in the months ahead.

If you wish to discuss these topics, please contact:

 WTS Blackwoodstone

PROCEDURE HISTORY

This is an appeal against a final tax decision by the Commissioner-General on a tax assessment of Coco-Cola Equatorial Africa Limited.

BACKGROUND OF THE CASE

Coca-Cola Equatorial Africa Limited (the “Appellant”) is a company engaged in the business of extraction and sale of water under its Voltic brand and provides marketing and other support services to its affiliates as well as other related administrative activities to the Coca-Cola Export Corporation. The Commissioner General of the Ghana Revenue Authority (the ‘’Respondent’’) is the head of the Ghana Revenue Authority (“GRA”), a statutory body responsible for tax administration and revenue collection in Ghana. In December 2019, the Respondent conducted a tax audit into the activities of the Appellant from 2016-2018. After the assessment, the Respondent issued a final audit report and after appeal against same by the Appellant, a final tax liability of GHs33,143,375.15 comprising a direct tax liability of GHs25,428,311.59 and an indirect tax liability of GHs7,715,063.56 was imposed on the Appellant. The Appellant still aggrieved by the Respondent’s decision filed an appeal at the High Court.

ISSUES RAISED

1. Whether or not the payment of GHS88,862,404.00 by the Appellant to Voltic International constitutes an outright purchase of a Trademark and therefore not subject to withholding tax?
2. Whether or not the Appellant is not liable for withholding tax on transactions between 2017-2018 which were later reversed and not invoiced for payment?
3. Whether or not the withholding tax on the reimbursed staff salaries amounted to double taxation when the required PAYE taxes had already been paid to the Respondent by the employment agency of the Appellant?
4. Whether or not the Respondent erred by construing the Appellant’s trade discount as a commission and therefore subjected same to a withholding tax of 7.5% in the 2017 assessment?
5. Whether or not the Respondent erred in law by imposing a withholding tax of 15% on the Appellant’s trade discount in the 2018 assessment?
6. Whether or not the supply of service by the Appellant consumed outside the jurisdiction is subjected to VAT, NHIL and GETFund Levy by the Respondent contrary to item 3(3) of the second schedule of the Value Added Tax, 2013 (Act 870)?

THE APPELLANT’S CASE

To the appellant, payment made to Voltic International Inc. was in respect of outright purchase of intangible asset (trademark) than royalties for the use of trademark. Withholding should therefore not apply to the payment. Trade discount is a performance based and can be accumulated and given at the end of the year. The discount should therefore not be construed as commission for the purposes of Withholding tax.

The Commissioner-General cannot in law impose withholding tax on accrued transactions/expenses which were subsequently reversed for non-performance and therefore not invoiced for payment. Reimbursement of staff salary to employment agency should not suffer withholding tax particularly since PAYE have already been deducted by their employers before the amount were finally paid to them. The respondent was wrong to impose Value Added Tax (VAT); National Health Insurance Levy (NHIL) and Ghana Education Trust levy (GETFundL) on a supply of services by the Appellant, which was consumed outside the country, contrary to item 3(3) of the second schedule to the Value Added Tax, 2013 (Act 870).

THE RESPONDENT’S CASE

It is the Respondent’s case that the appeal is unfounded for the following reasons, in response to the issues raised:

1. The Appellant failed to provide the Respondent with all the necessary documents to establish that the payment for the trademark to Voltic International was an outright purchase and not payment of royalties. The Appellant failed to provide a sale and purchaseAgreement to that effect and hence, withholding tax was applicable.
2. Transactions/expenses for which withholding tax was imposed were captured from the financial statements of the Appellant. The Appellant did not provide any evidence to prove that the expenses incurred were subsequently reversed and indeed if the transactions had been reversed, it would not have formed part of the Appellant’s annual returns and financial statements.
3. The service agreement between the Appellant and Voltic Ghana Limited for the provision of water extraction services did not evidence a contract for the supply of labour. Further, the Appellant made payment to Voltic Ghana Limited without withholding tax as required under the Income Tax Act. The Respondent however concedes that the correct rate to have been used is 7.5% instead of 15% which was used in the tax audit report.
4. Trade discount is given as reduction on the original invoice price and not given at the end of the year.
5. The trade discount was in substance a commission pursuant to Section 116(1)(a) (v) because the Appellant’s customersstill paid the full price of every supply made to them during the period under review. The commission is therefore subject to tax and the Respondent concedes that the appropriate rate to have been used is 7.5% and not 10% as used in the tax audit report.
6. The Respondent repeats that the trade discount was in substance a commission pursuant to Section 116(1)(a)(v) because the Appellant’s customers still paid the full price of every supply made to them during the period under review. The Respondent did not double tax the Appellant, it merely erroneously taxed the amount at 10%. The commission is different from the understated revenue and as such, could not refer to the same thing.
7. The fact that export is based in the USA does not negate the fact that the services for it were performed in Ghana therefore by the combined effect of Sections 1 and 5 of the VAT Act, 2013 (Act 870), the supply of service is subject to VAT.

GROUNDS OF APPEAL

The Appellant filed an appeal on the following grounds:

1. The Respondent erred in law by imposing withholding tax, pursuant to Section 115(1) of the income Tax Act,2015(ACT 896) on the outright purchase of trademark by the Appellant from Voltic International Inc under the wrong assumption that the transaction was a payment for royalties;
2. The Respondent erred in law by imposing withholding tax on accrued transactions/expenses which were subsequently reversed for non-performance and therefore not invoiced for payment;
3. The Respondent erred in law by imposing withholding tax on expenses of staff salaries reimbursed to anemployment agency when the requisite PAYE taxes had already been withheld by the employment agency and paid over to the Respondent pursuant to section 114 of the income Tax Act, 2015 (Act 896);
4. The Respondent erred in law by wrongly construing trade discount which had accrued in 2017 year of assessment as a commission and subjecting it to a withholding tax of 10%, purportedly pursuant to section 116 (1)(a)(v) of the income Tax Act 2015 (Act 896);
5. The Respondent erred in law by imposing a withholding tax of 15% on the same accrued trade discount subsequently made available to the Appellant’s customer in the 2018 year of assessment; and
6. The Respondent erred by imposing Value Added Tax (VAT); National Health Insurance Levy (NHIL) and Ghana Education Trust levy (GETFundL) on a supply of services by the Appellant, which was consumed outside the country, contrary to item 3(3) of the second schedule to the Value Added Tax, 2013 (Act 870).

DECISION OF THE COURT

ISSUE 1: The Appellant failed to prove that the trademark obtained was an outright purchase and not a right of use. Though the Appellant provided a Bill of Sale which conveys an intention to sell and purchase an asset, it does not state that the subject matter is the trademark in question or define what was sold and at what cost. The Bill of Sale subjects itself to the Asset Purchase Agreement which the Appellant failed to share with the court. In the absence of same, the Court infers that payments made were for user rights. Payments for user rights constitutes payment of royalties which are subject to withholding tax under Section 115(1) of the Income Tax Act.

ISSUE 2: The Appellant failed to provide the requisite documents to prove the reversal of the transactions/expenses incurred between 2017-2018 which was subjected to a withholding tax by the Respondent. The Appellant failed to execute the burden of proof laid on him to show that there had been compliance with the provisions of the tax laws as such, the Respondent did not err in subjecting the transactions to withholding tax.

ISSUE 3: The agreement in question is the Supply of Project Support Services agreement between the Appellant and FKV & Associates (the “Agreement”) and not the agreement between the Appellant and Voltic for water extraction services as mistaken by the Respondent. The Agreement was still in force for the period under review and therefore the imposition of a withholding tax on the reimbursed staff salaries when the requisite PAYE taxes had already been withheld by the employment agency was wrong in fact and in law and same be reversed by the Respondent.

ISSUE 4: The Respondent did not err in construing the discount as a commission and subjecting same to a withholding tax of 7.5% in the 2017 assessment as provided under section 116(1)(a)(v) of Act 870 and Regulation 21 of the Value Added Tax Regulation,2016(LI 2243). The alleged tax discounts were not stated on the tax invoices issued by the Appellant hence, there was no proof of discounts given. The Respondent has the right to re-characterise or disregard a transaction under Section 34 of Act 896 where the form of the transaction does not reflect its substance. The discount was in fact a commission.

ISSUE 5: the Respondent, in its Reply, admitted that the fourth and fifth ground of appeal refer to the same transaction. The law on admission is that where a person makes an admission on certain facts which are not traversed by the opponent, then the said facts are deemed to be admitted. On issue 4, the court already concluded that the amount was a commission under the guise of a discount. The Respondent cannot come up with another figure already considered as trade discount and fail to characterise its nature as a commission while imposing tax on same without justification. The Respondent thereby erred in imposing 15% withholding tax on the trade discount made to the Appellant’s customers in the 2018 assessment.

ISSUE 6: If the consumer business is located outside the country, the consumption of the service is deemed to be outside the country. Such services are therefore exported and zero rated for VAT purposes under item 3 of the Second Schedule of the VAT Act (“Act 870”). In the instant case, the services rendered by the Appellant under the agreement were mainly in the form of advice and recommendations to the Coca-Cola Export Corporation which is located outside the country, hence, the consumption of the service is also outside the country and should be zero rated for VAT purposes. The destination principle as espoused by OECD was applied.

IMPLICATIONS AND KEY TAKEAWAYS OF THE HIGH COURT’S DECISION

» In tax matters, the taxpayer bears the burden to show that there has been compliance with the provisions of the tax law per Section 92 of the Revenue Administration Act, 2016 (Act 915).

» With respect to the imposition of a penalty, including proceedings on appeal under or for the recovery of a penalty, the burden rests on the Commissioner General to show non-compliance with the provisions of the law per Section 92 of the Revenue Administration Act, 2016 (Act 915).

» Trade discounts offered to customers should always be written on the VAT invoice while cash discounts should be recorded on the debit side of the cash book evidencing that the customer has received the benefit.

» The Commissioner-General of the GRA has the right to re-characterise or disregard a transaction under Section 34 of Act 896 where the form of the transaction does not reflect its substance.

» Where the consumer business is located outside the country, the consumption of the service is deemed to be outside the country for VAT purposes. As such, VAT must be zero rated.

DOWNLOAD TO READ

The draft of the Growth Opportunities Act (Wachstumschancengesetz) provides for the mandatory use of electronic invoices from January 1, 2025 for certain circumstances. The core elements of the planned changes to invoicing are:

• the definition of the term “e-Invoice” in line with the ViDA bill, i.e. an invoice that must compulsorily comply with the requirements of CEN standard EN 16931 (Directive 2014/55/EU of 16.04.2014); thus, the draft reverts to the data format that is already used for electronic invoices in the B2G area through ZUGFeRD and XInvoice,
• the deletion of the priority of paper invoices in Sec. 14 para. 1 sentence 7 German VAT Act,
• the obligatory issuing of an e-Invoice for B2B transactions taxable in Germany (except for certain tax-exempt transactions) if the supplier and the recipient of the service are deemed to be resident in Germany,
• the possibility to use e-Invoices or “other invoices” in electronic form also in the B2C sector (however, only with the consent of the recipient)

The bill also contains transitional regulations for the introduction of electronic invoicing: Until December 31, 2025 taxpayers shall be allowed to use other forms of invoicing than electronic invoicing, e.g. in paper format. For transactions carried out in the years 2026 and 2027 it shall also remain possible to continue invoicing by using the EDI procedure instead of electronic invoicing until December 31, 2027.

In a letter dated October 2, 2023 addressed to the trade associations, the tax authorities commented on the planned changes to the issuing of invoices pursuant to Section 14 German VAT Act. With regard to the question of which invoice formats can be regarded as structured electronic invoices under this regulation, the Federal Ministry of Finance and the highest tax authorities of the federal states are of the opinion that in particular both invoices according to the XStandard (so-called XInvoice) and those according to the ZUGFeRD format (from version 2.0.1) should in principle meet the planned requirements. In addition, the letter provides further details on the future handling of hybrid invoice formats (e.g. an invoice in ZUGFeRD format, which simultaneously contains a pdf document and a data record in XML format). From the expected introduction of the mandatory electronic invoice on January 1, 2025, the structured part is to be decisive for these invoice formats, in contrast to the current provisions. In the event of differing information in the two elements, the data from the structured part (the XML file) should then take precedence over that from the image file (the PDF document). The tax authorities also explicitly clarify that the basic permissibility of a hybrid format should not change. With regard to the possibility, limited until December 31, 2027 according to the provisions of the planned Growth Opportunities Act, of also being able to use the EDI procedure instead of the mandatory electronic invoice, the tax authorities are aware of the importance of this invoicing format for certain areas of the economy. Therefore, a solution is already being worked on to ensure the continued use of EDI procedures as far as possible under the future legal framework. However, it cannot be completely ruled out that technical adaptations to certain EDI procedures may still become necessary with the introduction of the transaction-based reporting system. By way of clarification, the tax authorities state that according to the government draft of the Growth Opportunities Act, the receipt of an electronic invoice will be mandatory for all domestic entrepreneurs as of January 1, 2025. The transitional regulations provided for in the draft only concern the manner of issuing an invoice in other formats. If the invoice issuer decides to use an electronic invoice, the invoice recipient would therefore also have to accept it.

Digitalisation can make a decisive contribution to simplifying procedural processes, e.g., automatic invoice processing without media discontinuity. However, the planned digitalisation of invoicing for VAT purposes is associated with far-reaching changes to processes. The regular publications by the tax authorities make it clear that they also expect massive conversion requirements and adjustments. Taxpayers are recommended to get an overview as quickly as possible of wthat adjustments are required in their IT-landscape in order to meet the planned changes.

The Securities Act 2005 has been amended to provide for CIS and CEF to be explicitly authorised to invest in “money market instruments or debt instruments including loans, debt obligations or similar instruments”.  This extension explicitly broadens the investment horizon of CIS and CEF to cater for debt funds and is welcome by industry players as it brings Mauritius at par with most sophisticated financial centres from a regulatory perspective.

In addition, in order to render Debt Funds more attractive from a tax perspective, the Income Tax Act 1995 has also been amended.  While the standard tax rate applicable to a CIS or CEF on its chargeable income is 15%, with the amendments brought to the Finance Act 2023, a CIS or CEF earning interest income may claim either:

• An exemption of 95% of the interest income earned, subject to satisfaction of prescribed economic substance requirements; or
• credit for actual tax suffered on the interest income,

whichever was more beneficial.

The application of the 95% exemption leads to an effective tax rate of 0.75% on the interest income earned by a CIS or CEF.

The economic substance conditions, which mirror the requirements under OECD BEPS Action Plan 5, require that the CIS or CEF:

• carries out its core income generating activities in Mauritius;
• employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities; and
• incurs a minimum expenditure proportionate to its level of activities.

The core income generating activities to be carried out in Mauritius with respect to a CIS or CEF is defined in the legislation as follows:

If you wish to discuss these topics, please contact:

WTS Tax Consulting (Mauritius) Ltd

• position themselves with reference to their approach, strategy and compliance in respect of tax sustainability
• benchmark themselves against other organisations and peers
• understand perceptions of how tax ties in with the ESG approach and strategy within the wider organisation, and
• assess relative performance over a period to assist in long-term ESG goals

The index covers the following five areas:

• Governance – Licence to Operate
• Tax Risk and Planning – A Consequence, not an Influence
• International Compliance – Right Tax in the Right Place
• Stakeholder Engagement – Leaving no-one Behind
• Environmental – Acceleration to Net Zero

The index results can be used to develop a defined plan to enhance the organisations tax sustainability and to communicate progress with key stakeholders.

The completion of the TSi and the results summary are free of charge. If participants would like to explore the results further and understand their meaning, there is a premium option to obtain an evaluation report that contextualises the results and provides recommendations which can be developed into a roadmap accompanied by a support programme provided by WTS Global specialists.

 “The TSi is one of the initiatives through which WTS Global leads in innovative thinking, challenges conventional practices, and looks toward the future.”
–  Richard Turner, Senior Managing Director, Leader of Tax and Innovation,
FTI Consulting, WTS Global Member Firm in the UK

Our Global team comprises of specialists who are driving the tax sustainability agenda and maintain close contact with industry and academia.

For more information on the Tax Sustainability Index and our experts please visit our TSi website.

You want to evaluate your company’s Tax Sustainability?

Please click here

About WTS Global

With representation in over 100 countries, WTS Global has already grown to a leadership position as a global tax practice offering the full range of tax services and aspires to become the preeminent non-audit tax practice worldwide. WTS Global deliberately refrains from conducting annual audits in order to avoid any conflicts of interest and to be the long-term trusted advisor for its international clients. Clients of WTS Global include multinational companies, international mid-size companies as well as private clients and family offices.

The member firms of WTS Global are carefully selected through stringent quality reviews. They are strong local players in their home market who are united by the ambition of building a truly global practice that develops the tax leaders of the future and anticipates the new digital tax world.

WTS Global effectively combines senior tax expertise from different cultures and backgrounds and offers world-class skills in advisory, in-house, regulatory and digital, coupled with the ability to think like experienced business people in a constantly changing world.

About FTI Consulting

FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. With more than 7,800 employees located in 31 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges and make the most of opportunities. The Company generated $3.03 billion in revenues during fiscal year 2022. In certain jurisdictions, FTI Consulting’s services are provided through distinct legal entities that are separately capitalized and independently managed. More information can be found at www.fticonsulting.com.

WTS press contact:
WTS Global

Marie Christin Shenouda

T: +49 (0)89 28646-1929

E: Marie Christin Shenouda

WTS Group AG

Florian Kestler

T: +49 (0) 89 28646-1565

M: +49 (0) 162 2444-8333

E: Florian Kestler

For more information please see: wts.com

Richard Amo-Hene Vrs Ghana Revenue Authority, Attorney General & Judicial Service

The Supreme Court of Ghana upheld the provisions of the Revenue Administration Act, 2016, Act 915 (as amended) and High Court (Civil Procedure) Rules, 2004 (C.I 47) of pay now and argue later in the case brought before the Supreme Court by Richard Amo-Hene.

The Plaintiff (Richard Amo-Hene) invoked the powers of the Supreme Court of Ghana under Article 2 clause 1 of the Constitution of Ghana, 1992 to declare Section 42(5) (b) of the Revenue Administration Act (as amended) and Order 54 rule 4(1) of the High Court (Civil Procedure) Rules as unconstitutional and consequently null, void and unenforceable.

FACTUAL BACKGROUND

Section 42(5)(b) of the Revenue Administration Act, 2016 (Act 915) sets out the procedures for objecting to a decision of the Commissioner-General. An objection against a tax decision shall not be entertained by the Commissioner-General unless the person has: a. In the case of import duties and taxes, paid all outstanding taxes including the full amount of the tax in dispute; and b. In the case of other taxes, paid outstanding taxes including 30% of the tax in dispute Similarly, Order 54 rule 4(1) of the High Court (Civil Procedure) Rules, 2004 (C.I 47) also provides that the High Court will not entertain an appeal against a tax assessment unless the aggrieved person has paid 25% of the disputed tax in the first quarter of that year of assessment as contained in the notice of assessment. Richard Amo-Hene sought a declaration by the Supreme Court to the effect that section 42(5)(b) of Act 915 and Order 54 rule 4(1) of C.I 47 were unconstitutional as the rule of “Pay Now and Argue Later” imposed by said provisions is inconsistent with articles 2(1), 17(1), 19(2)(c), 33(1) & (5), 125(2), 130(1), 132, 133(1) and 140 of the Constitution of Ghana, 1992 (the 1992 Constitution) which guarantee the presumption of innocence and a person’s right of access to the court.

THE CASE OF RICHARD AMO-HENE

Amo-Hene advanced the argument that where a taxpayer is required to pay thirty per cent (30%) of the disputed tax per Act 915 (as amended), or twenty-five per cent (25%) payment per the procedural rules in CI 47, these statutory provisions impute culpability on that taxpayer prior to the determination of the liability or otherwise of said taxpayer concerning the tax in dispute. The premise of Amo-Hene’s argument is that the presumption of innocence expressly provided for by the 1992 Constitution stipulates that a person is presumed innocent until his guilt is proved beyond reasonable doubt. Thus, Amo-Hene argues that by asking the taxpayer to pay 30% or 25%, the law rather presumes the guilt of the taxpayer as 30% or 25% culpable and the taxpayer then assumes the burden of proving his innocence which is in clear contravention to his constitutional right.

Amo-Hene further argued that the scope of the right of access to the Court was established for a fair and proper administration of justice. In defending his argument, Amo-Hene submitted that access to justice has two sides; the ability to walk into court and initiate a cause of action and the ability to effectively participate in court proceedings. He also submitted that per Article 35(3) of the 1992 Constitution, under the Directive Principles of State Policy, citizens are entitled to access public facilities and services, which can be read to include the courts, without any undue fetter or impediment. Thus, it was Amo-Hene’s case that where section 42(5)(b) of the Act 915 (as amended) and Order 54 rule 4(1) of CI 47 imposes the condition of pay now and argue later before a tax objection or tax appeal can be made to the High Court, this condition unduly restricts a person’s right to access the courts and participation in the administration of justice despite the constitutional provision for the presumption of innocence. Amo-Hene further submitted that this pay now and argue later requirement also clearly undermines the duty and right of a citizen to defend the 1992 Constitution per articles 2(1) and 130(1), and the condition of pay now and argue later was never envisaged by the framers of the 1992 Constitution to be a sine qua non requirement for constitutional litigation in Ghana.

THE CASE OF THE DEFENDANTS (GRA, ATTORNEY-GENERAL & JUDICIAL SERVICE)

The Defendants, in their defence, raised a preliminary issue on the jurisdiction of the Supreme Court to hear and determine the matter, and argued that the pay now and argue later concept per Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 does not contravene constitutional provisions that guarantee a fair hearing and a person’s right of access to the courts neither does it amount to an abuse of discretionary power as claimed by Amo-Hene. Firstly, the Defendants argued that AmoHene had not properly invoked the Supreme Court’s original jurisdiction as he was seeking enforcement of human rights provisions in the Constitution which is available in the High Court. According to the Defendants, he had cleverly disguised seeking the enforcement of human rights provisions as a constitutional interpretation or enforcement matter. Thus, where no genuine issue of constitutional interpretation and enforcement exists, the High Court is the court properly clothed with original jurisdiction to entertain the matter not the Supreme Court.

Secondly, the defendants argued that the Pay Now and Argue later rule is a balance between the taxpayer’s rights as against the need for the effective settlement of tax debts. The Defendants advanced this argument on policy grounds to the effect that the pay now and argue later requirement addressed the need to limit recalcitrant taxpayers strategically seeking to use the objection and appeal procedure to defer payment of their taxes. The Defendants further argued that the overriding purpose of the provisions in Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 is to secure revenue to run the machinery of the state while the dispute relating to the tax issue is resolved. The Defendants concluded that Amo-Hene had thus failed to demonstrate that Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 are in contravention of any constitutional provisions and as such his action ought to be dismissed.

ISSUES

The Court decided to look at the case based on three main issues. 1. Whether or not the plaintiff has properly invoked the original jurisdiction of the Supreme Court. 2. Whether or not Section 42(5)(b) of the Revenue Administration Act, 2016 which requires a taxpayer to pay all outstanding taxes including 30% of the tax in dispute before an objection to a tax decision can be entertained by the Commissioner General of the GRA is inconsistent with the spirit and letter of articles 2(1), 17(1), 125(2), 19(2)(c), 33(1), 132, 133(1), 140 of the 1992 Constitution and to the extent of the inconsistency void. 3. Whether or not Order 54 rule 4(1) of the High Court (Civil Procedure) Rules 2004 C.I 47 which requires a taxpayer to pay an amount not less than 25% of the amount payable in the first quarter of that year of assessment as contained in the notice of assessment before an appeal can be entertained by the High Court is inconsistent with the spirit and letter of articles 2(1), 17(1), 125(2), 19(2) (c), 33(1), 132, 133(1), 140 of the 1992 Constitution and impedes a person’s right of access to court, participation in the administration of justice and the presumption of innocence until proven or pleaded guilty and to the extent of the inconsistency void.

DECISION

The Supreme Court adopted the reasoning in Kwasi Afrifa v Ghana Revenue Authority & Anor., Writ No. J1/23/2021 dated 30th November, 2022, SC (unreported case) where it held that the original jurisdiction of the Supreme Court had been properly invoked under Article 2(1) to determine the inconsistency or otherwise of provisions of Act 915 with article 125, guaranteed rights of citizens under Chapter 5 and the spirit of the Constitution expressed in Chapter 6. The Supreme Court accordingly dismissed the preliminary issue raised by the Attorney General to the Supreme Court hearing and determining the matter. Concerning the issue of the constitutionality of section 42(5) of Act 915, in a 6-1 decision, the Supreme Court once again adopted its reasoning in the Afrifa case (supra) and dismissed Amo-hene’s reliefs for a declaration that said section 42(5) of Act 915 is unconstitutional and consequently void, null and unenforceable, an order setting said section aside for its inconsistency and an order of perpetual injunction restraining the Defendants from acting under said section.

According to the reasoning in the Afrifra case, section 42(5) of Act 915 does not create an undue fetter to the hearing of an objection by a citizen to any tax decision owing to the rest of the dispute resolution provisions under Act 915, and “upon a true and proper interpretation of Article 23 of the 1992 Constitution, section 42(5) of Act 915 is not inconsistent with and violative of the constitutional right to administrative justice guaranteed under the provisions of Article 23 of the 1992 Constitution”. Further, it was also the reasoning of the Supreme Court in the Afrifra case that “to the extent that any tax decision taken by the Commissioner General is an administrative decision, and tax decisions are by Act 915 made subject to objection, judicial review, and appeal, the regime provided under Act 915 for regulation of tax decision by the Commissioner-General passes the test of constitutionality.”

Finally, the Supreme Court also dismissed the remaining reliefs sought by Amo-Hene in relation to the third issue raised on the unconstitutionality of Order 54 rule 4(1) of CI 47 requiring payment of 25% of the amount payable in the first quarter of that year of assessment before an appeal can be entertained by the High Court. The Supreme Court referred to Export Finance Company Limited v Ghana Revenue Authority and Anor, Writ No. J1/7/2021 dated 30th November, 2022 SC, a similar writ questioning the constitutionality of Order 54 rule 4 of CI 47 and chose not depart from its position in the Export Finance Company case as the arguments urged on the Supreme Court and the references to case law and constitutional provisions by Amo-Hene were no different from that those argued before the Supreme Court in that case. In the Export Finance Company Ltd. case (supra), the Supreme Court held that based on the clear public policy rationale against allowing taxpayers and citizens to delay and evade their tax obligations to the state by taking advantage of loopholes in the law, “the Rules of Court committee did not act unconstitutionally in inserting rule 4 in Order 54 when formulating the rules and procedure regulating tax appeals in the country.” The Supreme Court then stated its position that Order 54 r 4 of CI 47 complements section 42 of Act 915 and being subsidiary legislation, it must yield to the parent legislation. Thus, where the appellant to a tax appeal has complied with the provisions of Act 915, the appellant need not comply with Order 54 r 4 of CI 47 in invoking the jurisdiction of the High Court. This interpretation accords with common sense and fairness as the lawmakers could not have intended that an appellant be compelled to pay the percentage twice before invoking the jurisdiction of the High Court.

IMPLICATION AND KEY TAKEAWAYS

1. The settlement of outstanding tax liabilities and the payment of 30% of the disputed tax continue to serve as a pre-requisite for an objection to the tax decision of the Commissioner-General of the GRA.
2. The Commissioner-General may grant a person’s request for a waiver of the 30% payment of the disputed tax.
3. Upon denial of an application for a waiver of condition precedent to an objection being entertained, a person may proceed to the High Court seeking relief against the denial where in his opinion, the denial was made arbitrarily.
4. The High Court will not entertain a tax appeal unless 25% of the disputed tax is paid in the first quarter of that year of assessment.
5. The concept of pay now and argue later being pronounced as unconstitutional will open the floodgates for the citizenry to take advantage of and avoid or delay meeting their tax obligations to the State.
6. The opportunity to apply for judicial review and appeal at the High Court against the Commissioner-General’s exercise of discretionary powers to waive or deny an application for waiver of condition(s) precedent to an objection may as well open the floodgates for numerous applications by taxpayers and citizens seeking relief against said denial of a waiver which may equally delay taxpayers honoring tax obligations to the State.

CONCLUSION

The Supreme Court determined that Section 42(5) of the Revenue Administration Act, 2016 (Act 915) and Order 54 rule 4(1) of the High Court (Civil Procedure) Rules 2004 (C.I 47) are not inconsistent with or in contravention to constitutional provisions thus dismissed Amo-Hene’s action in its entirety.

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