CASE IN THE COURT OF APPEAL

BACKGROUND OF THE CASE

In 2019, the Ghana Revenue Authority (GRA) in exercise of its statutory duty conducted a tax audit of Seadrill Ghana Operations Limited from January 2012 to December 2018. Seadrill was a subcontractor to Tullow Ghana Limited, providing a drilling unit and associated drilling services under the Petroleum Agreement dated 10th March 2006. At the end of the tax audit, Ghana Revenue Authority in a letter dated 8th November 2019 assessed tax liability against Seadrill Ghana Operations Limited in the sum of US$ 305,606,164.19.

Seadrill Ghana Operations Limited submitted a formal objection to the decision through a letter dated the 11th of December 2019. As part of the objection process, Seadrill Ghana Operations Limited was required by statute to make a down payment amounting to 30% of the assessed tax to the Ghana Revenue Authority. Ghana Revenue Authority considered the objection and revised the tax liability to US$10,222,849.35. Seadrill Ghana Operations Limited remaining dissatisfied with the decision filed a subsequent objection in a letter dated 28th July 2020. The objection again received a favorable response as Ghana Revenue Authority further reduced the tax liability from US$10,222,849.35 to US$5,448,152.65. Seadrill Ghana Operations Limited again displeased with the decision, objected to same, which was later disallowed by the GRA.

Seadrill Ghana Operations Limited proceeded to file both a notice of appeal against the tax assessment at the Commercial Division of the High Court and an application for an interlocutory injunction on 20th November 2021. Upon being served with notice of appeal, Ghana Revenue Authority filed an application for an order to strike out and dismiss Seadrill’s notice of appeal. Seadrill Ghana Operations Limited also filed an affidavit in opposition to Ghana Revenue Authority’s motion on notice.

The trial judge following a careful consideration of the processes filed and the arguments of the parties upheld the objection of the Ghana Revenue Authority and struck out the appeal of Seadrill Ghana Operations Limited as incompetent. Seadrill Ghana Operations Limited aggrieved by the ruling of the High Court filed a notice of appeal to the Court of Appeal.

GROUNDS OF APPEAL

1. The Learned Judge erred in his interpretation and application of the Commissioner General’s powers and review under the law.

2. The Learned Judge erred that Ghana Revenue Authority ‘s letter dated 1st December 2020 is not a tax decision to be objected to.

3. The Learned Judge erred in holding that although the 1st December 2020 letter is an amended tax decision under Section 42(9) of the Revenue Administration Act 2016 (Act 915), the 1st December 2020 letter cannot be subject to an objection.

4. The Learned Judge erred in holding that Seadrill Ghana Operations Limited’s letter of 30th December 2020 is not an objection to a tax decision.

5. The Learned Judge erred in holding that the Ghana Revenue Authority’s letter of 8th October 2021 is not an objection decision.

6. The ruling is against the weight of the evidence.

THE APPELLANT’S CASE

1. The Learned Judge failed to apply Sections 41(1), 37(3) and 37(6) of the Revenue Administration Act 2016 (Act 915) to hold that an adjusted tax assessment is a tax decision that can be objected to. Applying these provisions will lead to the conclusion that the 1st December 2020 letter was a tax decision that it could have objected to.

2. By reason of Section 37(5)(b)(ii) and (iii) and Section 39(3), the Ghana Revenue Authority had the power to adjust its tax assessment. Consequently, the Ghana Revenue Authority could adjust the 1st December 2020 decision.

3. Having argued that the 1st December 2020 letter was a tax decision as defined in Section 42(1) of Act 915, Seadrill Ghana Operations Limited could object to that decision.

4. The Learned Judge misapplied Section 42 of Act 915 in holding that a single objection to a tax decision is allowed under Act 915. Nowhere in Act 915 is the number of objections a taxpayer can file limited to only one.

5. The Ghana Revenue Authority was construed by the principle of legitimate expectation since its first and second objection had revealed inaccuracies in the tax assessed leading to the Ghana Revenue Authority adjusting its original assessment.

6. Pursuant to Section 43 of Act 915 and a reading of Ghana Revenue Authority‘s letter to Seadrill Ghana Operations Limited dated 8th October 2021, the said letter was an objection decision. The fact that the objection was disallowed did not change its characteristics as an objection decision.

THE RESPONDENT’S CASE

1. The trial Judge did not err in his judgement as he gave due regard to all relevant provisions as well as all attached exhibits and submissions made by the parties.

2. The Commissioner General under Section 37(5)(b)(ii) and Section 39(3) of Act 915 has the power to adjust any tax assessment, the exercise of that power is in respect of self-assessment or where the person failed to file a tax return on time as required by law. The adjustment is carried out by The Commissioner General using his best judgement or based on the discovery of fraud, willful default, or serious omission by or on behalf of a tax paper. Ghana Revenue Authority contended that the above provision was inappropriate in the determination of the present appeal.

3. A decision made after an objection does not constitute a tax decision within the meaning of section 43 of Act 915.

4. Once the Ghana Revenue Authority makes an objection decision reviewing or adjusting a tax decision, the objective decision qualifies as a tax decision within the meaning of Section 37(5)(b)(iii) and 39(3) of Act 915.

DECISION OF THE COURT

Ground I, II and III

The Court believed Ground I, II and III were unmeritorious. It was stated that an amendment or adjustment to an objection decision did not convert the amended or adjusted objection decision into a tax decision. The submissions and interpretation given to Section 42(9) of Act 915 by Seadrill Ghana Operations Limited may be unreasonable. The court reasoned that, once the amended objection decision becomes a tax decision, Seadrill Ghana Operations Limited would have been mandated by Section 42(5) of Act 915 to pay 30% of a tax in dispute as the objection deposit. On the contrary, there was no evidence on record that it paid 30% of the tax in dispute upon submission of its letter dated 28th July 2020. Neither was there any evidence that Seadrill Ghana Operations Limited paid 30% of the disputed tax upon submission of the letter dated 30th December 2020.

Ground IV

The Court dismissed this ground of appeal. The court held that a tax decision can be objected to in the first instance. If the objection yields an amendment or adjustment, it becomes an objection decision. Should the taxpayer be dissatisfied with the objection decision made by the Commissioner-General, the taxpayer may appeal against the decision to the court within 30 days (Section 44 of the Revenue Administration Act, 2016 (Act 915) and Order 54 rules 1 and 2 of the High Court (Civil Procedure) Rules 2004 C. I. 47. The court added that, before a taxpayer can lodge an objection to a tax decision, he is mandated by Section 42(50 of Act 915 to pay objection deposit. On the other hand, the only objection deposit paid by the Appellant was made in respect of the first objection filed against the tax decision.

On the issue of the Respondent being constrained by the principle of legitimate expectation, the court opined that there are specific provisions in the Revenue Administration Act, 2016 (Act 915) which deals with resolution of tax disputes. The provisions cannot be sidestepped for an expectation which is not backed by law.

Ground V

The Court affirmed the Learned Judge’s decision, stating that the letter of 30th December 2020 did not constitute an objection. It followed that the Ghana Revenue Authority letter of 8th October 2021 could not be considered an objection decision. The objection decision was the Ghana Revenue Authority letter dated 1st December 2020. The Appellant instead of filing an appeal as provided in Section 44 of the Revenue Administration Act, 2016 (Act 915) and Order 54 Rules 1 and 2 of the High Court (Civil Procedure) Rules, 2004 within thirty (30) days of receipt of the

decision, rather requested a review of the objection decision. The learned Judge therefore was not in error when striking out the Appeal as having been filed out of time.

IMPLICATIONS AND KEY TAKEAWAYS OF THE HIGH COURT’S DECISION

· A tax decision is a decision made by the Commissioner-General under a tax law including an assessment or omission.

· Before a taxpayer can lodge an objection to a tax decision, the taxpayer is mandated by Section 42(5) of Act 915 to pay an objection deposit.

· In the case of import duties and taxes, all outstanding taxes including the full amount of the tax in dispute must be paid and in the case of other taxes, all outstanding taxes including thirty percent of the tax in dispute must be paid.

· An objection to the tax decision at the GRA must be made within thirty days of being notified of the tax decision.

· A tax decision can be objected to in the first instance. If this objection yields an amendment or adjustment, it becomes an objection decision.

· If a taxpayer is dissatisfied with an objection decision, he must file an appeal against the decision to the court within thirty (30) days upon receipt of the decision rather than request to GRA to review of the objection decision.

· There are specific provisions in the Revenue Administration Act,2016 (Act 915) which deal with resolution of tax disputes. These provisions cannot be ignored for an expectation which is not backed by law.

CONCLUSION

In summary, the Court of Appeal dismissed all the grounds presented by Seadrill Ghana Operations Limited and upheld the entire judgement of the High Court. The Court therefore concluded the following.

First, after the objection decision under section 43 of Act 915 was made, the adjustment did not convert the amended objection decision into a tax decision. What constitutes a tax decision is clearly spelled out in section 41(1) of Act 915. In addition, the objection decision was Ghana Revenue Authority’s letter dated 1st December 2020. Seadrill Ghana Operations Limited ought to have filed and appeal against the objection decision to the Court within thirty (30) days upon receipt of the objection decision instead of requesting a review of the objection decision by GRA.

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Key Features:

Scope and Applicability:
Act 930 applies to all banks and specialised deposit-taking institutions operating in Ghana. Its provisions cover a wide range of financial activities to ensure the stability and integrity of the financial system.

Licensing and Regulation:
The Act outlines the criteria for licensing and regulates the establishment, operations, and conduct of banks and SDIs. The Bank of Ghana, the country’s central bank, is responsible for overseeing and enforcing compliance with the provisions of Act 930.

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The tremendous effort of the government to increase the tax net and promote voluntarily tax compliance, there has been a new tax amendment passed by parliament and assented to by the president which are as follows;

• Revenue Administration (Amendment) Act, 2022 (Act 1086),
• The Electronic Transfer Levy (Amendment) Act 2022 (Act 1089), and
• The Value Added Tax, (Amendment) No. 2 Act, 2022 (Act 1087). In this alert, we highlight tax provisions that have been amended and draw the attention of the general public on its compliance for the year 2023. January 2023 #01.2023 Regulatory Alert

1. REVENUE ADMINISTRATION

The Revenue Administration (Amendment) Act, 2022 (Act1086), has been passed by Parliament and assented to by the president of the Republic of Ghana. The reason of this new amendment is to provide for the Commissioner-General to establish a monitoring mechanism to determine or verify the actual revenue collected by a taxpayer, to introduce the requirement for a tax clearance certificate, to provide for returns in respect of the realization of an asset or liability and for related matters

Highlight of the key areas of this amendment are below:

Access to physical network node

The new Revenue Administration (Amendment) Act, 2022 gives the Commissioner-General the authority to establish a monitoring mechanism for the purpose of verifying the actual revenue of a taxpayer. This Act requires a person to give the Commissioner-General physical access to the physical network node or infrastructure or system of that person at an equivalent point in the network or infrastructure or system where the system of the taxpayer is connected. Additional penalty has been introduced for refusal by a taxpayer to provide the CommissionerGeneral or the authorised tax officer access to the physical network node. Thus a penalty of 5% of the annual gross revenue of the person in addition to the penalty prescribed in section 78 of the Act.

1. ELECTRONIC TRANSFER LEVY (E-Levy)

The Electronic Transfer Levy Act, 2022 (Act 1075) has been amended by the government of Ghana. The object of this amendment is to reduce the levy on electronic transfer to one percent, to provide for the filing of returns and provide for the time for payment, and emphasis on other related matters.

1. Reduce the levy on electronic transfer to one percent. The Electronic Transfer Levy Act,2022 (Act 1075) imposes an electronic transfer levy of 1% on electronic transfers, as against the 1.5% formally imposed. Electronic money transfer and digital bank transfer daily threshold of GHS 100 and GHS 20,000 respectively haven’t seen any changes. The daily threshold of the principal enactment remains in force.
2. To provide for the filing of returns and provide for the time for payment. A charging entity shall file a return in respect of the levy with the Commissioner-General in matter and at the time and place determined by the Commissioner-General. A charging entity shall pay to the Commissioner-General the Levy that has been charged on electronic transfer within twenty-four hours after charging the amount.
3. VALUE ADDED TAX (VAT)

The Value Added Tax Act,2013 (Act 870) has been amended by the government of Ghana. The purpose of this amendment is to adjust the Value Added Tax (VAT) rate, adjust the VAT threshold, review the transitional provisions for the implementation of the electronic Value Added Tax(e-VAT) system, revise the administrative penalties for non-compliance in relation to the electronic Value added Tax and remove the VAT on betting, gambling and other game of chance.

Key highlights in this amendment are;

12. Change in VAT standard rate from 12.5% to 15%. The VAT rate which was previously 12.5% is now going to be 15%. This 15% is charged on the value of the taxable supply of goods and services and the value of import. The taxable amount is an inclusion of the 2.5% National Health Insurance Levy, 2.5% of the Ghana Education Trust Fund Levy and the 1% Covid-19 Health Recovery Levy. The increase in the VAT rate from 12.5% to 15% will increase the effective tax and levy rate from 19.25% to 21.9%. Retailers of goods who make taxable supplies above GHS 200,000 but below GHS 500,000 shall pay the Value Added Tax at the flat rate of 3% on the value of the taxable supply.
13. Revision of VAT Taxable supplies. The acceptance of a wager or stake in any form of betting or gaming, including lotteries and gaming machines has been removed from the list of activities that constituent taxable supplies for VAT application. The new amendment has also removed betting as supply of services by a business operating a game of chance. There is no more VAT on betting services provided by persons to its customers. There has also been an inclusion of imported textbooks, imported newspapers, architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs, calendars, diaries and stationery and other printed matter to the list of taxable activity for VAT application. These supplies do not fall in the VAT exemption bracket as it previously did.

• Failure to comply with the new Certified Invoicing System (E-VAT). Value Added Tax (amendment) Act 2022 (Act 1082) requires a taxable person to issue a tax invoice through a certified invoicing system and ensure that the Certified Invoicing System is integrated into the invoicing system of the C-G. The purpose of the new amendment (Act 1087) is to strengthen the compliance with Act 1082 by providing penalties for non-compliance with the Certified Invoicing System. The Act 1087 has prescribed penalty for VAT registered persons that don’t adhere to the new provisions of Act 1082. Persons who issue a falsified tax invoice or sales receipt or manipulate the proper functioning of the Certified Invoicing System or fail to integrate the Certified Invoicing System into the invoicing system of the Commissioner-General will, in addition to penalty prescribed for failure to issue a tax invoice under the VAT Act, be liable to a penalty of the higher of GHS50,000 or three times the amount of tax involved. The new amendment, Act 1087, has also repealed the provision for sections 13 and 14 of Act 1082 which allowed persons who fail to comply with the Certified Invoicing System to apply for extension. Also, Betting, Gaming (including other games of chance) have been removed from the scope of VAT application. Thus, exempted from VAT. Finally, VAT on imported Text books, newspapers, architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogue, price lists, greeting cards, almanacs, calendars, diaries and stationer and other printed materials have been reintroduced. VAT is now applicable on importation of books and printed materials.

We summarize the key takeaway on these new provisions below;

Revenue Administration

1. This new amendment would protect the Commissioner-General or tax authority against grudges by persons who may prevent tax official from access to information.
2. This unrestricted access will yield information needed for the Commissioner-General’s tax assessment.

• Government expects to increase Tax-to-GDP from around 13% to 20% in the year 2023. These amendments have set the tone for a strict and aggressive tax compliance strategies to be adopted by Government to meet this target and generate maximum tax revenue.

      E-Levy

1. The reduction in the rate from 1.5% to 1% will benefit persons as new income save and invest in other areas.
2. Filing of returns by charging entities will help them to pay the correct amount of tax to the Ghana Revenue Authority and authenticate evidence of tax collected and paid back.

VAT

1. The increase in the VAT rate may result in a general escalation in of goods and services.

1. The increase in price on an invoice is 2%. Where Government is unable to educate taxpayers of this expected effect, traders may rationalize the concept of increase in VAT rate and escalate the prices disproportionally as experienced in the past.

• Integrating the Certified Invoicing System into the Invoicing System of CommissionerGeneral may promote information sharing between taxpayer and the Commissioner

1. The Commissioner-General as indicated in the amendment should as a matter of urgency issue directives and guidelines to assist taxpayer comply with the requirement under the E-VAT system.
2. The provisions of penalties regarding the E-VAT system is a strong insulation of the system to ensure maximum compliance by taxpayers.

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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.

If you wish to discuss these topics, please contact:

 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

 Q1. What is the Growth and Sustainability Levy?

 The Growth and Sustainability Levy (the “Levy”) is an imposition of a the profit and gross production of Companies. The levy is imposed based on the category of industry that a company operates in. For some industries, the levy is imposed on profit before tax whilst for others, it is imposed on the gross production during the year of assessment.

 Q2. Are all persons liable to pay the Levy?

 Yes, the Levy applies to the specified companies and institutions are required to pay the Levy. However, specific stabilisation clauses in an agreement with Government and exemptions granted to a company may exclude the company from paying the levy.

 Q3. Are there any specific regulations to guide a tax payer?

There is regulations currently. However, the Minister (of Finance) is empowered to, by a Legislative Instrument, make Regulations to amend the schedule to revise:

1. The categories of companies and institutions liable to pay the Levy;
2. The companies and institutions liable to pay the Levy; and
3. The rate of the Levy.

Q4. How does the Levy affect my profits or production?

The Levy is payable as a percentage of profits before tax or production for 2023, 2024, and 2025 years of assessment. Companies in Category A will be required to pay a Levy of 5% of their profits before tax. Category B companies will pay a Levy of 1% of their gross production. All other entities that do not fall within Category A and B will be required to pay a Levy of 2.5% of their profit before tax.

Q5. What Category of companies are affected by this Levy and at what rate?

Companies subject to this Levy are categorized as follows;

Basically, every company is affected by the Levy. The only difference is that the applicable rates vary amongst the various categories of industries.

Q6. Is it possible for a person to deduct the Levy from his taxable income?

No, the Levy paid or payable is not an allowable deduction when a person is ascertaining chargeable income for a year assessment under the Income Tax Act, 2015(Act 896) as amended.

Q7. When is the due date to file an assessment and pay the Levy?

• A person who is subject to the Levy for a year of assessment shall file with the Commissioner-General, an estimate of the Levy payable for the year of assessment by the date of payment of the first tax installment.
• Subject to any directives of the Commissioner-General to the contrary;
• An estimate of the Levy shall be in the prescribed form and provide any other information that the Commissioner-General may require.
• The Levy assessed for a year of assessment is payable quarterly and due on the 31st of March, 30th of June, 30th of September, and 31st of December of the year.

Q8. What is the difference between the Growth and Sustainability Levy (GSL) and the repealed National Fiscal Stability Levy (NFSL)?

The GSL is different from the NFSL by the widening of persons liable to pay the GSL. The repealed NFSL applied to only companies and institutions now specified in Category A of the GSL.

Q9. Is Levy returns required to be filed?

 Yes, the specified companies and institutions shall file a return in respect of the Levy with the Commissioner-General in the manner and at the time and place as determined by the Commissioner-General.

Q10. Can one deduct the levy paid as an expense for the purposes of calculating Corporate Income Tax?

 No. The levy is not an allowable deduction. The amount paid should be added back to the profit before tax prior to applying the Corporate Income Tax rate.

Q11. Are there any sanctions for non-compliance?

 Yes, the provisions of the Revenue Administration Act, 2016 (Act 915) relating to collection, enforcement, refund, penalties, and offenses shall apply to the collection of the Levy as if the Levy is collected under Act 915.

Q12. Which authority administers the Growth and Sustainability Levy?

 The Levy shall be collected by the Ghana Revenue Authority, who shall then repay all amounts collected into the Consolidated Fund.

Q13. Is the Levy applicable to Companies who have Stability Clauses in their contracts with the Government of Ghana?

The general purpose of stability clauses in a contract is to exempt a company from the effect of changes in tax laws that could affect the parties involved. Stability clauses with respect to tax, exclude companies who are parties in an agreement with the Government of Ghana from the Levy. The Levy will therefore not be applicable to such companies or entities. It is however advisable to consider the wording of a stability clause in the contract with the Government of Ghana to be able to determine whether the Levy is applicable or not.

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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.

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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.