Arbitration review: Tullow Ghana Limited vs. Republic of Ghana
Below is a comprehensive review of the final award in an arbitration case between Tullow Ghana Limited (TGL) and the Republic of Ghana under the International Chamber of Commerce (ICC) rules.
Background: The dispute centred on the Ghana Revenue Authority’s (GRA’s Branch Profit Tax (BPT)) assessments for the tax years 2012, 2013, and 2014, which TGL argued were improperly calculated and in breach of the tax stability provisions in the Petroleum Agreements, the WCTP Petroleum Agreement (2004) and the DWT Petroleum Agreement (2006).
TGL contended that the BPT assessments violated Article 12.1 and Article 26.2 of the Petroleum Agreements, which provide tax stability and protection against new or increased taxes not specified in the agreements.
Issues in dispute:
• Whether the BPT assessments breach Article 12.1 of the Petroleum Agreements, which protects TGL from certain taxes.
• Whether the BPT assessments breach the stabilisation clause in Article 26.2, which guarantees fiscal stability.
• Jurisdictional objections raised by Ghana, including waiver of arbitration rights and the need to exhaust local remedies.
Tribunal’s findings:
• Article 12.1: The Tribunal found that the BPT assessments breach Article 12.1, as they are taxes imposed in respect of activities related to Petroleum Operations and the sale and export of petroleum, which are protected under the agreement.
• Article 26.2: The Tribunal (by a majority) found that the BPT assessments also breach the stabilisation clause in Article 26.2, as Section 39(3) of the Petroleum Income Tax Law (PITL) 1987, which was stabilised, precludes the imposition of BPT.
• Jurisdiction: The Tribunal rejected Ghana’s jurisdictional objections, affirming its authority to decide on the issues.
Relief granted:
• The Tribunal declared that the BPT assessments constitute a breach of Articles 12 and 26.2 of the Petroleum Agreements.
• Ghana is ordered to indemnify TGL for any amounts compelled to be paid under the BPT assessments, including interest and costs.
• The Tribunal dismissed Ghana’s counterclaim.
• Ghana is ordered to pay TGL’s legal and other costs of the arbitration, totalling GBP 1,946,589.44 and USD 294,228.72, plus USD 574,000 in respect of deposits for the Tribunal and ICC fees, with interest at five per cent per annum.
Three specific errors in the BPT assessments made by the Ghana Revenue Authority (GRA) for TGL for the tax years 2012, 2013 and 2014 were identified:
• Error One: Incorrect Use of Net Profit Before Tax
For the 2013 and 2014 tax years, the GRA incorrectly used TGL’s net profit before tax for Value ‘B’ of the BPT formula.
Regulation 24(5)(a) of the Internal Revenue Regulations (IRR) 2001 expressly states that the GRA must use TGL’s net profit after tax. This error led to an overstatement of the BPT assessment.
• Error two: Double Counting of Dividends
For all three years (2012, 2013, and 2014), the GRA incorrectly added approximately USD 1.5 billion in dividends distributed by TGL to its parent company to Value ‘B’ of the BPT formula.
This involved double counting because the relevant amount had already been considered in the calculation as a remittance between TGL’s branch and head office.
• Error three: Incorrect Use of Total Non-Current Liabilities
For the 2012 tax year, the GRA incorrectly used TGL’s ‘total non-current liabilities’ in its 2012 branch financial statements for Value ‘C’ of the BPT formula rather than the total value of assets and net of liabilities. This error also contributed to an incorrect BPT assessment.
Implications
This ruling underscores the importance of adhering to the tax stability provisions in international agreements and provides a precedent for other companies operating under similar agreements.
The decision also highlights the role of arbitration in resolving complex international tax disputes and ensuring that contractual protections are upheld.
Conclusion
The Tribunal ruled in favour of TGL, finding that the BPT assessments by the GRA breached the tax protections and fiscal stability guarantees in the Petroleum Agreements.
Ghana is ordered to indemnify TGL for any compelled payments under the BPT assessments and to cover TGL’s legal and arbitration costs.
The Tribunal’s decision provides clarity on the tax obligations and protections under the Petroleum Agreements, reinforcing the importance of fiscal stability for foreign investors in Ghana’s petroleum sector.
The writer is a lawyer & chartered accountant,
E-mail: salahu222@yahoo.com