Attorney General embarrasses Ghana with bad GRA math at Tullow Arbitration

Under-pressure Tullow, the largest corporate producer of petroleum in Ghana, received some rare good news on Christmas eve. It has won an arbitration dispute with the government of Ghana over a tax dispute.

1. The genesis of the affair was in 2018 when the Ghanaian tax authorities (GRA) decided to audit Tullow’s tax filings from 2012 to 2016. In December of that year, GRA concluded that Tullow had cheated Ghana of tax due to the tune of ~$140 million for 2013 and 2014. Tullow promptly filed a protest with the Commissioner General.

2. Tullow’s protest seemed to have angered GRA even the more. In December 2019, GRA came back and said that Tullow actually owe Ghana ~$331 million in back taxes covering 2012 to 2016. Tullow continued to insist on its innocence in the matter.

3. Eventually, in September 2021, GRA shaved off some coins, reducing Tullow’s liability to $320 million. Finally exasperated, Tullow demanded arbitration under its Petroleum Agreements with Ghana at the International Court of Arbitration (ICA) of the International Chamber of Commerce (ICC) in London, UK.

4. GRA’s computation of Tullow’s tax arrears was based on a notion that Tullow’s sending of profits it had made in Ghana from producing and selling its share of oil to its head office in the UK ought to have attracted a withholding tax. To the extent that Tullow didn’t withhold and pay this tax to Ghana, Tullow had cheated the country.

5. Tullow’s counterargument is that it would be double-taxed if it followed GRA’s prescriptions since its profits had already been taxed, and at any rate, its agreements with Ghana do not allow any forms of tax other than what was specified in the agreement to be applied. Tullow’s agreements with Ghana had been signed on the back of petroleum laws made in the 1980s. To attract certain classes of investors into their country, governments normally promise them that the terms of their investment will remain “stable” throughout. Taxation, being one of the most critical considerations for any foreign investor, tend to be one of the principal elements captured by so-called “stabilisation” provisions in such agreements. (By the same reckoning, Tullow should continue to pay corporate income tax at a rate of 35%, which is what prevailed at the time of the agreement, even in the event of a downward revision of taxes. )

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