Beiersdorf Ghana Limited v Commissioner-General, Ghana Revenue Authority

Judgment

p. 1Source page 1IN THE SUPERIOUR COURT OF JUDICATURE IN THE COURT OF APPEAL ACCRA-GHANA CORAM.ADJEI. J,A SUIT NO. :Hl/ 140 /2019 5rn DECEMBER ?O 19 IN THE MATTER OF AN APPEAL AGAINST TAX ASSESSMENT BY THE COMMISSIONER GENERAL BEIERSDORF GHANA LIMITED 5TH FLOOR, GRAND OYEEMAN BUILDING SOUTH LIBERATION LINK AIRPORT COMMERCIAL AREA, ACCRA VRS . THE COMMISSIONER GENERAL GHANA RVENUE AUTHORITY ACCRA JUDGEMENT ADJEI,J.A: APPELLANT/ APPELLANT RESPONDENT/ RESPONDENT The Commiss ioner General of the Ghana Revenue Authority rendered a decisioI'- 011 14th AugtJ.st , 2017 ,x:ith respect to tax

p. 2Source page 2liability of GH¢1,698,149.34 against Biersdorf Ghana Limited for 2014 to 2016 years of assessment . The tax assessed by the Commi ssioner was based on the resul t of a Tax Audit for the Accounting Period of 2014-2016. Biersdorf Ghana Limited dissatisfied with the tax assessment filed an appeal against the decision of the Commissioner General to the High Court. The appeal was filed on 8th January, '.2018. Biersdorf Ghana Limited \Vas the Appellant before the High Court and the Commissioner General of the Ghana Revenue Authority v.:as the Respondent. The Appellant dissatisfied \;vith the decision of the High Court delivered on 13th July, 2018 appealed against same to this Court on 11th October, 2018. The High Court shall be referred to as the Court belov,· for the purposes of this appeal. In this appeal. the Appellant/ Appellant shall be referred to as Appellant and the Respondent shall be referred to as the Respondent . Simply stated, for the purposes of this appeal a11d ease of reference the parties shal l maintain their respecti\ ·e designations at the court belo\v. The judge at the Court belo\v discussed all the grounds of appeal and dismissed each and every one as unmeritorious and finally dismissed the notice of appeal filed in the Court below as incompetent . It is upon this background that the Appellant appe aled to this Court to reverse the judgement in appeal determined by the Court beloYv. The three grounds of appeal filed against the decision of the Court below are contained in the

p. 3Source page 3Amended Notice of Appeal pursu ant to leave granted by this Court on 29th May, 2019 and filed on 31st May, 201 9 . They are as follows: "A. That the decision of the court is against the weight of evidence. B. That the court erred in law by affirming the finding of Commissioner General of Ghana Revenue Authority that royalty payments made by the Appellant to Beiersdorf AG (BDF) pursuant to an agreement between Appellant and BDF for the use of Nivea Brand should not be allowed as a legitimate business cost because of the failure of the .4.ppellant to register the said agreement with the Ghana Investment Promotion Center before making payments under the agreement. C. The court erred in law when it held that the Appellant had not shown evidence of the payment of at least a fourth of the tax amount payable ". The grou nd (C) of the appeal is fundamental as it goes to the root of the appea l. The High Court dismissed the appeal as incompetent on the basis that the appellant failed to comply 1.,·ith Order 54 of the High Court ( Civil Proc edure) Rules, 2004 ( C.I. 47) which conferred the procedure to be follo-v:.red by a person \vho is dissatisfied with a tax assessment by the Commissioner General . The Court below held that the Appellant failed to comply

p. 4Source page 4with Order 54 rule 4 of the High Court (Civil Procedure) Rules , C.I. 4 7. The provision provides as follows: "(1) An aggrieved person who has filed an appeal against an assessment, decision or order of the Commissioner under ntle 1 of this Order shall, pending the determination of the appeal, pay an amount not less than a quarter of the arnount payable in the first quarter of that year of assessment as contained in the notice of assessment. (2) An appeal shall not be enterta ined by a court under these Rules unless the appellant has paid the amount set out in subru:le (1) of this rule. (3) Where the payment of tax has been held over pending an appeal". The court below finally dis111issed the appeal on a technical ground that the Appellant failed to demonstrate to the Court that it either attached a statement indicating that an amount of not less than one quarter of the amount payable in first quarter of that year of assessment as contained in the notice of appeal has been paid or evidence that the amount has been paid to the Ghana Revenue Authority. The general principle of laviT is that where a case is terminated on a legal point such as capacity or jurisdiction, the court is forbidden from discussing the merits of the case even where the appellant may seem to have a cast -iron

p. 5Source page 5case. The a bove positi on of law has been state d in sever al binding decision s inclu ding Manu v Nsiah [2005-2006] SCGLR 25 and Sarkodee 1 vBoateng 11 [1982 -8 3] 1 GLR 715. On the other hand, the Court below discussed the merits of the case before dismissing the "·ho le appeal as incompetent on grounds that it sinned against Order 54 rule 4 ((2) of C. I. 4 7 which is a mandatory provision and must be complied ,\·ith it before a_n appeal under Order 54 rule 1 of C.I. 4 7 could be maintained or entertained. Assuming the appeal on the competence of the appeal fails, the entire appeal ought to fail as one cannot put something on nothing and expect it to stand. The Appellant has submitted that there Kas e\·idence of payment of an amount more than quarter of the ainount to be paid in the first quarter to the Re spon dent wh ile the Res ponde n t disputed the Appellant 's claim and further stated that the Appe llant failed to comply with Order 54 rule 4 of C.I. 4 7 and its appeal ,\·as incompet ent and the lo·wer court was right in dismissing it. \Ve therefore discuss grounds "A" and "C" of the appeal together in the same manner the Appellant argu ed its appe al and the Respondent also responded . The general position of lav,· is that where a party alleges that a judgement is against the weight of evidence on record , the appellate court is required to correct all factual errors and to some extent some legal errors which ·v:ere not properly evaluated and considered in accordance ,:\"ith lav,r. The burden on an appellate court as a court correcting error when the omnibus grou nd is raised h as been discussed in cases including

p. 6Source page 6Tuakwa v Bosom [2001-2002] SCGLR 61 ; Djin v Musah Baako [2007-2008] SCGLR 686 and Oppong Kofi & Others v Attibrukusu 111 [2011] SCGLR 176. From the evidence on record, the Appellant filed its notice of appeal against the decision of the Commissioner General together with other processes at the registry of the Court belov-.r on 8th January, 2018. The list of all the processes filed together 'INith the notice of appeal at the Court below were listed by the lawyer for th e Appellant and are fou nd in pages 58 and 59 of the record of appeal. The first process mentioned is '' 1. List of documents to be relied on at the hearing of this appeal.., The said process is contained in pages 30, 31 and 32 of the record of appeal and was labelled as exhibit ''C". Exhibit "C" was duly signed by one Alfred Ntiamoah, an Assistant Commissioner on 4th July, 2010. The said Alfred Ntiamoah signed it on behalf of the Commissioner General an.d no objection \!\'as raised to its incl usion to the record of appeal. From exhibit "C" at page 32 of the record of appeal, there is evide n ce that Appellant made two installment payments before it filed the notice of appeal. From the part of exhibit "C'' captioned Revised Assessment" , the ,vithholding tax was GH<!: 927,453.05 out of v,"hich the Appellant made a part payment of GH<r54,92 l.26 . The part payment made reduced the tax to GH¢ 872,531.79. Thirty percent penalty (GH~ 261,759 .54) ,vas added to the outstanding amount of GH<t 872 ,531.79 which brought the Appellant's indebtedness to GH~

p. 7Source page 71,134,291.33. The outstanding tax of GH¢ 1,134,291.33 was added to the corporate taxes of GH~ 457,845 .83 and thereby brought its total tax indebtedness to GH¢ 1,592,137.16. The Appellant made a further payment of GH¢ 506,744.80 after audit to the Respondent which reduced its outstanding tax arrears to GH¢ 1,085,392 .36. The Appellant paid an amount of GHc 561, 666 .59 out of the total tax indebtedness of GHc 1. 647,058.19 representing 34.1 percent of the debt. There is sufficient e\'idence on record to prove that the Appellant paid 34. l percent of its total indebtedness to the Ghana Revenue Authority before filing of the appeal b efore the Court below . The judge at the Court belov, failed to examine all the records filed together by the Appellant and thereby arriving at a \\Tong conclusion. It is dishonesty 011 the part of the Respondent to dispute payment made by the Appellant when it had used the payment received from the Appellant to prepare Audit Tax Report on the Appellant between 20 14-201 6 years of assessment. To buttress the dishonesty demonstrated by lawyer for the Respondent. he made the following statement in his written submission: "Having failed to furnish the court with evidence of compliance with the mandatory provisions of the roles of court, the appellant cannot be heard to belatedly say that the payment is made when the assessment was made represents compliance with the law. The payment could well have been

p. 8Source page 8made because the appellant admits liability in respect of that amount ." Lawyers must know that they owe a duty to the Republic of Ghana, the courts, their clients and their profession and shal l not suppress information on records with the sole aim of taking advantage of the party of the opposing side. It \·vas \vrong for counsel for the Respondent to deny a payment made to his client by the Appellant and had been used by his said client to prepare a Revised Audit Rep ort for the Appellant. \Ve find from the evidence on record that the Appellant paid more than a quarter of the assessed tax before filing the appeal. The next issue to be resolved is ,;,~:hen should the payment of at least quarter of the a1nount payable in the first quarter of that year of assessment is to paid. Order 54 rule 4of C.I . 4 7 prescribes as follo,;,:vs: "1. An aggrieved person who has filed an appeal against an assessment, decision or order of t he Commissioner under n.1.le 1 of this Order shall , pending the determination of the appeal, pay an amount not less than a quarter of the amount payable i n the first quarter of that year of assessment as contained in the notice of assessment . 2. An appeal shall not be entertained by a court

p. 9Source page 9under these Rules unless the appellant has paid the amount set out in subntle (1) of this ntle ." A purposive interpretation is required to construe provisions of C.I.4 7 as has been clearly stated in Order 1 rule (2). The provision requires judges to interpret the Rules to achieve speedy and effective justice that ·v.rill avoid delay and unnecessary expense to ensure that all matters in controversy are h eard and detennined effectively. The combined effect of Order 54 rule 4(1) & (2) is that the payment of the quarter of the amount payable for that quarter may be paid before the appeal is filed . or may be filed sii.uultaneously ,,-ith the appeal or after the app eal has been filed . HoweYer, the court v:ill not haYe jurisdicti on to entertain the appeal until one quarter of the amount payable within the first quarter is paid. It was therefore wrong when the judge of the court below held that the notic e of appeal v,-as ,-oid for absence of payment of the amount required to be paid under Order 54 of C.I . 4 7. The interpretation by the Court below runs contrary to the purpose of the law and would be set aside. The purpose of the la,v is to ensure that an amount of not less than a quarter of the assessed amount for the first quarter shall be paid before the court shall be seised v.-ith jurisdiction to proceed ,,,ith the appeal. Therefore , an appeal which has been filed ,,·ithout the payment of a quarter of the assessed amount for the first quarter shall not be entertained by the Court but shall not automatically render the appeal void unless an application for failure to comply \\·ith

p. 10Source page 10Order 54 of C.I . 4 7 is brought by the Respondent . The grounds "A" and "C" of the appeal succeed after having satisfied ourselves that the Appellant paid 34.1 percent of the assessed tax for the first quarte r of that year's assessment but the court below failed to take it into consideration and therefore arrived at a wrong conclusion . We are satisfied that there is no hard and fast rule about payment of quarter of the tax assessment provided it v.-as paid before or at the tin1e of filing the appeal or after the notice of appeal has been filed but the High Court \Yill not have jurisdiction to entertain the appeal until such payment is n1ade. The appeal filed by the Appellant \,-as valid and the court belmY \\-as therefore seised with jurisdiction to entertain same. Vle no\:v address ground "C'' of the appeal v,·hich in\·ites this Court to discuss the legal effect of the royalty payments made by the Appellant to Beiersdorf AG (BDF) . The Appellant entered into an agreement 'IXith Beiersdorf AG for the use of the Ni\·ea Brand and pursuant to the said agreement the former paid some royalties to the latter. The trial High Court judge rightly found that the agreement between the Appellant arid Beiersdorf AG ,,·as in substance technology transfer agreement and there will be no need to discuss it again. The Commissioner General disallov.-ed all the royalty payments the Appellant made to Beiersdorf AG and taxed the amount as part of profits earned by the Appellant . The Appellant claims to have legitimately made those royalty payments to Beiersdorf AG based on technology transfer agreement it entered into with Beiersdorf AG. The Comm issioner

p. 11Source page 11Gen eral on the othe r h and d isallo wed the payment s made and treat ed it as profit a nd taxe d it under the Income Tax Act, (Act 896). In come Tax in Ghana is mainly regulat ed by the Income Tax Act, 2015 (Act 896 ), Income Tax (Am endment) (No. 2) Act, 20 16 (Act 924) and the In con1e Tax Regulation s , 2016 ( L.I. 2244). Sectio n 9 of the Income Tax Act, Act 896 is on the residual deductio n rule which is the subject matte r of this appeal. It prov ide s t hus: "1. A person who is ascertaining the income of that person or of another person from an investment or business conducted for a year of assessment or for a part of that year shall deduct from the i ncome , an expense to the extent that that expens e is w holly, exclusively and necessarily incurred by the person in the production of the from the investment or business during the year . 2 . A deduction shall not be allo w ed under subsect ion (1) for an expense that is of capital nature. 3. For the purposes of this section ,'' expe nse that is of capital nature " incl udes a n expense that secures a benefit that lasts for more than t w elve months. " The ques tion before this Court to resolve is \Vhether or not the royalty payments m ade to Beiersdorf AG ,Nas an expense \;vhich

p. 12Source page 121s wholly , exclusi vely and necessary incurred incurred by the Appellant in the production of the income from the busi ness during the year. The Appellant's position is that to enabl e it sell and distribu te Nivea branded cosmetics in Ghana, it ente red into an agreement ,vith Beie rsdorf AG to use Nivea brand in Ghana and was therefor e required under the contract to pay royalties . The agreement made betw een the Appellant ,vas made on 1st February, 2012 and captioned "Distribution Licence Agreeme nt". Article 3 of the said agreement v,:as on tran sfer of marketing and managen1ent know-how from Beiersdorf AG to the Appellant . The Distributi on Licence Agreem ent v,:hich forms part of the record of appeal was not registered under the Ghana In\'estment Promotion Centre Act, 2013 ( Act 865) and according to the Respondent, the parties to it cannot take benefits and incent ives under that Act as well as under the Income Tax Act, Act 896 . The Respondent did not dispute the fact that the treatment of royalties as expenditure wholly exclusively and necessa ry incurred but it violated the Ghana Investn1ent Promotio n Act, 20 13 (Act 867) . From exhibit GRA '3' at pages 112 and 113 the respo ndent stated its position on the effect of failure to register a technology trans fer agreement as follows : "We are unable to disagree to the treatment of royalties as expenditure wholly, exclusively and necessarily incurred, however, the treatment violates the Ghana Investment Promotion Act 2013 (Act 865) because you

p. 13Source page 13have not registered the agreement with the Centre. It should interest you to know that Ghana Revenue Authority has been mandated by Revenue Administration Act 915 section 109 to administer part of GIPC Act . The GIPC Act states in section 41( c) that pena lty for non-registration of the a greement mand a tes the Centre to order the paym e nt or part payment to the a ppropriate agency of fees , taxes , dut ies and other charges in respect of benefits granted to the enterprise . You will agree with us that charging royalties against profit is a way of reducing taxes that s hould otherw is e be paid to the state . We also observed t hat you relate the treatment of royalties to transfer pricing rules "(arms length principle)". We beg to differ because the TPR does not condone offensiv e transactions w hich attr act penalty under the GIPC law. Flow ing from the above we are unable to grant your request to reverse the transaction". The basis for the disallowance and surcharging of the profits to the Appellant and its contracting party by Respondent v,~as that the Appellant and its contracting party cannot take benefit under the Ghana Investm ent Promotion Centre Act. Act 865 by the fact that the technology transfer agreement bet\:veen them was not registe red unde r it. Section 37 of Act 865 provides that an

p. 14Source page 14enterprise may enter into a techno logy transfer agreement that the enterpr ise considers it to be appropriate and such agr eement shal l com e into forc e on th e date of its registration . The releva n t part of section 37 of the Act provides as follov:.-s: "{l) An enterprise may enter into a techno logy transfer agreement that the enterprise con siders appropr iat e for the enterprise. (S)A t e chnology t ransfer agreement reg iste re d under this Act comes into force on the date of the reg istr ation. " Therefore, for an enterprise to benefit under technology transfer agreement under Act 865, the agreement should have been registered under it. From the evidence on record, the appellant did not register its technology transfer agreement under Act 865 and cannot take benefits and incentives under it. To our mind, it is the interpretation given to section 26 of Act 865 by the parties herein that has brought about this appeal. Section 26 (1) of Act 865 provides thus: "An enterprise registered by the Centre is entitled to the benefits and incentives that are applicable to an enterprise of a simi Zar nature under the Internal Revenue Act, 2000 (Act 592)Value Added

p. 15Source page 15Tax Act, 1998, ( Act 546) and under, Chapters 82,84,85 and 98 of the Customs Harmonised Commodity and Tariff Code Schedule to the Customs , Exc ise a nd Preventiv e Service(Management )Act, 1993 (P.N.D.C .L.) 330) and any other relevant law." The above provision is clear and unambiguous as it provides that enterprises registered under Act 865 are entitled to benefits and incentives ,:vhich enterprises registered under other lav,-s including the Internal Re,-enue Act. Act 592 maY also benefit under those enactments. Hov,·e,-er, it does not provide that enterprises regisrered under those la,Ys including tl1e Internal Revenue Act, Act 592 cannot in addition to any benefits and incentives conferred on them by their respective Acts of Parliament take any incentives and benefits under Act 865. It is trite to say that section 136 of the Income Ta.x Act. Act 896 repealed Act 592 and the former is the predecessor enactment of the latter. Therefore, any reference to Act 592 is no,-v referable to Act 892. The position of the law is that an enterprise registered under Act 892 may take any benefits and incentives under it and may also be entitled to other benefits and incentives under Act 865 provided it is registered under it. An enterprise registered under the Income Tax Act, Act 896 shall be entitled to benefits and incentives under it and \:\·here it is not registered under the Ghana Investment Promotion Centre Act. Act 865. it shall not

p. 16Source page 16benefit under it. We hold that the Plainti ff is en titled to benefits and incentives under the Income Tax Act, Act 896 but cannot in addition benefi t under the Ghana Investment Promotion Centre Act, Act 865 as it did not register its technology transfer agreement under it in accordance 'i.l\ith section 37 subsections (1) and (5). The interpretation given to section 37 by the Commissioner General and affirmed by the Court below is \\Tong as section 26 of Act 865 is on additional benefits that enterprises registere d u n der laws including the Income Tax Act may benefit if registered u nder the Ghana Investment Promotion Centre Act . The general principle of law under purposive interpretation is that whe n inte rpretin g a statute a..11. account must be taken of the \,:ords of the Act according to their ordinary meaning as \\-ell as the context in which the words and considerat ion is given to the subject matter, the scope, the purpose and to some extent the background of the .i\ct. There is no ambiguity as the meaning to be given to section 26 of Act 865 and the Court is not required to use external aids as provided by section 10 ( 1) of the Interpretation Act, 2009 ( Act 792). Furthermore, the language of the Act is neither ambiguous or obscure and external aids cannot be used under the guise of section 10(2) of the Interpretati on Act, Act 792. The only meaning that could be deciphe red from section 26 of Act 865 is that an enterprise registered under the Incom e Tax Act, Act 896 or the other laws mentioned in it could get other bene fits and incentives under Act 865 1n addition to those benefits and incentives they are entitled to under those laws.

p. 17Source page 17Some of the benefits and incentives an enterprise registered under Act 685 have been outlined in section 32 of the Act and it includes guaranteed unconditional transferability in freely convertible currency of dividends , net profits , loan servicing where a foreign loan was obtained, and fees and charges in respect of technology transfer agreement subject to the Foreign Exchange Act, 2006 (Act 723) and the Regulations and Notices issued under it. The Appellant and its contracting party for the technology transfer agreement are entitl ed to any benefits and incentives under the Income Tax Act but are not entitled to any incentives and benefits under the Ghana Investment Pro1notion Centre Act as they did not register under it in accordance v,:ith section 37 of the Act. Ground "B" of the appeal succeeds ,,·ith respe ct to the v.Tong disallowanc e and surcharging of the Appellant of the incentives and benefits conferred on it under section 9 of the Incom e Tax Act, Act 896. Sanctions imposed on enterprises under Section 41 of the Ghana Investment Promotion Centre Act, Act 865 relates to offences committed under the Act and not the Income Tax Act. Counsel for the Appellant invited the court to use generalia specialibus non derogant rule to interpret the seemingly confus ion betv,:een the Income Tax Act and the Ghana In\·estment Promotion Centre Act ,vith respect to the effect of failure to register an enterprise under the latter Act. The la.tin maxim is used ,,·here tv:o provisions of an enactm ent or two legislations conflict each other

p. 18Source page 18and th e confli ct is irreconcilable. In that sen se, the conflict is reso lved in favour of the special legisla tion. \Ve are sati sfied that th ere is no conflict between the two enactments for us to use the implied rule or the generalia specialibus non derogent ru le to res olve it and we shall decline to u se it. 1\1axims and canno n s a re u sed as good savants when they are necessary and not at all times . The appeal against the failure to pay the tax which the Appellant should h a,·e v,ithheld or withheld but failed to pay to the Respond ent fails . Subject to the above the appea l succeeds in respect of grounds "A". ''B" and "C". The parties are to go into account ,,iith in one month fro 1n toda,· to dete rmin e the app ropriate tax payable in terms of the judgem ent of this Court . HENRY KWOFIE , J .A: (sgd.) DENNIS ADJEI JUSTICE OF THE COURT OF APPEAL I agree (sgd.) HENRY KWOFIE JUSTICE OF THE COURT OF APPEAL

p. 19Source page 19POKU-ACHEAMPONG, J.A: I also agree COUNSEL (sgd.) ALEX B. POKU-ACHEAMPONG JUSTICE OF THE COURT OF APPEAL • DR. h."\1/EKU AINUSON FOR APPELLANT • :t\1R. ODARTEY LAMPTEY FOR THE RESPONDENT