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Guyana’s laws do not permit country paying taxes for oil companies – Chris Ram
-How can sanctity of contract play a role in anything that is riddled with illegality?
Kaieteur News– In the petroleum industry, there are several fiscal measures used by governments to attract investors to explore for oil in their backyard. But in selecting the most suitable measure, countries ought to take into account, the local factors and conditions subject to one overriding condition: they can only be granted if permitted by the tax and other laws of the country.
It is on this premise that Chartered Accountant and Attorney-at-Law, Christopher Ram articulated in his most recent writings that Guyana made a colossal blunder when it included in the Stabroek Block Petroleum Agreement, a measure called the Pay On Behalf (POB) system.
According to Ram, under such a system, the government pays the Income Taxes of ExxonMobil and its partners, Hess Corporation and CNOOC Petroleum Guyana. The government he explained opted to pay these taxes out of its take of the oil revenues received on an annual basis. In his perusal of the oil companies’ 2020 financial statements, Ram found that the Government has to find some $5.391 billio
Chartered Accountant and Attorney-at-Law, Christopher Ram.
n to pay the tax liability of the two partners CNOOC and Hess alone for 2020. Both entities he noted were able to walk away as a result with a pre-tax profit totalling $16.175 billion.
Ram said the huge problem, which he has with this arrangement is that it is conflict with two of the nation’s laws, specifically the Petroleum Exploration and Production Act Cap. 65:04 (PEPA) and the Financial Administration and Audit Act (FAA).
The Chartered Accountant was keen to note that Section 51 of the PEPA provides for the modification of four Acts in respect of licensees under a production sharing agreement. The Acts are the Income Tax Act, the Income Tax (In Aid of Industry) Act, the Corporation Tax Act and the Property Tax Act, which extends to the Capital Gains Tax Act as well. These modifications say nothing about these companies being exempted from these taxes or the burden of paying such taxes being transferred to the people of Guyana.
He further noted that Section 10 of the PEPA says agreements must be in accordance with the Act. In other words, Guyana’s Production Sharing Agreements should not and cannot lawfully include any provision regarding the POB formula since it would violate the FAA.
In a telephone interview last evening, Ram noted that while the primary Agreement signed by former Natural Resources Minister, Raphael Trotman contained the underlying illegality including an extension of the benefits to persons not entitled thereto, the Order made by former Finance Minister, Winston Jordan to legitimise the POB by way of an Order in Parliament, did not cure, but rather compounded the illegality.
The Chartered Accountant said, “The Granger Administration which signed the 2016 Agreement, and the PPP/C Administrations before and after it, will have an enormous task of justifying whether and how a modification or inapplicability of a tax law can amount to a reversal of a statutory obligation whereby a tax liability payable to the State ends up with the Government paying that tax.”
The lawyer further noted that the FAA in particular appears to raise an insurmountable hurdle. In this regard, he articulated that it requires any remission, concession or waiver to be expressly provided for in a tax Act or subsidiary legislation. Since the POB is not part of the formula, Ram categorically stated that its use in the Stabroek and similar agreements are also illegal.
In conclusion, the Chartered Accountant said it seems clear that the Stabroek Block Agreement contains several provisions on taxation, which are not consistent with the nation’s laws. And in such circumstances, he said it begs the following question— How can sanctity of contract play a role in anything that begins and ends with illegality?
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