Kiana Wilburg, Kaieteur News

GEORGETOWN
EnergiesNews.com 10 11 2022

ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited (EEPGL) has moved to the High Court to appeal a $4,223,604,522 withholding tax assessment issued to it by the Guyana Revenue Authority (GRA) for the period January 2020 to July 2021.

According to the court case perused by Kaieteur News, on or around June 15, 2017, the Appellant said it was granted a Petroleum Production Licence to produce oil in the Stabroek Block located approximated 120 miles offshore Guyana.

GRA Commissioner General, Godfrey Statia

The oil and natural gas to which the Appellant’s licence relates is located in water depths of approximately between 1000 – 3000 metres in depth. Consequently, in order to produce oil offshore Guyana in furtherance of the Appellant’s licence, the Appellant engaged the services of Guyana Deep Water UK Limited (GDWUL).

Kaieteur News understands that GDWUL is a limited- liability company duly incorporated and registered in the United Kingdom and whose registered office is situated at Lot 7 Albemarle Street, London, WIS 4HQ, United Kingdom. That company, based on Kaieteur News’ research, is an affiliate of SBM Offshore, the Dutch company which has been building Guyana’s oil ships.

The court case states that GDWUL is and was at all material times the registered owner of the Liza Destiny Floating Production Storage and Offloading (FPSO) vessel.

The Appellant said that it has a Charter Agreement No. LIZ-CM- C-16-05 with GDWUL effective January 1, 2017.  At all material times, EEPGL said the FPSO has been used by GDWUL to provide certain specialised technological services and/or functions it requires in its petroleum production operations at the Stabroek Block oilfield. It said these include the treatment and preparation of crude petroleum for export, and the treatment and processing of associated gas and water recovered from its petroleum reservoirs at the Stabroek Block oilfield into a condition where they can be re-injected into the said reservoirs.

EEPGL contended that these processes are highly skilled and technical ones, the provision and carrying out of which by the FPSO are vital for its efficient production operations in the Stabroek Block oilfield. Importantly, EEPGL said payments are made under the Charter Agreement to GDWUL for its services.

The company said it recognises and acknowledges that the United Kingdom of Great Britain and Northern Ireland and Guyana have entered into a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and the encouragement of international trade and investment. That agreement was signed in August, 1992.

Under Article 14 of the Convention, EEPGL through its lawyers said technical fees arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

However, under Article 14(2) of the Convention, such technical fees may also be taxed in the Contracting State in which they arise and according to the law of that State, provided that if the recipient is the beneficial owner of the technical fees, the tax so charged shall not exceed 10 percent of the gross amount of those fees.

As set out above, the company said GDWUL is registered in the United Kingdom, and is a resident of that country within the definition prescribed under Article 4 of the Convention. The income paid by the Appellant to GDWUL for the technical services provided by the FPSO and remitted to the Appellant in the United Kingdom are beneficially owned by GDWUL, and subject to withholding tax.

In accordance with Section 39(1) of the Income Tax Act and Article 14(1) and 14(2)(a) of the Convention, the Appellant said it deducted withholding tax at the rate of 10 percent of the consideration paid to GDWUL and duly paid this sum over to the Respondent.

By letter dated January 14, 2022, the case stated that the Respondent wrote to the Appellant observing that for the period January, 2020, to July, 2021, the Appellant had made payments to GDWUL under the Agreement, totalling $42,236,045,220 as charter and lease payments.

The Respondent’s letter further stated that the Appellant had deducted and remitted 10 percent of these payments to GRA as withholding tax based on the Convention, rather than 20 percent as is required by the Third Schedule to the Act. It also stated that income from rentals was not covered by the Convention. The Respondent’s letter therefore demanded payment of the sum of $4,223,604,522 as the unpaid balance of withholding tax due on payments to GDWUL by the Appellant.

EEPGL, however, disagreed with GRA’s reasoning stating that under Article 14(1) and (2) of the Convention, the beneficial owner of the technical fees was not chargeable to tax in excess of 10 percent.

It also indicated that the term technical fees had been comprehensively defined in Article 14(3) of the Convention as – “payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature”.

The Appellant’s letter further detailed how these services provided by the FPSO were of a technical nature, namely that the FPSO [Liza] Destiny is a technologically cutting-edge purpose built facility that performs highly specialised and technical processes for the Appellant.

The Appellant’s letter also indicated that if the Respondent would not recognise the categorisation of the payments to the Appellant as technical fees, they would then be amenable to classifying the payments as “other income” under Article 23 of the Convention.

GRA subsequently replied to the Appellant by a letter dated May 11, 2022, which contended, inter alia, that the payments the letter characterized as rental(s) of the FPSO did not constitute services of a technical nature. The letter further contended that Article 23 of the Convention only applied to income which is beneficially owned by the resident of the other Contracting State, and that the Respondent’s investigations had revealed that GDWUL was not the beneficial owner of the income paid to it by the Appellant.

The Respondent’s letter further informed the Appellant that if EEPGL wished to object to this and to request a review of its position, it may do so within 15 (fifteen) days of the date of the letter, in accordance with section 78 of the Act; that is, by the May 26, 2022.

EEPGL has since exercised its right to appeal in the High Court.

kaieteurnewsonline.com 10 10 2022