Executive summary

The Ghana Revenue Authority (GRA) has issued a directive for the implementation of the Additional Oil Entitlement (AOE). Consequently, the GRA has designed an AOE return to enable upstream petroleum contractors/operators (the Contractors) to comply with the AOE requirements in their respective petroleum agreements (PAs).

This Global Tax Alert highlights the key matters set forth in the directive.

Detailed discussion

The Head of the Petroleum Unit of the GRA, in a letter dated 20 June 2024, informed Ernst & Young Chartered Accountants (EY Ghana), among others, of the implementation of the new AOE return filing. The GRA stated that the design of the return was completed following consultations the GRA had with the relevant stakeholders.

Background

Article 10 of the model PA, which has been replicated (with the necessary modifications) in the PAs, entitles the Government of Ghana (GoG) to receive a portion of a Contractor's share of crude oil from each development and production area based on the after-tax inflation adjusted rate of return (ROR) that the Contractor achieves with respect to the development and production area as of a particular time.

The ROR is calculated on the Contractor's net cash flow (NCF) and is determined separately for each development and production area at the end of each quarter in accordance with a specified formula in each PA.

Generally, the AOE is calculated based on the Contractor's best estimates of the amounts that may be due the GoG, with any adjustments following the end of the calendar year to be settled under the procedures provided for by the PA. The final AOE computations must be made within 30 days following the filing of the Contractor's annual tax return.

The GoG and the GNPC have the right to elect that the AOE receivable be settled in cash in lieu of crude oil. Upon election to receive the AOE in cash, the GOG shall notify the Contractor of the election within 90 days of each lifting period (i.e., the period within which crude oil is lifted by petroleum contractors as outlined in a petroleum agreement).

GRA requirement to file AOE return

The directive requires Contractors to:

1. Complete the AOE return from the beginning of their commercial operations in Ghana up to the 2023 year of assessment.
2. Submit the completed returns, including that of 31 December 2023 (which was due for submission by the end of April 2024), by 30 September 2024.

Components of AOE return

The main components of the AOE return are:

• The petroleum revenue that the Contractor received for the relevant period as determined under each specific PA
• The corporate income tax that the Contractor paid for the relevant period as determined under each specific PA
• The petroleum costs that the Contractor incurred for the relevant period as determined under each specific PA