(a) When a person parts with the ownership of a petroleum right is referred to as assignment of interest in a petroleum agreement or disposal of petroleum rights.

Tax treatment is as follows:

1. When assignment occurs before the date production commences, the consideration is deducted from the pool balance of petroleum expenditure being incurred before production.
2. When a petroleum right is assigned when production commences and thereafter, the gain from the realisation is added to petroleum income and taxed at 35 percent.
3. Where a petroleum right is assigned when production commences, the written down value of the capital allowance expenditure of the assignor is transferred to the assignee. Where it is only a part of the right that is assigned, the written down value of the capital allowance expenditure is apportioned between the assignor and the assignee in proportion to the percentage retained and assigned accordingly.

Indirect Assignment – When the underlying ownership of an entity that holds a petroleum right in Ghana changes by 5%, that entity is deemed to have disposed of a proportionate interest in the asset in Ghana. The consideration for that disposal is the consideration received or receivable, or the market value of the proportion of the right treated as disposed of, whichever is higher. The book value of the proportion of the right disposed of is deducted from the consideration or the market value to arrive at the gain or loss from the disposal.

Capital allowance not affected because the assignor is deemed to have disposed of a proportionate interest in the petroleum right and reacquired it at the same cost.

(b) (i) Computation of Capital Allowance

Underlying Assumption In accordance with the provisions of the Income Tax Act, 2015 (Act 896), all capital and revenue expenditure incurred in respect of exploration and development prior to the commencement of commercial production are required to be place in a single pool and only granted capital allowance from the year commercial production commenced. Under terms of Ghana’s petroleum agreements, the State (GNPC) does not pay exploration cost in respect of its Initial Interest and Additional Participating Interest. Exploration cost is payable by Deep Sea Ventures and Coastal Explorations and should therefore be shared according to the ratio 45:40.

Total Exploration Cost: $250,000,000 + 15,000,000 + 5,000,000 + 100,000,000 = US$370,000,000 Assumed bonus is signature bonus. Under Act 896 Bonus paid is capitalised. This is paid by the companies. The state therefore has no share in this cost and therefore the ratio for sharing the Bonus paid should be same as that of exploration cost (45:40) (1 Mark)

Apportionment of Exploration Cost US$370,000,000 Deep Sea Ventures 45 / 85 × 370,000,000 = 195,882,353

Coastal Explorations 40 / 85 × 370,000,000 = 174,117,647

Total 370,000,000

Under terms of Ghana’s Petroleum Agreement, the State (GNPC) does not pay development cost in respect of the Initial Interest, but pays in respect of the Additional Participating Interest. Development cost is therefore paid by Deep Sea Ventures, Coastal Explorations and the State (GNPC) in respect of the Additional Participating Interest and should therefore be shared according to the ratio 45:40:5.

Total Development Cost: $2,000,000,000 + 1,500,000,000 + 100,000,000 + 430,000,000 = 4,030,000,000 The interest on loan contracted by the operator on behalf of the parties is in respect of development and therefore should have the same sharing ratio for development cost.

Apportionment of Development Cost US$4,030,000,000 Deep Sea Ventures 45 / 90 × 4,030,000,000 = 2,015,000,000

Coastal Explorations 40 / 90 × 4,030,000,000 = 1,791,111,111

State (GNPC) 5 / 90 × 4,030,000,000 = 223,888,889

Total 4,030,000,000

Capital Allowance Computation Deep Sea Ventures Capital Expenditure – 2,210,882,353 (195,882,353 + 2,015,000,000)

Capital Allowance Computation Coastal Explorations 1,965,228,758 (174,117,647 + 1,791,111,111)