Midroc Comes Out Victorious in Tax Dispute

Midroc Gold claimed that the Authority imposed 112 million Br extra corporate tax

Justices of the Cassation Bench of the Federal Supreme Court settled the 112 million Br corporate tax dispute between the Ethiopian Revenues & Customs Authority (ERCA) and Midroc Gold Mine Plc in favour of the latter.

The case commenced when ERCA requested Midroc to pay 605 million Br corporate tax for the year 2013. ERCA computed the tax based on two calculations as the proclamation of mining income tax was amended by midyear, in July 2013. It reduced the mining corporate tax to 25pc from 35pc.

ERCA calculated the tax for the first seven months with 35pc and remaining months with the new rate.

Displeased with ERCA’s tax amount, Midroc took the case to the Tax Appellate Commission claiming that ERCA made a miscalculation in the tax amount using two rates and subjected the company to an extra 112 million Br tax.

Midroc pleaded the Commission, an arbitrary established by the government to resolve tax-related controversies with the authority to confirm, reduce, or annul any assessment appealed against it, to reverse ERCA’s decision made on December 14, 2014.

With its plea, Midroc claimed that the amended proclamation did not specify that the new rate was also applicable in the year of the amendment. It also attested that corporate tax is calculated from the annual financial report of a company and not by breaking it down into months.

Midroc also argued that the amendment was not applicable to them as taxation for mining follows the Gregorian calendar, unlike the other tax systems that are calculated based on the Ethiopian fiscal year.

After reviewing the case on June 2, 2015, the Commission ruled in favour of Midroc instructing the Authority to recalculate the company’s tax with 25pc. In its ruling, the Commission reasoned that the new amendment could only work had it been approved after the end of that specific year, but that was not the case.

Dissatisfied with the Committee’s ruling, ERCA appealed to the High Court on September 14, 2015, demanding the reversal of the Commission’s ruling stating it had a fundamental error of law. On January 12, 2016, the court rejected ERCA’s claim and sustained the Commission’s decision.

ERCA proceeded to the next level and appealed to the Supreme Court citing a similar claim that it attested to the lower court. The Supreme Court also rejected the request and upheld the ruling of the Commission and the Federal High Court on May 30, 2016.

ERCA appealed to the Cassation Bench of Supreme Court on July 25, 2016, claiming that the lower courts made an error of law in supporting the decision of the Committee. But the five judges of the Bench also ruled in favour of Midroc.

Midroc was established in the late 1990s by Sheik Mohammed Al-Amoudi and his wife, Sofia Salah Al-Amoudi.

MIDROC Gold Mine is organised under the Office of the Chief Executive Officer of Midroc Ethiopia Technology Group. The company has four operation units: Mine Operations, Heavy/Light Duty Maintenance Operations, Metallurgy Operations, Exploration; and seven service units.

In its ruling, the Cassation Bench pronounced that, Midroc works with the accounting principle where the aggregate income is assessed annually making it difficult to divide the turnover and expenses into months. It also asserted that the proclamation did not have a specific enactment date.

The four-year-old case was finally closed on October 10, 2017, by order of the Cassation Bench to ERCA. The tax authority was commanded to recalculate the 2013 corporate tax of Midroc with the 25pc rate, making it 494 million Br down from 605 million Br.

Yohannes Woldegebriel, a lawyer who specialises in tax-related issues, agrees with the ruling of the Cassation Bench stating the company’s turnover is justified by the end of the year, not on a monthly basis. But still, he believes that proclamations in Ethiopia are effective as of their publication on Negarit Gazeta, contradicting the Cassation Bench’s point of the ruling.

Both parties, the tax authority and the mining company, were unavailable for comments despite Fortune’s efforts to reach them.


Published on Oct 30,2017 [ Vol 18 ,No 914]



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