A map showing Exploration areas (EA) 1, 2 and 3. Two thirds of this acreage was sold to CNOOC and Total in 2012 in a deal worth $ 2.9 billion. URA demanded Capital Gains Tax from the transaction, but Tullow objected, arguing that the agreements the company had signed with government exempted it from the tax.
Tullow Oil has revealed it will challenge yesterday’s ruling by the Uganda Tax Appeals Tribunal ordering the company to pay 407 million dollars in accumulated Capital Gains Tax resulting from the sale of its oil blocks to China National Offshore Oil Corporation (CNOOC) and Total in 2012.
Tullow appealed to the Tribunal challenging a tax assessment from the Uganda revenue Authority (URA) following the 2.9 billion-dollar transaction, arguing that the then Energy Minister, Syda Bumba had exempted the company from the tax.
However, the Tribunal yesterday ruled that the Minister did not have the authority to grant the said exemption.
“There was no enabling Act that empowered the Minister of Energy to grant exemptions or waivers or variations of taxes,” reads the ruling. Any such grant offended the tax provisions of the tax law, including the Income Tax Act.”
Tullow, which had already 142 million dollars (30 percent of the contested amount) in order to file the appeal, will now have to pay the balance within a month of the ruling or risk a 2% monthly penalty thereafter.
The company said it was “extremely disappointed” by the result, noting that the Tribunal had “erred in law.”
“We will now carefully consider all our options to robustly challenge this ruling,” said Aidan Heavey, Tullow’s Chief Executive.
Ugandans welcome the decision
David Mugenyi, the Acting Manager for Public and Corporate Affairs at URA told Oil in Uganda it was “the biggest case” the Agency has dealt with. “It shows that we had confidence in our judicial team to handle a case of such magnitude,” he said.
Civil Society leaders also applauded the development as a major victory for a developing country against ‘big business.’
“URA’s win over Tullow is evidence that big foreign companies’ reign over self-benefitting accounting practices can be countered and combatted by tax authorities in developing countries,” said ActionAid Uganda’s Arthur Larok. “We need our taxes for our own development, and all must comply to the rules we set.”
“The verdict is good news,” said Jane Nalunga, Head of Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) in Uganda. “Hopefully this can be the first step towards finally getting rid of these discretionary exemptions being dished out to foreign investors for whatever reason.”
Meanwhile, another case awaits hearing at the International Centre for Settlement of Investment Disputes in Washington D.C, where Tullow is challenging the Uganda government’s decision to levy 18 % Value Added Tax (VAT) on imported machinery and other supplies from which the company is supposed to be exempt.
Report by Beatrice Ongode and Flavia Nalubega
editor@oilinuganda.org