They also prayed that the Tribunal finds that the applicants are entitled to reinvestment relief to a tune of 16.67% interests in EAs 1, 2 and 3A which is the sum of US$ 164,721 so expended for purposes of reinvestment. The applicants in short prayed that the Tribunal makes new assessments of nil liability on each of the applicants. In the event of such, they prayed that the 30% deposit by them on filing the application be refunded to them.   In its reply, the respondent submitted that this matter is an attempt by the applicants to avoid paying income tax on an enormous gain resulting from the largest transaction in the history of Uganda, the sale of interests worth US$ 2.9 billion to Total and CNOOC.

It argued that this is through the inappropriate manipulation of figures and distortion of the Uganda tax law by the applicants.   On Issue 1.1, the respondent submitted that Article 23.5 of the EA2 PSA deals with what is referred to as transfer taxes which are distinct from taxes on income or gains resulting from transfers and is therefore irrelevant to the taxability of capital gains. The respondent argued that income or gains tax applies only to the extent that income of gain is actually realised whereas a transfer tax is charged on a transfer whether a gain or loss is realised and irrespective of whether consideration is paid for the transfer. The respondent argued that the language of Article 23.5 is concerned only with taxes that have “assignment or transfer” as the base of the tax. The respondent gave examples of transfer tax exemptions. It also referred to provisions of other countries – Angola and Equatorial Guinea, similar to Article 23.5 of the EA2 PSA.

The respondent submitted that provisions purporting to provide exemptions from tax must be narrowly construed. The respondent cited the authorities of Babibasssa v Commissioner General Uganda Revenue Authority [2013] UGCOMMC 21, Helvering v Northwest Steel Rolling Mills, Inc. Supreme Court (United States), 311 U.S. 46, Commissioner of Internal Revenue v Jacobson, Supreme Court (United States), 336, U.S. 28, Mayo Foundation for Medical Education & Research et. al. v United States, Supreme Court (United States), 131 S. Ct. 704, Edward Maughan (Surveyor of Taxes)  v The General Trustees of the Free Church of Scotland, Court of Session (Scotland), (1893) 20R. 759.   The respondent referred to the testimony of Mr. Ernest Rubondo, and Mr. Moses Kajubi, who supported the position that Article 23.5 of the EA2 PSA did not confer a tax exemption. The respondent argued that there is no evidence on record that contradicted this testimony.

The respondent also referred to the 2010 SPA which was signed by the applicants and Heritage. The said SPA defined transfer tax to mean “stamp duty payable under the laws of the Republic of Uganda”. Non- transfer Taxes were defined to mean “any taxes other than Transfer Taxes.” Under Clause 7.1 of the Agreement, all transfer taxes were to be borne by the buyer. Under Clause 7.2 any Non-Transfer tax including any capital gains tax shall be borne by the seller. The SPAs executed between the applicants, CNOOC and Total maintained the clear distinction between transfer taxes which was to be paid by the buyer and capital gains tax by the seller.   As regards transfer tax, the respondent cited J. Rogers-Glabush, IBFD International Tax Glossary 6^th Rev. ed., IBFD 2009 which perceives transfer tax as a “general term to refer to a tax levied on the transfer of goods and rights e.g. purchase and/or sale of securities and immovable property…”  It also cited Black’s Law Dictionary 9^th ed. 2009, 1597 which defines transfer tax as: “a tax imposed on the transfer of property, exp. by will, inheritance, or gift”, while West’s Encyclopaedia of American Law 2^nd ed. 2008, 79 defines it as “a charge imposed by the government upon the passing of title to real property or a valuable interest in such property.” The respondent contended that under the OECD, taxes on income, profits and capital gains are separated from taxes imposed on other bases including taxes on financial and capital transactions. The respondent contended that transfer tax is a type of “indirect tax” while income or gains tax constitute “direct taxes”.

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