They therefore argued that it would be manifestly unfair for the respondent to be allowed to argue this new point. The applicants also argued that for there to be undivided interests, there have to be two or more joint owners. From the moment the TUL acquired Heritage interests it alone held the whole of the interests in those PSAs. From that moment there was no “tenants in common, there was no “co-ownership”, which concepts are in land law. The applicants argued that the Tribunal is not concerned with the disposal of land. The applicants submitted that the respondent was aware that they intended to sell Heritage interests since the drafts of the CNOOC/Total contracts were sent to the GOU and the respondent in October 2010. The applicants submitted that GOU approved the draft PSAs where Heritage interests were sold. The word “interest” was defined in the draft agreements to include the 16.67% interest of the original interests. The respondent issued its assessments knowing that the applicants were transferring Heritage interests.
The applicants contended that the respondent did not give any authority as why it is opposed to the “last in first out” accounting method. They also argued that there is no support in Uganda or elsewhere for applying any other rule in respect of the disposal of an undivided interest. As regards S. 89G of the ITA, the applicants argued that the cost base in respect of the Heritage interests comprises the Heritage gain less, if relevant, any “excess costs”. They are not seeking to “include the US$ 150,000,000 rather it is the respondent who should argue that such sum should be deducted from the Heritage gain as excess costs”. The applicants argued that there are no excess costs to date. The applicants argued that the respondent appears to be confusing the right to deduct expenditure under S. 89C with the deduction of excess costs from a transferee contractor’s cost base where it has disposed of its interest. The applicants submitted that S. 89C of the ITA limits the use of expenditure against profits from oil production but it does not cancel the relief in respect of a capital expenditure, in a computation of a capital gain under S. 52(6).
To them, what S.89G(d) states is that what must be deducted from the transferor’s gain is the excess costs up to the date of the disposal deductible by the transferee contractor. At the date of disposal, there being no cost oil, there are no “excess costs” that can be deducted from the Heritage gain. The applicants submitted that they are entitled to a deduction for their expenditure of US$ 320 million which was passed on to CNOOC and Total. As regards the respondent’s allegation that the applicants failed to substantiate the costs of US$ 320,545, 819 incurred as exploration costs, the applicants submitted that the said figure derives from communication between the parties in November 2012 and the tax returns for the year ended 31st December 2009, submitted in June 2012 and provided in the communication in November 2012.
The applicants referred to their computation where the applicants purchased their interests from Heritage at US$ 775 million for EA1 and US$ 575 million for EA3A from which they deducted the purchase price for the Heritage interests, US$ 773,134,258 for EA1 and US$ 573,635,740 for EA3A, producing a loss. The applicants contended that the respondent misread S. 22 of the ITA. It only relates to insurance situations. As regards the sale of Heritage interests, the applicants submitted that Heritage wanted to sell its interests to ENI. The applicants exercised their pre-emption rights to prevent this. The applicants wanted to acquire Heritage interests and as soon as consent was given to sell them off. Tullow, CNOOC and Total executed documents showing what that transaction was and the respondent issued assessment on capital gain on that basis. Hence there is no tax avoidance scheme. The applicants cited the case of Stanton v Grayton [1983] 1 AC 501 where the court focused more on what the agreement said. The question is: “how would a businessman see the transaction? Having regard to a businessman’s view, what one would conclude is that what were sold were Heritage’s interests.
In respect of reinvestment relief, the applicants argued that they are in principle, entitled to reinvestment relief under S. 54(1)(c) of the ITA. The applicants reiterated their position that the affidavits of Mr. McDade, Mr. Graham and Mr. Martin all showed that the applicants did not dispose off the 16.67% voluntarily. The applicants also presented slides to the GOU which indicated their desire to sell 50% interest. The applicants argued that involuntary should be widely construed. It does not “require force but rather an action taken by a person who has no choice”. The evidence shows that the applicants acted involuntarily. They only wished to dispose of 50% of their interests but the GOU pressed them to dispose of another 16.67%. They argued that they did not provide evidence of “force”, whether improper or proper, because force was not necessary. The applicants cited again the case of URA v Bank of Baroda HCT -00-CC-CA-05-2005 where it was held that “one has to look at the agreement itself to ascertain its true intention…” As regards the respondent’s argument that the Bank of Baroda case involved an agreement unlike the one before the Tribunal, the applicants submitted that S. 54(1)(c) does not provide any proscription as to the circumstances in which the involuntary act must take place. Secondly the disposal of the 16.67% was contained in an agreement, namely, the MOU and the SPAs.
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