There is no legal basis for the Tribunal to hold that it should apply the FIFO accounting method.   The Tribunal shall apply the averaging method or what is more or less an equitable apportionment method. The Tribunal shall apportion the interests of what was acquired at different times and sold proportionally. This method was applied in the case of John K. McNulty et al. v Commissioner of Internal Revenue (supra) p. 6 where the court held that (which we repeat): “A taxpayer who owns two undivided one-half interests in property, received at different times, and disposes of an undivided one half- interest, is deemed to have disposed of 50 percent of each of the halves he owned.” Similar to the matter before us, the above case involved the sale of an intangible interest in immoveable property. The Tribunal notes that the above case was from a US Tax court which makes it persuasive. To ignore decisions from other jurisdictions may lead to the Tribunal groping in legal darkness in an area where there are no decisions from courts of record in Uganda. What is good for a goose in the US or UK is good for the gander in Uganda. The Tribunal notes that accounting methods and taxation principles used in some of these jurisdictions are similar to those applied in Uganda.   (b)  Expenses   Before the Tribunal can compute the gain of the applicants, it has to ascertain what expenses were incurred by the applicants and which of these should be brought into the cost base as permitted by the tax law.

In the agreed documents, the applicants’ financial statements for the years ending 31^st December 2009 and 31^st December 2011 were tendered in as exhibits A9, A10, A 21 and A22. The financial statements for the year ended 31^st December 2011, Exhibit A21, showed TUL’s costs included in the capital gains calculations for Blocks 1, 2 and 3A. These include interest expense of US$ 65,981,553, final completion payment of US$ 13,636,043, stamp duty on acquisition US$ 14,500,000, guarantee arrangement and commitment fees of US$ 46,549,850 and legal fees on Heritage acquisition as US$ 1,072,914. Interest on loan to acquire Heritage was put at US$ 103,017,401.   During the trial, the applicants’ witness, Mr. Inch, testified on the expenditures incurred by the applicants. He testified that the applicants sold their interest at a cost base of US$ 1.35 billion. The applicants incurred costs of US$ 129 million for the pre-existing interest. He said the cost base for the pre-existing interest in EA1 was US$ 28,272,501. The applicants incurred an economic cost of US$ 100 million and guarantee fees of US$ 46,061,058.

Mr. Inch testified that the total cost was US$ 840,408,344 for the Heritage interests in respect of Block EA1 and US$ 623,528,772 for EA3A. He testified that the applicants incurred a loss of US$ 175,577,251.   The applicants tendered in exhibit A40 (iii) a computation of the capital gains tax. The applicants’ exhibit put Heritage acquisition costs at US$ 840,408,344 for EA1, US$ 623,528,772 for EA3A bringing it to a total of US$ 1,463,937,116. For the pre-existing interests, the total amount was US$ 320,545,815. Exhibit A40(iii) put the guarantee fees at US$ 46,061,058 comprised of guarantee arrangement fees of US$ 31,800,000 and guarantee commitment fees of  US$ 14,261,058. Incidental expenses were broken down into US$ 46,061,058 for guarantee fees, legal fees of US$ 1,342,221, stamp duty of US$ 14,500,000 totalling to US$ 61,903,279. The total costs incurred by the applicants were put at US$ 113,429,096. The exhibit put a loss on Block 3 at US$ 20,987,930.

In his evidence, the respondent’s witness, Mr. Moses Kajubi, mentioned some of the expenses incurred by the applicants as; guarantees fee of US$ 31,800,000 comprising of guarantee committee fees of US$ 10,829,241, legal fees of US$ 457,397 and stamp duty of US$ 14,500,000. A sum of US$ 339,999,660 was disallowed by the respondent because it was recoverable when commercial production begins. The excess costs of Heritage were put at US$ 150,000,000. Incidental expenses were put at US$ 61,903,387. Mr. Kajubi put the cost base of EA1 at US$ 746,152,777 and for EA2 at US$ 553,597,222. In its submission, the respondent alleged that it allowed incidental costs as follows: guarantee arrangement fees of US$ 31,800,000, guarantee committee fee of US$ 10,829,241, legal fees of US$ 459,318 and stamp duty of US$14,500,000. The respondent submitted that it received further information from the applicants that increased the incidental costs to US$ 61,903,387 which reduced their tax liability to US$ 467,271,974.

Pages: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57