The respondent disallowed items including interest of US$ 113,429,096, Tullow’s pre-existing costs of US$ 320,545,815, loss from Block 3 of US$ 20,987,930 and reinvestment relief of US$ 93,125,950. In total it disallowed US$ 548,088,791. In disallowing the pre-existing petroleum operations costs of US$ 320,545,815 from being included in the applicants’ cost base the respondent argued that such expenses are only deductible against cost oil pursuant to S. 89C of the ITA. The respondent submitted that two items were disallowed which are not in dispute; interest expense of US$ 113,429,930, a loss of US$ 20,987,930 resulting from EA3A and non recognition treatment of US$ 164,721,000. However, a perusal of the applicants’ exhibit A40 (iii) shows that an interest expense of US$ 113,429, 096 and loss of US$ 20,987, 931 were included in their computation. The financial statements of the TUL, Exhibit A22, put the interest expense from Heritage at US$ 65,981,553 which the Tribunal will consider as an incidental expense.
The Tribunal shall not include the loss of US$ 20,987,930 because the transfer in question arose from Block 3 where there was no transfer of interest, and is not subject of the application before us. When the Tribunal compares the expenses presented by the parties it notices that there are discrepancies in the figures advanced. For instance there are differing amounts on the guarantee fees, legal fees and incidental expenses incurred. When one compares exhibit A40 (iii) with the illustration/chart presented by the respondent in its submission one cannot fail to notice the glaring differences in the figures. Apart from the financial statements, there are no supporting documents attached to the exhibit A40 (iii) to substantiate the expenses incurred by the applicants. There are no clear breakdown expenses of the cost base in exhibit A40 (iii).
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