Mr. Kajubi stated that ‘excess costs’ is the difference between the costs that are available for recovery from the first person who sold, minus anything that is recovered. They apply to a subsequent sale. Heritage had recoverable costs of US$ 150 million. He said that excess costs are deducted from cost oil. He defined cost oil to mean a contractor’s entitlement to production as cost recovery under a PSA. He said that a company obtains cost oil at the commencement of commercial production. There has not been any commencement of commercial production and recovery of costs. None of the companies involved, Heritage, Total CNOOC and Hardman have recovered any expenditure. Mr. Kajubi told the Tribunal that stamp duty was paid in the acquisition of interests from Tullow to CNOCC and Total. He said there was no exemption for stamp duty. In order to get an exemption the Minister of Finance would have to issue a statutory instrument to that effect as per the powers delegated to him by Parliament. He stated that no tax exemption is valid unless there is a specific provision in the ITA. Tax holidays and tax exemptions require a statutory instrument issued by Parliament. He said the respondent does not grant exemptions, it implements.
It issues certificates but the exemptions are granted by Parliament. Mr. Kajubi said the right to recover costs is one of the rights disposed of under the SPA as an assignable interest. He stated that Tullow received consideration for the transfer of the said right to CNOOC and Total. To obtain a benefit from such a relief after disposing of the same interest would amount to double dipping.
- SUMMARY OF THE PARTIES’ MAIN ARGUMENTS
On issue 1.1, the applicants submitted that the completion of the sale and purchase between the applicants, CNOOC and Total occurred on the 21st February 2012 when the various conditions were met and the purchase price paid. As a result thereof the applicants transferred parts of their interests in the PSAs to CNOOC and Total on that date. The applicants contended that such disposals were governed by S. 89G of the ITA. Hence they attracted capital gains tax. The applicants submitted that EA2 PSA Article 23.5 contained an exemption from taxes. It not only covered income tax but all other fees or imposts levied on an assignor. Such a wide exemption cannot be said to exclude a charge to tax under the ITA. The income tax charge imposed by the Income Tax Act is clearly a charge to tax. According to them, Article 23.5 of the Agreement was wide and clearly covered income tax on capital gains accruing on assignment or transfer.
The applicants argued that when a person passes an interest in an agreement to another contractor, he must assign or transfer that interest. The applicants cited Black’s Law Dictionary which defines assignment as an “act by which one person transfers to another, or causes to vest in that other, the whole of the right, interest, or property which he has in any realty or personality…” According to them, Article 23.5 of the Agreement was wide and clearly covered income tax on capital gains accruing on assignment or transfer. On issue 1.2, the applicants argued that any minister irrespective of whether he or she is the Minister of Finance could enter an agreement containing a term as found in Article 23.5. They contended that the Minister as an agent of the GOU had authority to sign the PSA on its behalf in respect of each provision.
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