The Uganda Tax Appeals Tribunal on Wednesday delivered the long awaited ruling on the capital gains tax case against Tullow oil Uganda ordering the UK firm to pay $407,095,366 (about one trillion Uganda shillings) to the government of Uganda.
Tullow had challenged a capital gains tax assessment of $472,748,128 by the Uganda Revenue Authority with the oil firm citing provisions in the production sharing agreement signed secretly with the government that allowed tax exemptions to Tullow Uganda.
Tullow Oil drilling in Bulisa
But three judges of the Tax Appeals Tribunal Asa Mugenyi (its Chairman), George Wilson Mugerwa and Pius Bahemuka who have been hearing the case ruled that Tullow should pay the capital gains tax and then minister of Energy and Mineral Development Syda Bbumba did not have powers to grant tax reliefs to the oil company (Heritage then) when signing the PSA agreement.
Tullow today issued a statement saying they will appeal the ruling in the International Arbitration Tribunal so they can avoid paying any more capital gains tax. Following the assessment by URA, Tullow in February 2012 paid $142M as Capital Gains Tax pending this case challenging the $472M assessment.
The URA capital gains assessment followed the completion of the farm down of Tullow Uganda assets in Uganda after the the Irish firm sold 33$% of its stake to each of CNOOC and Total in 2012 for $9.2b.
“Tullow is very concerned by this ruling which ignores a contractual term signed by a Government Minister in Uganda. Tullow is Uganda’s largest foreign investor and a major taxpayer. Over the last 10 years, Tullow has spent $2.8 billion in Uganda and discovered 1.7 billion barrels of oil. This money was spent by Tullow on the understanding that our contracts with the Government, which contained important incentives to invest that were vital at a time when no oil had been discovered in Uganda, would be honoured. We will now carefully consider all our options to robustly challenge this rulin,” Tullow CEO Aidan Heavey said in a statement on Wednesday
Tullow was represented by Mr. Stephen Brandon QC, Mr. Oscar Kambona, Ms. Amanda Hardy, Ms. Reshma Shah, Mr. David Mpanga and Mr. Bruce Musinguzi; while URA was represented by Mr. Ali Ssekatawa, Mr. Peter Mulisa, Mr. Matthew Mugabi, Mr. Martin Muhanji, Ms. Syson Ainebabazi and Mr. Geoffrey Mucurezi.
But with Tullow’s predecessor Heritage Oil having lost a similar $434m case (when it sold to Tullow oil) in the Tax Appeals Tribunal and the International Arbitration Tribunal, it remains to be seen whether the lengthy court battles can save the company from paying the capital gains tax that many Ugandans feel is well deserved.
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