However, in the ruling on the exemption, The Tribunal noted â€œthat article 23.5 of the EA2 PSA is invalid under the tax laws of Uganda and therefore the applicants are not entitled to an exemption from the payment of the capital gains tax.â€
In 2012, Tullow sold 66.6% of its Uganda licenses to Total and CNOOC at 2.9billion United States Dollars. As a result, URA requested for at least 473million United States Dollars in capital gains tax, which is charged on income earned after the transfer or sale of an asset.
Tullow disputed the amount assessed and paid 143million United States Dollars before dragging URA to the Tax Appeals Tribunal. Tullow insisted it was entitled to some tax exemptions as per the Production Sharing Agreements (PSAs) signed with government. PSAs still remain confidential documents between the oil companies and government. However, in the ruling on the exemption, The Tribunal noted “that article 23.5 of the EA2 PSA is invalid under the tax laws of Uganda and therefore the applicants are not entitled to an exemption from the payment of the capital gains tax.”
The tribunal also found that Tullow was liable to pay 407million United States Dollars, instead of the 473million United States Dollars assessment made by URA. Tullow having initially paid 143million United States Dollars or 370billion Uganda Shillings, it has to pay the balance of 264million United States Dollars or 687billion Uganda Shillings.
The ruling comes as a disappointment to Tullow. In its 2013 Annual Report, Tullow Directors noted that “the Group believes it has a strong case under both international and Ugandan law” and “the most probable outcome to be that any liability will be at a similar level to the amount already paid on account.”
This not-with-standing, Tullow Directors are determined to have this issue go as far as the International Court of Arbitration. In the same report, the directors said “It is management’s intention to proceed through the full legal process until award is made in the Group’s favour.” The Tribunal also ordered that Tullow meets at least three quarters of the costs incurred by URA in this case. Disputes on tax issues have seen Uganda come-up against Heritage Oil and Tullow Oil, in UK and Ugandan courts.