Tullow Oil to challenge the Tax Appeals Tribunal ruling in Uganda

Tullow Oil plc has announced that its subsidiaries operating in Uganda have received a ruling from the Tax Appeals Tribunal (TAT) in Uganda relating to Capital Gains Tax (CGT).

The ruling means that Tullow will be tasked with be paying the reminder of $265m to the Uganda revenue authority (URA) after the tribunal calculated Tullow’s CGT liability for the farm-downs, including certain reliefs, to be $407m, of which $142m has already been paid after the company completed the farm-down of 66% of its assets in Uganda to CNOOC and Total in 2012.

The new calculation is thus $65m repreive after the Uganda revenue authority earlier calculated the CGT liability at $472m.

The explorer now says TAT ruling is lengthy and deals with a number of different issues and will therefore require significant further legal evaluation.

In the ruling TAT ruled against Tullow on the key issue of the express tax exemption contained in the Production Sharing Agreement for Exploration Area 2 (EA2 PSA).

Tullow says it believes that the amount already paid exceeds its liabilities in relation to CGT on EA1 and EA3A.

“However, there are specific points in the ruling that Tullow may wish to challenge relating to these two Areas,” Tullow says in a statement.

“Tullow is extremely disappointed that the TAT ruled that the then Minister of Energy did not have the legal authority to grant such an exemption. Tullow believes that the TAT has erred in law and Tullow will challenge the EA2 assessment through the Ugandan courts and international arbitration but hopes that further direct negotiation with the Government can resolve this matter. Tullow considers, based on external legal advice, that the international arbitration tribunal will award in its favour.” The statement adds.

Tullow Oil CEO Aidan Heavey accuses the Ugandan government ignored a contractual term signed by a Government Minister in Uganda and says the company will consider all options to challenge the ruling

“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 ruling.” He concluded.

Author: Samuel Kamau Mbote