Uganda Tribunal orders Tullow Oil to pay $407million tax bill

July 16, 2014 | East Africa, Government & Regulations

Kampala, Uganda | – The government of Uganda’s tax appeals tribunal on Wednesday ordered U.K.-based oil company Tullow Oil Plc to pay a tax bill amounting to $407million (£237m) to the Ugandan government, from the sale of its oil assets in the country three years ago.

In a ruling seen by Nogtec, the three-man tribunal ordered Tullow Oil to pay the amount in the form of a capital-gains tax to the Uganda Revenue Authority.

Chief Executive Adrian Heavey said: “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 $2.8bn in Uganda and discovered 1.7bn 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.”

Following the completion of a farm-down of 66% of its assets in Uganda to China National Offshore Oil Corporation (CNOOC) and Total in 2012, Tullow was issued with a CGT assessment by the Uganda Revenue Authority (URA) of roughly $472m.

In order to launch the appeal, Tullow had already paid 30% of the Capital Gains Tax (CGT) assessment, equivalent to around $142m.

The Tax Appeals Tribunal (TAT) ruling will therefore require significant further legal evaluation, said Tullow, due to its complexity, but the FTSE 100 company stressed that it had not been ruled against on the “key issue” of the express tax exemption contained in a Production Sharing Agreement for Exploration Area 2.

“Tullow 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,” it said in a statement.

“A specific CGT exemption was included in the EA2 PSA. 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.”

The company has been advised that the international arbitration tribunal will award in its favour.

Shares in Tullow quickly slid 1.77% to 776p just before close on Wednesday.