Tullow Oil Uganda sues Heritage over $313m tax paid to govt

Monday, 18th April, 2011

TULLOW Oil has dragged Heritage to court to recover the $313.45m paid to Uganda as capital gains tax on the pre-production oil assets on blocks 1 and 3A, sparking-off a rift between the two former partners.

The tax dispute first started when Heritage disposed its interest to Tullow last year in a $1.5b deal without paying the tax liability amounting to $404.5m, forcing Uganda to reject the transaction.

Although Heritage disputed the tax assessment, it deposited $121m in the Bank of Uganda account and the remainder in London, pending the resolution in the International Court of Arbitration.

But Uganda Revenue Authority (URA) demanded Tullow to pay the tax on Heritage’s behalf, which Tullow paid up on April 7.

In a dramatic twist, Tullow has turned the heat on Heritage in what it termed as “breach of contract.”

However, Heritage yesterday said it will “vigorously and robustly defend” itself against the claim.

“Heritage believes the claim is misguided (because) the decision to pay the URA $313.447,500 was made without Heritage’s knowledge or consent, contrary to the very clear provision under the sales and purchase agreement,” Heritage said.

“The payment was not made in compliance with the Ugandan tax provisions relating to agency notices, even if the agency notices are assumed to be valid, which Heritage does not accept.”

Heritage said Tullow explained the commercial rationale for making the payment to URA in a letter dated March 17, which stated that, “if Tullow were to refuse to pay… the Government would not permit the farm-down to proceed.”

Heritage is also pursuing the release of $283.45m plus interest from an escrow account at Standard Chartered Bank following Tullow’s admission that it paid the tax liability.

The New Vision Newspaper