Uganda Revenue Authority wins Tax Case against Heritage Oil

24-Nov-2011

Uganda Revenue Authority has won a case against Heritage Oil and Gas Limited after the Tax Appeals Tribunal yesterday dismissed the oil company’s
contest against paying capital gains tax to the tune of Shs 1.1trillion.

The three member panel dismissed with costs an appeal filed by Heritage Oil challenging the tax body’s decision to slap a
$404million income tax assessment after the company sold its 50 per cent stake of exploration rights in Blocks 1 and 3A in the oil-rich
Albertine Graben to Tullow Oil in January 2010 for a cool $1.5 billion.

Chairman Asa Mugenyi and members Stephen Akabway and Pius Bahemuka ruled in a judgement this newspaper has seen that Heritage Oil had
“failed to satisfy” that URA’s income tax assessment was “excessive and or erroneous”, handing the oil company yet another legal defeat in its
objection against paying capital gains tax.

Heritage lawyers requested the Tribunal in July to halt proceedings on grounds that the firm had already started an arbitration process
in London over the tax dispute, an appeal that was also dismissed. The oil firm appealed that decision before the High Court in Kampala
in September but failed to get a favourable decision.

URA Commissioner General Allen Kagina expressed delight and said the ruling would have “a significant impact on the arbitration case in London.”
“We have a favourable ruling here in Uganda on the same grounds that the London case was filed so I hope that London will uphold the same,”
she told this newspaper yesterday.


Heritage Oil, however, said the proceeds it earned from the transaction with Tullow Oil were not taxable in Uganda.
The firm also argued that the sale of assets took place outside Uganda, in the Channel Islands off the coast of France and that the company
filed its tax returns in Mauritius.

The Tribunal disagreed, saying the oil fields were located in Uganda and that in order for the sale to go through, there was need to
obtain consent from the Uganda of government.

“What was abroad were discussions and signing of documents but the income obtained from the sale of the applicant’s (Heritage) interest
arose from activity based in Uganda,” noted the Tribunal. “Hence any income derived from the said activity is liable to taxation in Uganda.”

In August 2010, however, as Tullow Oil set sight on selling part of its interests to Total and China’s National Offshore Oil Corporation, agreed,
on behalf of Heritage, to pay URA $121 million (Shs266b) and another $283 million (Shs622.6b)
into an escrow account with Standard Chartered Bank in London, pending resolution of the tax dispute.


By Emmanuel Gyezaho & Ephraim Kasozi