Uganda has won the first round of the $435m oil tax case.
After a three hour session, the Tax Appeals Tribunal upheld that the transaction was taxable and the amount assessed by Uganda Revenue Authority remains the same.
In a press statement, Paul Kyeyune the Manager Public and Corporate Affairs at the Uganda Revenue Authority said it was a landmark victory not only for URA but for Uganda as a whole because, being the first of such transactions in Uganda, they had set the standard that such future transactions are taxable in Uganda.
The tax dispute started when Heritage Oil and Gas Ltd announced its intention to transfer its Ugandan petroleum assets to Italian giant ENI in December, 2010.
But Tullow Oil Uganda, which had 50% stakes in the assets, exercised its first right of option under the same terms. Uganda Revenue Authority however demanded 30% of the $1.5m deal in capital tax gain tax before the transaction was approved.
Heritage was against paying the tax “based on comprehensive advice from leading tax experts in Uganda, United Kingdom and North America” that the transaction was not taxable in Uganda.
The firm demanded to settle the tax dispute via the International Court of Arbitration in London.
But went ahead and deposited only $121m on the treasury. The balance of $283.5m was deposited in an escrow account held by Standard Chartered Bank in United Kingdom. The money will be released after the case has been resolved.
But Uganda insisted that the tax case should be held in Uganda and in accordance and rushed to the Tax Appeals Tribunal.