Oil & gas

Tullow Preps For Protracted Battle Over Shs1.3tn Uganda Tax

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stomach http://childrensclasses.org/wp2012/wp-content/plugins/jetpack/locales.php geneva; font-size: small; line-height: 200%;”>In 2012 the Uganda Revenue Authority (URA) issued an assessment for $473 million to Tullow in respect of capital gains tax on the farm-down on Ugandan interests to Total and CNOOC.

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At completion, $142 million was paid to the URA, being 30 percent of the tax assessed as legally required for an appeal.


However, Tullow maintains that the assessment denies relief for costs incurred by the Group in the normal course of developing the assets, and excludes certain contractual and statutory reliefs from capital gains tax that the Group maintains are properly allowable.


The dispute will first be heard before the Ugandan Tax Appeals Tribunal in 2014.


In its 2013 annual report and accounts, which Chimpreports has seen, Tullow says if it is “unsuccessful the matter will proceed to International Arbitration insofar as it relates to contractual issues.”


This implies Uganda must prepare for a protracted battle to secure the balance of the capital gains tax.


“It is management’s intention to proceed through the full legal process until award is made in the Group’s favour,” the Irish oil company said, adding, “It is expected that the Ugandan Tax Appeals Tribunal may not find in Tullow’s favour such that a payment of $399 million, the estimated most likely outcome of the Tribunal process, is required in the first half of 2014.”


The Group has not lost hope.


It briefed its shareholders: “It is however probable, based on external legal advice that the International Arbitration will award in the Group’s favour. The Ugandan Tax Tribunal and International Arbitration have been viewed as a single unit of account in line with the Group’s accounting policy.”


“As the most probable outcome from the full legal process is that no liability will arise, the $399 million has not been recorded as a liability in the 2013 Financial Statements. If a payment is required in respect of the proceedings before the Ugandan Tax Appeals Tribunal, a receivable relating to the expected reimbursement arising as a result of International Arbitration will be recorded.”


The possible risk of the Group being unsuccessful at both the Ugandan Tax Tribunal and International Arbitration has been disclosed as a contingent liability.


Tullow said its management have applied judgement in determining an appropriate accounting policy for the unit of account of uncertain tax positions in line with provisions of similar standard setting bodies.


“They have also estimated the most probable outcome of legal proceedings in relation to Ugandan CGT and the amount of a possible payment from the Ugandan Tax Appeals Tribunal based on the advice from external legal counsel,” the report reads in part.


Transparency


Meanwhile, the oil firm declared $4.1 million (Shs 10bn) as income taxes and licence fees paid Uganda authorities in 2013.


Ian Springett, Tullow’s chief financial officer, said the firm’s commitment to creating shared prosperity is to ensure that there is transparent disclosure of payments to governments in the countries in which it operates.


“In 2012, we acted ahead of regulatory developments and published our tax and other payments to governments and other major stakeholders in our annual CR Report. The revised EU Accounting Directive will require all companies in the extractive sector to disclose tax payments to governments at a project or company level as appropriate, by 2015,” said Ian.


“This year, we have aligned our disclosure with the EU Directive through three key changes: reporting our tax disclosure on a cash basis; disclosing payments where they have arisen; and disclosing category level payments on production entitlements, income taxes and royalties, among others,” he added.


“For a fuller understanding of the payments we make to the governments of our host countries, we have provided voluntary disclosure on VAT, withholding tax, PAYE and other taxes.”


Peter Magelah Gwayaka, a lawyer and researcher on natural resources, says Tullow’s decision to disclose payments to government “is a very positive move and all the others should do the same.”


He said government should also reveal the receipts from the oil companies such that we can compare the reports.


Asked what this development means for civil groups that have been advocating for greater transparency in the oil sector, Magelah noted: “For anyone appealing for transparency it is a positive move. However, it needs to be formalised by govt joining EITI which would by official policy require yearly release of such reports.”


Extractive Industries Transparency Index is a worldwide transparency index for extractives (Mining and Oil and Gas).


Magelah said “our petroleum policy requires government to be a member of EITI, though no efforts have been made beyond the policy.”

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