Log in
Updated an hour ago

Government tax waiver: Tullow loses first round

Any member of the public can challenge any term of a contract that government enters into with a private company after the High Court recently allowed Jackson Wabyona to question, as a private citizen, a tax waiver that Tullow Uganda Limited Oil received from the state, writes EDWARD SSEKIKA.

Justice Christopher Madrama of the High Court commercial division has dismissed with costs an application that Tullow Uganda Limited made, where the oil firm said Wabyona lacked locus standi to file a suit for review of the consent that led to Tullow receiving a tax waiver of $157 million (Shs 568bn).

Tullow had said that Wabyona was not a party to the agreement, and, therefore, a stranger. Madrama, instead, ruled that Wabyona, under Article 17 (i) of the Constitution, has a duty as a citizen to combat corruption and misuse or wastage of public property.

Court observed that a consent agreement is an agreement between the parties with a contractual effect, which can be challenged for alleged illegality by an interested member of the public.

In passing that judgement, Madrama broke new ground for the public to sue oil companies, whose image and conduct is usually scrutinized keenly. The judgement, if not contested, peels off a layer of protection that oil companies enjoyed under the cover of government.

Should Madrama’s judgement stick, oil companies are bound to enter into contractual negotiations with government with more caution, bearing in mind the possibility of suits in the future.

For Tullow Oil’s case, it means the same court can now proceed to hear an application to set aside the consent decree between Tullow and URA in which the country lost $157 million in taxes. Should the application succeed, Tullow could have no option but to pay the taxes that were waived.

GENESIS

In 2012, Tullow sold two thirds of its assets in the Albertine graben in western Uganda to Total E&P Uganda BV and CNOOC limited at $2.9 bn. The sale attracted capital gains tax (CGT) under the Income Tax Act. 

URA slapped a $407 million (approximately Shs 1.4 trillion) capital gains tax on the transaction.  But Tullow objected to the assessment on grounds that the company had been granted a tax exemption in the Production Sharing Agreements (PSAs) by the then minister of Energy and Mineral Development, Syda Bbumba – who recently feigned ignorance of the contents of the agreements she signed.

“I did not read the agreement. My signature was based on the approval by the Solicitor General. Once, he cleared it, I took it that everything was fine,” Bbumba told the committee of parliament probing the Shs 6bn ‘Presidential Handshake.’

In 2014, Uganda’s Tax Appeals Tribunal ruled that Tullow was liable to pay $407 million in capital gains tax to the government of Uganda. The tribunal ruled that the minister of Energy had no powers to grant a tax waiver.

Dissatisfied by the Tax Appeals Tribunal ruling, Tullow filed an appeal in the High Court of Uganda and a separate complaint at the International Center for Settlement of Investment Disputes (ICSID) in Washington DC, USA.

Before the appeal could be heard and determined, on June 19, 2015, URA entered into a consent agreement with Tullow Uganda Limited, in which they agreed to a payment of only $250 million as capital gains tax, instead of the $407 million. The consent agreement was subsequently endorsed by High court as a consent decree. Tullow Oil also terminated proceedings at ICSID.

Former Tullow Oil Plc Chief Executive Officer Aidan Heavey described the settlement as good news for the company.

“The settlement of this long running dispute is good news for Tullow and Uganda,” he said soon after the settlement. As a result of the consent decree, government lost the balance of the $407 million, amounting to $157million.

It is against this background that in early this year, Wabyona filed a suit in the High Court Commercial division, challenging the consent decree between Tullow Uganda Limited and URA on grounds of illegality. Wabyona is also the opposition FDC chairman for Hoima district.

COURT ARGUMENTS

Through his lawyers, Mohammed Mbabazi of Nyanzi, Kiboneka and Mbabazi Advocates, Wabyona argues that the consent agreement and decree amount to a tax waiver by URA to Tullow Uganda Limited.

He argues that URA acted arbitrary and outside its mandate when it went through the execution of consent agreement and decree that waived taxes, which, by law, had become due and payable by Tullow Uganda Ltd. He argued that URA, by granting the waiver, acted in breach of rule of law and caused a loss of public property.

The waiver, he argued, was contrary to the law and amounted to discrimination in favour of Tullow Uganda Limited against the rest of the tax payers in Uganda – which violates his right to equal treatment before the law and equal protection by the law.

Tullow Uganda Limited, through its lawyers, Masembe Kanyerezi, Timothy Lugayizi of MMAKS Advocates and Oscar Kambona from Kampala Associated Advocates, is to appeal the ruling, and consequently applied for stay of proceeding of the main application pending the determination of the intended appeal.

This email address is being protected from spambots. You need JavaScript enabled to view it.

Add comment

Please note:
a) No abuse
b) No slander
c) No obscenities
d) No incitement to hatred or violence


Security code
Refresh