Tax on Shs3 trillion Tullow sale to Total not yet assessed

Kampala.

The Uganda government is yet to carry out an assessment on the Capital Gains Tax (CGT) payable by Tullow after it sold a 21.57 per cent stake in the Albertine for $900m (Shs3.2 trillion) to Total E&P.

On Monday, Tullow announced it had made the sale, reducing its stake 11 per cent from 33.33 per cent.

Typically, such a transaction would attract a tax charge by the Uganda Revenue Authority (URA), if there were any capital gains made after the sale.

By Tuesday morning, URA was still studying the transaction.
“We did not have details of the transaction at the time they went to press so we are still studying it. We will certainly come out with a position and communicate it,” Ms Doris Akol, the commissioner general URA told Daily Monitor in an email yesterday.

Tullow also confirmed that this transaction was subject to approval by government – and that includes payment of all the necessary taxes.

“We will be discussing the tax situation with the relevant authorities including the URA in due course,” Mr George Cazenove, the head of communications at Tullow Oil Plc told Daily Monitor yesterday.

CGT is a tax levied on capital gains, profits an investor realises when he sells a capital asset for a price that is higher than the purchase price. In Uganda, according to ENSAfrica’s tax insight “Capital gains are aggregated with business income and taxed at the standard corporate income tax rate of 30 per cent.”

Prior transactions
There have been two transactions in the past that involved the sale of interests in the Albertine and both attracted CGT. Both amounts assessed by URA were contested by the two oil companies.

The first was when Heritage sold its interest in the Albertine region for $1.45billion (Shs5 trillion) to Tullow in 2010. URA slapped a CGT bill of $435m (Shs1.56 trillion) on Heritage, an amount they disputed until but the oil company eventually lost out the case on jurisdiction.

Two years later, Tullow sold 66.66 per cent of its Uganda stake for $2.9billion (Shs8 trillion) to Total and CNOOC.
URA assessed a tax of $473m (Shs1.7 trillion) Tullow disputed the payment until a settlement of $250m (Shs900 billion), less than the assessed tax, was reached with the government in 2015.

This transaction sees Tullow mostly take a backseat role in Uganda’s oil and gas sector after they first made an entry in Uganda in 2006.

“Under the terms of the deal, Total will acquire 21.57% out of Tullow’s existing 33.33% stake in all of the Lake Albert project licences EA1, EA1A, EA2 and EA3A.

Total, which is already the operator of licences EA1 and EA1A, will, in addition, take over operatorship from Tullow of license EA2, enabling significant efficiency gains and synergies,” reads a statement from Total E&P. This leaves Total as the main operator in Uganda’s oil finds, holding a 54.8 per cent stake compared to CNOOC’s 33.33 per cent.