In a case widely covered by the Irish and global business media, Tullow Oil Plc and the Government of Uganda/Uganda Revenue Authority have agreed to resolve a dispute over a US$ 470 million (Ushs 1.4 trillion) Capital Gain Tax (CGT). Tullow oil Plc will now pay US$250 million (Uganda shs 750 billion).
Capital Gain Tax is a tax charged on the gains on an asset, that is, the difference between the price of the asset at purchase and its price at sale.
The Tullow Oil Plc and Government of Uganda/Uganda Revenue Authority dispute arose in 2006 when Tullow Oil, initially the only licensed prospector for Ugandan oil, farmed down (sold its 67 per cent stake on a section of its licensed fields to Total SA of France and CNOOC of China.
At the time, Uganda Revenue Authority assessed the CGT at US$473 million, which Tullow Oil contested. They subsequently went to the Uganda Tax Appeals Tribunal (TAT) which assessed the tax value at US$407 million. Tullow Oil Plc rejected the TAT ruling and went further to appeal the TAT ruling at the Uganda High Court and simultaneously to the London based International Tribunal.
The settlement of the dispute has come before the ruling of both appeals. Tullow Oil Plc said in a statement that they will now withdraw both pending appeals.
Observers of the oil industry say the US$250 million settlement was a good deal for Tullow Oil Plc, as in the worst case scenario they could have had to pay the US$470 million. Tullow Oil shares went up 1.3 in the London Stock Exchange, following the announcement of the resolution of the long standing case.
The US$250 million includes the US$142 million which Tullow Oil Plc had deposited at appeal. This means that Tullow Oil Plc will now pay the Government of Uganda/Uganda Revenue Authority an outstanding amount of US$108 million.
Tullow Oil Plc said the outstanding bill will be paid in three installments of US$36 million, each. The first installment has been paid at the signing of the resolution. The remaining two installments will be paid in 2016 and 2017, respectively.
The dispute arose out of a farm down (sale) amounting to US$2.9 billion. Uganda is estimated to have 5 billion barrels of crude oil. Tullow Oil, with 130 exploration and production licenses in 22 countires in West and North Africa, South and East Africa, South America, Europe and Asia, is listed on the London, Irish and Ghanaian Stock Exchanges.