Heritage loses sh70b tax appeal to URA

 By Hillary Nsambu

Heritage Oil and Gas should pay the $30m (over sh70b) as assessed tax by the Uganda Revenue Authority (URA), the Tax Appeals Tribunal has ruled.

The tribunal observed that Heritage sold to Tullow Oil a bundle of rights and interests under the purchase sale agreement and, therefore, earned income.

The oil firm had opposed, arguing that the payment of $100m was not a sale of immovable property to fall under the Income Tax Act and, therefore, not taxable.

Heritage Oil further contended that the payment rose out of a settlement of a disputed contractual claim and not out on activity attributed to Uganda.

“In the absence of any deductions that were incurred by the Heritage to improve the asset, the URA rightfully assessed the tax as $30m having applied the tax rate to $100m,” the Tax Appeals Tribunal chaired by Asa Mugenyi ruled. The other members were Stephen Akabway and Pius Bahemuka.

Heritage Oil and Gas had petitioned the tribunal, challenging as unlawful the income-tax assessed by URA from a settlement of $100m paid by Tullow Oil for Heritage’s 50% stake.

The company had argued that since the payment was made in Mauritius in fulfillment of Tullow’s obligation in sale and purchase agreement, URA had no powers to tax the money. 

According to records, Heritage was incorporated in the Bahamas and registered in Mauritius, where it files its tax returns. It is also registered in Uganda.         

“Any income attributable to any activity, which occurs in Uganda, is taxable. The payment of $100m is attributed to the sale of the applicant’s bundle of interests and rights as stated in the sale and purchase agreement in Uganda,” read the ruling that was delivered on December 7. It noted that the omission or the failure to obtain a tax relief from the Government was attributable to an event in Uganda. 

“Though the sale and purchase agreement was signed outside Uganda, the activities mentioned are attributed to Uganda,” the tribunal added.

The tribunal blamed Heritage for failure to arrange its tax affairs in a right manner to reduce its tax liability.

The tribunal had heard that between July and September 2004, Heritage Oil and Gas entered into production sharing agreements with the Government for the company to provide for petroleum exploration, development and production in oil blocks in the Albertine Graben.

The tribunal was told that Heritage and Tullow were given exploration licences under the production and sharing agreements and, they were required to pay taxes levied.

However, Heritage Oil and Gas, in June 2010 entered into a sale and purchase agreement with Tullow for the sale of its 50% participating interest.