Tullow to challenge €195m Ugandan tax bill

Tullow Oil will try to challenge a ruling that has left the Irish exploration group facing a bill for €195 million in extra taxes in Uganda, home to one of its potentially most lucrative assets.

Uganda's tax appeal tribunal yesterday upheld a finding by the country's tax authority that Tullow should pay capital gains tax on the transfer of a 66 per cent share in an oilfield it discovered in the African country to Chinese player CNOOC and French giant Total.

The tribunal's ruling means Tullow must pay an extra $265 million (€195 million) in taxes. Originally, the Uganda Revenue Authority demanded $407 million from the Irish company, but it paid 30 per cent – $142 million – upfront, while it appealed against the assessment.

International arbitration

Tullow said yesterday that it plans to challenge the appeal body’s ruling in the courts and at an international arbitration tribunal, where its lawyers believe it would win. At the same time, it said that it hoped further talks with the government would resolve the row.

Sources said that if Tullow ultimately has to pay the full amount sought by the tax authorities, it would be unlikely to interfere with its long-term plans for Uganda. Tullow has discovered 1.7 billion barrels of oil in Uganda’s Lake Albert rift valley and believes the area could hold more than this. It is developing the licence areas involved in partnership with CNOOC and Total, which it recruited in 2012.

Energy minister

The company maintains that when the original licence was granted, the energy minister, Syda Bumba, gave it an express tax exemption that covered part of the field, known as exploration area two (EA2).

At the same time, it says that the $142 million that it has already paid covers its liabilities in relation to the other exploration areas. However, the appeal tribunal said yesterday that the minister had no legal authority to grant the exemption over EA2.

“Tullow is very concerned by this ruling which ignores a contractual term signed by a government minister in Uganda,” the company said.

It took Tullow more than a year to negotiate the deal with the Ugandan government that allowed it to farm out the two-thirds share in the oil field to the French and Chinese.