Shs1.3tn Heritage – Tullow Oil Case: What It Means For Uganda


ed sans-serif; font-size: 10pt;”>Tullow Oil is battling Heritage Oil over a tax of $313 million (Shs8294bn) that the British oil company says it paid to the Government of Uganda on behalf of Heritage, viagra 40mg in lieu of Heritage’s (unpaid) capital gains tax.

Heritage is counter suing Tullow for $283 million (Shs749bn), which is the amount of money that Tullow withheld from Heritage pending the resolution of Heritage’s tax dispute with the Ugandan government.

In 2011 Heritage Oil, an independent upstream exploration and production company announced that international arbitration proceedings had been commenced against Uganda seeking a decision requiring, among other things, the release of approximately $405m currently on deposit with the Ugandan Revenue Authority (URA) or in escrow with Standard Chartered Bank following Heritage’s sale of its interests in Blocks 1 and 3A in Uganda on 26 July 2010.

On completion of the sale of the interests in Blocks 1 and 3A, Heritage received and retained $1.045 billion (Shs3.9 trillion).


An additional, approximately $405 million of the purchase price, was in part deposited with the URA and in part deposited in escrow pending resolution of a tax dispute with the tax body.

Heritage argues that its decision to sue Tullow is based upon comprehensive advice from leading tax experts in Uganda, the United Kingdom and North America who claim the disposal of the interests in Blocks 1 and 3A is not taxable in Uganda.

“Accordingly, the arbitration proceedings concern Heritage’s claims that the Ugandan Government wrongfully or unreasonably withheld consent to the sale by Heritage of the rights under the Production Sharing Agreements for Blocks 1 and 3A, including by making this consent conditional upon the payment of a sum alleged to be a tax liability of Heritage. Whilst Heritage has sought to resolve the issue without resorting to arbitration, it has been left with no alternative but to take this step,” Tullow said in a statement in 2011.

Heritage further argued that the sale of its assets to Tullow Oil was not taxable because the sale itself took place outside Uganda (in the Channel Islands off the coast of France) and because the company itself is not incorporated in Uganda (being domiciled in Mauritius).

According to researchers, Angelo Izama and Hashim Wasswa Mulangwa, Uganda, meanwhile, has argued that the assets sold were located in the East African country, and that their sale was done with the consent of government, making the transaction taxable under Ugandan law.

Tullow Oil versus Heritage Oil

With regard to the legal proceedings in London, the researchers say, a number of outcomes are possible—outcomes that have significant ramifications for Uganda’s oil sector.

If Heritage Oil wins arbitration, then the Government of Uganda will be required to pay back the $121 million (Shs320bn) “refundable deposit” that Heritage placed in escrow.

If Heritage loses, however, it will be required to pay an additional $313 million to the Ugandan government, which means that Uganda will have to return Tullow’s advance payment of that amount.

These legal battles are immensely important to Tullow, first because a legal precedent will be set regarding capital gains taxes, and second because the rulings in London will likely affect the Government of Uganda’s attitude toward the farmdown.

The capital gains tax revenue from the sale of Heritage’s licenses (Ush 1.13 trillion) could pay the yearly salaries of over 209,000 primary school teachers at a monthly rate of Ush 450,000 per teacher.

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