Ugandan officials and UK-listed oil company Heritage Oil escalated their legal dispute over tax on Thursday, entering a war of words over who was winning.
The case, being heard by an arbitration tribunal in London under the United Nations Commission on International Trade Law, centres on more than $400-million of tax that Uganda has charged Heritage on its $1.45-billion sale of exploration acreage to Tullow Oil in 2010.
The sum involved is already in Ugandan hands. It could buy half of Heritage’s shares on the London stock market and is equivalent to more than three years of GDP growth to Uganda.
Heritage has challenged the payment on the basis that tax laws were changed after the sale agreement was signed. It has already lost a related case in a Ugandan court.
An official from the Uganda Revenue Authority (URA) told Reuters on Thursday that it had won a victory in the arbitration tribunal.
“On the core question of the taxability of Heritage’s transaction with Tullow, the tribunal in London ruled yesterday (Wednesday) that that had already been settled by the tax appeals tribunal here in Uganda and it was satisfied with that ruling,” said Ali Ssekatawa, Assistant Commissioner for litigation at the URA.
“The case’s core issue … was the taxability of the transaction and we’re excited that we won that.”
Heritage dismissed the Ugandan victory claim as “inaccurate” and “a misleading representation of a detailed decision”.
The oil company acknowledged that the tribunal had decided it did not have jurisdiction on “underlying substantive Ugandan tax matters”, but said that the tribunal had decided that it did have jurisdiction on the “central question” of whether the tax was fair and valid.
Shares in Heritage Oil fell as much as 11% in early trading on Thursday and were down about 7% at 1439 GMT.
After the sale to Tullow a third of the tax demand was paid – as required under Ugandan law to launch an appeal – and the remaining $283-million was placed in a joint Tullow-Heritage escrow account pending resolution of the dispute.
Since then, however, Tullow has paid $283-million of its own money, plus an additional $30-million, to the URA and launched legal action to reclaim the money from Heritage.
Heritage launched a countersuit claiming that Tullow and the Ugandan government “colluded” to extract the tax from Heritage. The case is proceeding in London’s High Court, independently of the Uganda-versus-Heritage arbitration.
The arbitration proceedings are continuing, Heritage said, adding that the URA comments were also “breaches of the requirement of confidentiality imposed upon both parties to the proceedings”.
Representatives of the London Court of International Arbitration were not available for comment.
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