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  • 8/9/2019 Tullow Oil V Uganda Revenue Authority

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    THE REPUBLIC OF UGANDA

    IN THE MATTER OF THE TAX APPEALS TRIBUNAL

    TAT APPLICATION NO. 4 OF 2011

    1. TULLOW UGANDA LIMITED

    2. TULOW OPERATIONAL PTY LTD …….....................………… APPLICANTS

    VERSUS

    UGANDA REVENUE AUTHORITY ………......................……..…… RESPONDENT

    RULING

    This ruling is in respect of an application brought by the applicants challenging initial

    assessments of income tax of US$ 472,748,128 by the respondent in respect of a transfer of

    their interests in xploration !reas !1, !2 and !" to # %%# and Total for the

    consideration of US$ 2,&"",""',4''( The said assessments )ere e*entually re*ised by the

    respondent to US$ 4+7,271,&71 being capital gains tax( The applicants being aggrie*ed by the

    said assessments appealed to the Tribunal(

    This ruling is brought after the Tribunal has complied )ith S( 1" of the Tax !ppeals Tribunal

    T!T- !ct( .r( .artin /eeta, one of the members of the panel listening to the dispute passeda)ay on the 2' th .ay 2'14( !t the time of his passing a)ay, all the parties had presented their

    e*idence, closed their cases and made their submissions( 0eli*ery of the ruling )as pending( !t

    the time of his passing a)ay the then Tribunal had reached a decision( %n the 1+ th une 2'14,

    )hen the matter came up for ruling, the parties )ere informed that the Tribunal did not ha*e the

    legally re uired #oram to deli*er a ruling( #ounsel for the parties agreed that a ne) member

    should be assigned to the panel to replace .r( .artin /etaa( 3t )as also agreed that matter be

    reheard by the record of e*idence being a*ailed to a ne) member under S( 1" - of the Tax

    !ppeals Tribunal !ct )ithout the need of recalling )itnesses( .r( 5ius 6ahemu a )as appointed

    to replace the deceased( The record of the e*idence and the submissions of the parties ha*e

    been handed to him( Though the Tribunal cannot say that this is a ruling of four members as the

    #oram is three, it can say that this is a unanimous decision(

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    1. SUMMARY OF CASE

    The facts agreed upon by both parties are

    1( The first applicant, Tullo) Uganda 9imited hereinafter called :TU9;-, is registered under thela)s of the 3sle of .an and )as formerly nergy !frica Uganda 9imited : nergy !frica;-(

    The second applicant, Tullo) Uganda %perations 5ty 9imited hereinafter called :TU%5;- is

    registered under the #orporations !ct 2''1 in o*ernment of Uganda :>%U;-

    executed a 5roduction Sharing !greement 5S!- under )hich they )ere granted

    exploration, de*elopment and production rights in xploration !rea !2 the : !2 5S!;-( 3t

    )as signed by =on( Syda ( .( 6bumba, .inister of .ineral and nergy 0e*elopment for

    and on behalf of the >o*ernment, by .r( d)ard ohn llyard .anaging 0irector- on behalf

    of =ardman and by .r( %U :the !"! 5S!;-( The !"! 5S! )as signed for an

    behalf of the >%U by =on( Syda ( .( 6bumba, .inster of .ineral and nergy

    0e*elopment, by .r( 6rian Smith on behalf of =eritage and by .r( !ndre)

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    +( 5rior to 2''&, Tullo) %il 5lc, the parent company of both applicants, ac uired the nergy

    !frica >roup, )hich had a subsidiary, )hich later became TU9( Tullo) %il 5lc later ac uired

    the =ardman >roup, including =ardman !frica 5ty 9imited, )hich later became TU%5(

    Tullo) %il 5lc ac uired the rele*ant subsidiaries@ rights and interests in the 5S!s in Uganda(

    7( !t this stage the interests in the 5S!s )ere as follo)s

    a( TU9 held 'A of !1, !2 and !"!B

    b( TU%5 held 'A of !2B and

    c( 'A of each of !1 and !"! )as held by =eritage and the interests then held by TU9 in

    !1 and !"! are hereinafter referred to as :the %ther %riginal 3nterests;(

    8( The applicants through their exploration acti*ities disco*ered hydrocarbons in the respecti*e

    exploration areas(

    &( %n or about the 17 th anuary 2'1', TU9 in*o ed its preCempti*e rights under the %! for the

    purchase of 'A participating interests of =eritage in xploration !reas !1 and !"! the

    =eritage interests;- at a consideration of US$ 1,4 ',''',''' United States 0ollars one

    billion four hundred and fifty million-, subDect to appro*al from the >%U(

    1'( %n about the 2+ th anuary 2'1', TU9 and =eritage signed a Sale and 5urchase !greement

    the :S5!;- under )hich TU9 )ould ac uire =eritage@s 'A participation rights in xploration !reas !1 and !"!(

    11( %n the + th uly 2'1', the >%U granted a conditional appro*al to the transaction bet)een

    =eritage and TU9(

    12( %n the 18 th %ctober 2'1', the respondent raised assessment number S!E9T%E2 +& of US$

    "&',&24,4+' and assessment number S!E9T%E2 7' of US$ 84,&&&,++' on TU9 and TU%5

    respecti*ely being income tax #apital >ains Tax-(

    1"( %n the 1 st 0ecember 2'1', the applicants obDected to the assessments(

    14( %n the 24 th /ebruary 2'11, the respondent made an obDection decision that adDusted the

    assessment on the TU9( The assessment o( S!E9T%E2 +& of US$ "&',&24,4+' )as

    amended to US$ "87,748,4+&, )hile assessment o( S!E9T%E2 7' of US$ 84,&&&,++' )as

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    unaffected, resulting in a total of US$ 472,748,128(

    1 ( %n the 1 th .arch 2'11, the applicant, the >%U and the respondent executed a

    memorandum of understanding :.%U;-(

    1+( %n the 2 th .arch 2'11, the applicants filed an application for re*ie) before the Tax !ppeals

    Tribunal T!T- contesting the assessments and the obDection decision by the #ommissioner

    of the respondent(

    17( TU9 ac uired the =eritage 3nterests pursuant to the S5! and upon fulfilment of conditions in

    the .%U of 1 th .arch 2'11( /ollo)ing the ac uisition the holdings in the xploration !reas

    )ere

    a( TU9 held 'A of !2 and 1''A of ! 1 and ! "!B and

    b( TU%5 held 'A of !2(

    18( The applicants disposed of ++(+7A of their interests in !s 1, 2, and "! to # %%# and

    Total at US$ 2,&"",""',4'' United States 0ollars t)o billion nine hundred thirty three million

    three hundred thirty thousand four hundred-(

    1&( /ollo)ing the disposal the holdings are

    a( TU9 holds ""(""A of the interests under the ! 1, and ! "! 5S!s(

    b( TU%5 holds ""(""A of the interests under the !2 5S!(c( # %%# holds ""(""A of each of the interests under the !1, !2 and !"! 5S!sB and

    d( Total holds ""(""A of each of the interests under the !1, !2 and !"! 5S!s(

    2'( %n or about the 22 nd /ebruary 2'12, the applicants paid US$ 141,824,4"8 United States

    0ollars one hundred forty t)o million eight hundred t)enty four thousand four hundred thirty

    eight- being "'A of the tax assessed(

    2. ISSUES

    The issues agreed upon by both parties are

    1. In r !" #$ %& EA2

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    1(1 o*ernment of

    Uganda acting through the .inister of nergy and .ineral 0e*elopment is *alidEla)fulunder Uganda 9a)F

    1("

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    "(2 3f so )hat is the uantum of the disposal consideration in respect of )hich rein*estment

    relief can applyF

    (. REPRESENTATION OF THE PARTIES

    The applicants )ere represented by .r( Stephen 6randon G#, .r( %scar Hambona, .s(

    !manda =ardy, .s( ?eshma Shah, .r( 0a*id .panga and .r( 6ruce .usinguIi(

    The respondent )as represented by .r( !li Sse ata)a, .r( 5eter .ulisa, .r( .atthe) .ugabi,

    .r( .artin .uhanDi, .s( Syson !inebabaIi and .r( >eoffrey .ucureIi(

    4. SUMMARY OF EVIDENCE ADDUCED AT TRIAL

    !ll the parties agreed that the applicants shall be allo)ed to file )itness statements( Their

    )itnesses )ould then be crossCexamined by the respondent( The respondent opted to call its

    )itnesses for examination in chief instead of filing )itness statements(

    The applicants@ first )itness )as .r( .artin >raham, the >eneral #ounsel, of the Tullo) >roup

    hereinafter called JTullo)@- )hich includes both applicants( 3n his statement, he stated that he

    dealt )ith the ac uisition of nergy !frica Uganda 9imited and =ardman ?esources 9imited by

    Tullo)( =e deponed that on their ac uisition, nergy !frica Uganda 9imited changed its name to

    TU9 )hile =ardman changed to TU%5(

    =e further deponed about the signing of the 5S!s bet)een the >%U and the applicants( The

    5S!s ga*e exclusi*e rights to a party to explore for hydrocarbons in certain areas no)n as

    xploration !reas !s-( These areas included !1, !2 and !"!( !t the beginning of

    anuary 2'1', TU9 held 'A of the interests in !1, !2 and !"! and TU%5 held 'A of theinterest in !2( The other 'A interests in !1 and !"! )ere held by =eritage( %n the 17 th

    anuary 2'1', TU9 exercised its preCemption rights and ac uired =eritage@s interests in !1

    and !"!(

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    3n /ebruary 2'1', =eritage as ed the >%U for consent to the transaction( The >%U ga*e

    consent subDect to payment of tax( =eritage obDected to the payment of tax( 9ater an

    arrangement )as agreed upon )here =eritage deposited the tax payable on an escro)

    account( The >%U and the applicant entered into a memorandum of understanding on the 1 th

    .arch 2'11 )here TU9 paid US$ "1" million tax as agent for =eritage(

    !ccording to .r( >raham, Tullo) ac uired =eritage@s interests in !1 and !"! )ith the

    express intention of selling them to third parties( 3t had intended to sell 'A of the interests in

    each of the 5S!( =o)e*er the >%U )ould not gi*e its consent to a sale to only one party( 3t

    e*entually sold ++(+7A of its interests in each of the 5S!s to # %%# and Total on 21 st

    /ebruary 2'12, each purchaser ta ing ""(""A of the interests( =e ga*e a bac ground and

    history and the nature of oil exploration in Uganda in his statement, )hich )e shall not repeat(=e stated that the exploration areas had not yielded any income as yet(

    .r( >raham, in his statement, noted that under the 5S!s the >%U gets its sta e on oil in a

    number of )ays )hich includes royalties, profit oil and 1 A of the contractors@ share of profit oil

    under the state participation pro*isions( 3f a proDect fails the >%U does not suffer any loss( The

    costs reco*erable are pooled together each year, and the balance is reduced by the *alue of

    cost oil recei*ed( Unreco*ered costs are carried for)ard to subse uent years until full reco*ery

    is completed( =e argued that this is not a tax relief or any ind of relief li e indemnity( 3t is simply

    the reco*ery of expenditure incurred by one party( Such reco*ery does not pre*ent the oil

    company from deducting )hat it expended in tax computation(

    .r( >raham discussed the protection of the oil companies in the 5S!s( =e stated that :it is

    common for go*ernments to pro*ide certain incenti*es to encourage oil exploration( These

    incenti*es ta e the form of exemption or reliefs that reduce the company@s costs(; !ccording to

    him, the !2 5S! contained a clause pro*iding that no tax )ould be payable in respect of afarm do)n of TU9@s interests in !rticle 2"( ( .r( >raham testified that !rticle 2"( of the !2

    5S! pro*ided that the assignment or transfer of an interest under the agreement )ould not be

    subDect to any tax, fee or other impost or fee le*ied either on the assignor or the assignee( To

    him he )as not sure )hether #apital >ains Tax and transfer tax are the same( =e stated that at

    the time the !2 5S! )as entered into, it )as not certain that there )ere any hydrocarbon

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    The applicant@s second )itness )as .r( 5aul .c0ade, the #hief %perating %fficer of the Tullo)(

    =e noted that the respondent raised assessments on the 18 th %ctober 2'1' in respect of the

    three bloc s( =o)e*er the farmdo)n had not ta en place( 3t too place on the 27 th /ebruary

    2'12( !t the beginning of anuary 2'1' TU9 held 'A interests in !1, !2 and !"! andTU%5 held the other 'A of !2( The other 'A of !1 and !"! )as held by =eritage(

    .r( .c0ade ga*e a bac ground to the farmdo)n in his )itness statement, )hich is as stated in

    the agreed facts( =e added that since the disco*eries in 2''+ and 2''7, the applicants planned

    to farmdo)n in order to meet the substantial costs needed for exploration( %ne of the functions

    of the farmdo)n )as to assist financing their proDected in*estments(

    .r( .c0ade further testified that the >%U indicated to the senior Tullo) executi*es that a 'A

    farmdo)n )ould not be acceptable to it( 3t )as >%U policy to a*oid a monopoly situation in the

    !lbertine >raben( .r( ?ichard 3nch emailed to him about a con*ersation he had )ith .r( HiiIa,

    the 0irector of conomic !ffairs, .inistry of /inance, 5lanning and conomic 0e*elopment that

    the >%U )ould not allo) a 'A split( The applicants changed their position of a ' ' split to a

    "" "" "" split as the former proposal )ould not be allo)ed( .r( .c0ade argued that the

    disposal of 1+(+7A )as therefore an in*oluntary disposal( =e further testified that at the time of

    disposal Tullo) )as planning to rein*est considerable sums from the farmdo)n proceeds in

    assets of a li e ind )ithin one year from the farmdo)n(

    3n crossCexamination, .r( .c0ade said that the intention to sell 'A of its interest )as not

    expressed in any form of board resolution( .r( .c0ade reiterated his earlier position that Tullo)

    )anted to sell at least 'A of its interests( There )as no correspondence bet)een >%U and

    Tullo) that indicated that the latter )anted to sell 'A of its interest( =e stated that there )as a

    draft S5! )hich )as on a basis of ' ' made in /ebruary 2'1'( =e did not clearly understand)hat a reCin*estment relief )as(

    3n reCexamination, .r( .c0ade stated that the monies obtained from the sale )ere to be spent

    on the exploration acti*ities, drilling, appraisal acti*ities, testing of oils and associated acti*ities

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    or de*elopment studies( !ll the expenditures met prior to the farmdo)n )ere exploration and

    appraisals expenditures, drilling of )ells, bridges, procuring of ser*ice studies, geological, etc(

    The applicant@s third )itness )as .r( ?ichard 3nch, the =ead of Tax for Tullo)( The applicants

    are subsidiaries of the Tullo)( =e is a #hartered !ccountant and a #hartered Tax !d*isor andhas held a number of senior tax positions( =is duties in*ol*ed the o*erall management of the

    group@s tax affairs(

    =e stated that follo)ing the ac uisition of =eritage@s interests in !1 and !"!, Tullo) agreed

    to sell a part thereof to Total and # %%#( Tullo) had intended to sell 'A of the interests in

    !1, !2, and !"!( =o)e*er before the >%U )ould grant the necessary consent, it re uired

    Tullo) to sell a further 1+(+7A of the remaining interests( =e stated that in a meeting of the 2nd

    /ebruary 2'1', )ith .r( 9a)rence HiiIa the 0irector of conomic !ffairs, he )as told that >%U

    )as not going to allo) a sale of only 'A of the 5S! and )anted a single distinct operator for

    each 5S!, )ith each ta ing ""(""A interest( .r( 3nch testified that there )ere no minutes for the

    meeting he had )ith .r( HiiIa, 3t )as a con*ersation( There )as no official communication(

    =e deponed that, on the 18 th %ctober 2'1', the respondent raised assessments on Tullo)( The

    completion of the disposal too place on the 27 th /ebruary 2'12( 3n response to the

    assessments, Tullo) filed an obDection on the 1 st 0ecember 2'1'(

    .r( 3nch, in his statement, a*erred that before 2''8, there )as no specific taxation regime for oil

    companies in the 3T! though the 5S!s contained rele*ant tax pro*isions( 3n 2''8, the .inistry of

    /inance introduced a specific code in relation to petroleum operations by the insertion in the

    3ncome Tax !ct 1&&7 of a ne) 5art 3K! by the 3ncome Tax !mendment- !ct 2''8( The 2''8

    !mendment !ct, )hich )as published on the "' th une 2''8 had retrospecti*e effect from 1 st

    uly 1&&7( 5art 3K! under S( 8&> a- pro*ides for taxation in cases of transfer of interests( Thedeponent felt that the said !ct did not impact on Tullo), in particular the !2 5S!, because it

    had obtained an exemption(

    .r( 3nch testified that around the time the 2''8 !mendment !ct )as passed, Tullo) )as in

    discussion )ith its ban s regarding funding of its operations( ! farmdo)n )as an important part

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    in its financing plans( 3t assumed that the farmdo)n proceeds )ould be recei*ed taxCfree( 3n

    relation to the !1 and !"! 5S!s, he thought that the ne) 5art 3K! in the 3T! pro*ided for

    exemptions in relation to the interests in the said 5S!s(

    .r( 3nch emphasiIed that Tullo) did not anticipate any taxes( This )as because the !2 5S!)as a legal and binding agreement( 3t had an exemption from capital gains tax in !rticle 2"( (

    .r( 3nch stated that :the obligations under the 5S!s )ere negotiated in good faith on the basis

    of the stability and certainty of the Uganda fiscal regime(((; =o)e*er, he stated that .r( HiiIa told

    Tullo) that there )ere *ie)s )ithin the >%U that the !2 exemption )as not *alid( Tullo) )as

    informed that the U?! had in mind a tax liability of around US$ 47' million )hich indicated that

    the >%U did not accept that !rticle 2"( of !2 5S! ga*e an exemption(

    .r 3nch argued that the so*ereign state of the ?epublic of Uganda had the authority to enter

    such agreement and therefore could not collect tax( !ccording to .r( 3nch, the terms of the 5S!

    pre*ailed in case there )as a conflict )ith the 3T!( Tullo) had the right to expect >%U to eep

    its )ords as set out and agreed in !rticle 2"( of the 5S!( !ccording to .r( 3nch, >%U has gi*en

    exemptions to other companies, for example 6idco(

    .r( 3nch also submitted that Tullo)@s cost base )as the =eritage gain subDect only to any

    potential deduction in respect of excess costs( =e stated in his statement that Tullo) has no

    excess costs( Tullo) paid the base price of US$ 1," ' million and a contingent consideration of

    US$ 1'' million( Tullo) also paid an additional US$ 1",&"7,11+ in respect of the )or ing capital

    at completion( Tullo) paid a guarantee cost of US$ 4+,'+1,' 8, stamp duty of US$ 14, '',''''

    on ac uisition and legal fees of US$ 1,'7&,'77 gi*ing to total incidental costs of US$

    +1,14',1" (

    3n cross examination, .r( 3nch testified that the 3T! imposed capital gains tax subDect to thepro*isions of the S5!( =e also testified that the proceeds from the farmdo)n )ould be used for

    exploration, production and de*elopment(

    .r( 3nch informed the Tribunal that =eritage and Tullo) had indi*isible interests( There )as no

    )ay one could split and say )hat is for Tullo) and )hat is for =eritage( .r( 3nch stated that

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    there )as no letter saying that Tullo) )as buying the =eritage interests specifically to sell( The

    intention )as not expressed in any board resolution( =o)e*er .r( 3nch said that )as the

    common understanding of the senior management team(

    =e said that 6loc s 1 and "! )ere sold by Tullo) to # %%# and Total at a loss of US$17 , 77,2 1( =e stated that there )ere additional payments that )ere made to =eritage and

    they could not pass them to the buyers( They incurred an economic cost of US$ 1'' million

    contingent and guarantee fees to the ban )hich cost around US$ 4+ million( =e stated that

    Tullo) sold ++(+7A of its interests at US$ 2(& billion but 'A of that )ere interests that formerly

    belonged to =eritage( They sold =eritage interests at US$ 1(4 billion at a loss( =e said the

    ans)er )ould ha*e been different for tax computation if they had considered the asset as

    undi*ided( =e said the loss arose because Tullo) expensed it )ith the cost of the assetac uired in accordance )ith international accounting standards( 9egally Tullo) sold =eritage

    interest first(

    =e testified that there )as a difference bet)een the first disposal by =eritage and the second

    disposal by Tullo) in respect of computing the cost base and deductions( The distinction is that

    for an initial disposal, the cost base of the asset is the amount paid, to )hich is added incidental

    costs of the ac uisition and in the case of a subse uent disposal the cost base is the first

    seller@s gain(

    The respondent called t)o )itnesses( The first )itness )as .r( rnest Tum)ine ?ubondo, the

    #ommissioner 0epartment of 5etroleum xploration and 5roduction in the .inistry of nergy

    and .ineral 0e*elopment in the >%U( .r( rnest ?ubondo ga*e a lengthy history of petroleum

    explorations in Uganda )hich he stated dates bac as far as 1&1', )hen oil seeps )ere

    reported( %il explorations started but ended around 1&4' as a result of the onset of the Second

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    2'''( 3n 2''2, =eritage and nergy !frica drilled Turaco 1 )here they encountered oil shoals(

    The companies also drilled Turaco 2 and " )here they encountered hydro carbons in 2''4( 3n

    2''4, =eritage and nergy !frica actually surrendered !rea " and reapplied for it from the >%U(

    3n uly 2''4, the companies ac uired another licence in the 5a )ach 6asin( 3n 2''+ oil )as

    disco*ered(

    .r( ?ubondo testified that he )as part of the >%U team that negotiated the !1 5S!( >%U

    )ould do a due diligence on a company and if it )as )orth dealing )ith, it )ould send it a draft

    5S!( The parties )ould then agree on the terms( =e testified that !rticle 2"( )as in the model

    5S! that )as prepared in 1&&"( 3t )as not negotiated by the parties( =e said that the intention of

    >%U )as that it did not )ant licensees to be encumbered )ith fees, imposts and taxes( The

    obDecti*e of the clause )as to facilitate the licensees to bring on board partners to share ris)ithout the need to pay fees and imposts li e stamp duties and signature bonuses( =e said

    clearly the clause )as not meant to co*er taxes on gains( 3ts purpose )as to facilitate the

    sharing of ris and not to guide the taxation of a gain(

    =e further testified that TU9 ac uired nergy !frica in 2''4( TU%5 ac uired =ardman in 2''7(

    TU9 had 'A interests in !1 and !2( TU9 )as together )ith =eritage in !" in a 'A each

    Doint *enture( TU9 too o*er =eritage@s interests on 7 th !pril 2'11 after it exercised it right of preC

    emption( TU9 ac uired the rights of =eritage to de*elop and produce oil( =e stated that the said

    interests in the agreements )ere indi*isible(

    %n crossCexamination, .r( ?ubondo reiterated his earlier position that !rticle 2"( does not

    apply to farmdo)ns( =e stated that the farmdo)n to # %%# and Total )as dependant on

    consent from >%U, more precisely the .inistry of nergy and .ineral 0e*elopment(

    The respondent@s second )itness )as .r( .oses .esach HaDubi, its #ommissioner 0omesticTaxes( The 0omestic Tax 0epartment is responsible for collecting all domestic taxes in Uganda

    inclusi*e of income taxes(

    Sometime in %ctober 2'1', the department recei*ed the S5!s of Tullo), Total and # %%#(

    The department studied the S5!s and realised that Tullo) )as selling its interests to Total and

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    # %%#( %n the 18 th %ctober 2'1', the respondent issued assessments to Tullo)( The

    assessments )ere issued because it )as a one off transaction and it )as of substantial *alue(

    The respondent re*ised the assessments on the applicant( ! re*ised assessment )as issued in

    /ebruary 2'12 )hich )as again re*ised in o*ember 2'12(

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    .r( HaDubi argued that excess costs should be used in the computation of taxes( xcess costs

    are rele*ant in subse uent disposals( Tullo) argued that excess costs )ere nil( =o)e*er the

    respondent argued that excess costs )ere US$ 1 ' million( !ccording to .r( HaDubi, excess

    costs reduce the cost base on the subse uent disposal( .r( HaDubi argued that )hen a

    subse uent disposal is made, a taxpayer is only restricted to excess costs(

    .r( HaDubi testified that the reco*erable costs incurred by the applicants )ere reDected as

    deductions( This is because they are a*ailable for reco*ery under the S5!( To allo) them )ould

    gi*e the taxpayer a double benefit(

    !s regards the issue of rein*estment relief, .r( HaDubi stated that the respondent did not get any

    e*idence of an in*oluntary disposal( 3n order for an in*oluntary disposal to ta e place it must bedone against one@s )ill( Tullo) )as )illing to sell its interests( There )as no e*idence to sho)

    that Tullo) )as forced to sell the extra 1+(+7A of its interest( !ccording to .r( HaDubi )hat )as

    re uired to pro*e in*oluntary disposal )ould be a letter, a decree or something in )riting(

    Secondly, the proceeds of an in*oluntary disposal should be rein*ested in an asset of a li e

    ind( This has to be done )ithin one year of the disposal( =e contended that the transaction )as

    concluded in .arch 2'12 and there is no e*idence that there )as rein*estment )ithin one year

    from the date of disposal( !ny expenses that )ould be brought to the attention of the respondent

    )ould be used to ma e an adDustment( .r( HaDubi opined that the assets of a li e ind should be

    an in*estment in an interest in another 5S!((

    .r( HaDubi said the sale price for the interests in !1 )as US$ 77 million and on !" )as US$

    7 million( These figures )ere pic ed from the S5!s( The cost base )as US$ 74+,1 2,777 for

    ! 1 and US$ ", &7,222 for !2(=e also argued that the economic loss claimed by the

    applicants )as a creation and not real( The purported economic loss arose from Tullo) claiming

    that )hat )ere sold first )ere =eritage@s interests( %ut of the ++(+7A interest sold, 'A )as)hat )as purchased from =eritage( Therefore the cost base for that should be accepted as a

    cost in the computation of the loss( The loss )as a result of the Jlast in first out@ 93/%- in the

    allocation of costs approach( 3f the Jfirst in first out@ /3/%- approach )as used there )ould be no

    loss( The gain for /3/% approach is about 2"' million dollars(

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    .r( HaDubi stated that Jexcess costs@ is the difference bet)een the costs that are a*ailable for

    reco*ery from the first person )ho sold, minus anything that is reco*ered( They apply to a

    subse uent sale( =eritage had reco*erable costs of US$ 1 ' million( =e said that excess costs

    are deducted from cost oil( =e defined cost oil to mean a contractor@s entitlement to production

    as cost reco*ery under a 5S!( =e said that a company obtains cost oil at the commencement of commercial production( There has not been any commencement of commercial production and

    reco*ery of costs( one of the companies in*ol*ed, =eritage, Total # %%# and =ardman ha*e

    reco*ered any expenditure(

    .r( HaDubi told the Tribunal that stamp duty )as paid in the ac uisition of interests from Tullo) to

    # %## and Total( =e said there )as no exemption for stamp duty( 3n order to get an exemption

    the .inister of /inance )ould ha*e to issue a statutory instrument to that effect as per thepo)ers delegated to him by 5arliament( =e stated that no tax exemption is *alid unless there is

    a specific pro*ision in the 3T!( Tax holidays and tax exemptions re uire a statutory instrument

    issued by 5arliament( =e said the respondent does not grant exemptions, it implements( 3t

    issues certificates but the exemptions are granted by 5arliament(

    .r( HaDubi said the right to reco*er costs is one of the rights disposed of under the S5! as an

    assignable interest( =e stated that Tullo) recei*ed consideration for the transfer of the said right

    to # %%# and Total( To obtain a benefit from such a relief after disposing of the same interest

    )ould amount to double dipping(

    -. SUMMARY OF THE PARTIES MAIN ARGUMENTS

    %n issue 1(1, the applicants submitted that the completion of the sale and purchase bet)een

    the applicants, # %%# and Total occurred on the 21 st /ebruary 2'12 )hen the *arious

    conditions )ere met and the purchase price paid( !s a result thereof the applicants transferredparts of their interests in the 5S!s to # %%# and Total on that date( The applicants contended

    that such disposals )ere go*erned by S( 8&> of the 3T!( =ence they attracted capital gains tax(

    The applicants submitted that !2 5S! !rticle 2"( contained an exemption from taxes( 3t not

    only co*ered income tax but all other fees or imposts le*ied on an assignor( Such a )ide

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    exemption cannot be said to exclude a charge to tax under the 3T!( The income tax charge

    imposed by the 3ncome Tax !ct is clearly a charge to tax( !ccording to them, !rticle 2"( of the

    !greement )as )ide and clearly co*ered income tax on capital gains accruing on assignment or

    transfer( The applicants argued that )hen a person passes an interest in an agreement to

    another contractor, he must assign or transfer that interest( The applicants cited Black’s Law Dictionary )hich defines assignment as an :act by )hich one person transfers to another, or

    causes to *est in that other, the )hole of the right, interest, or property )hich he has in any

    realty or personality(((; !ccording to them, !rticle 2"( of the !greement )as )ide and clearly

    co*ered income tax on capital gains accruing on assignment or transfer(

    %n issue 1(2, the applicants argued that any minister irrespecti*e of )hether he or she is the

    .inister of /inance could enter an agreement containing a term as found in !rticle 2"( ( Theycontended that the .inister as an agent of the >%U had authority to sign the 5S! on its behalf

    in respect of each pro*ision( The applicants contended that ?%U may enter into an agreement )ith any person in

    respect of, inter alia, the grant of a licence, etc and any matters incidental to or connected )ith

    the foregoing( The applicants argued that S( 2 applied to !rticle 2"( of the 5S! and granted

    necessary po)ers to the .inister to enter into the agreement )here an exemption )as granted(

    This )as because !rticle 2"( )as incidental and connected )ith the foregoing, that is, the

    granting of a licence( The applicants cited the case of Scottish Widows plc V RCC L2'1'M ST#

    21"" )here the court emphasised that :(((the phrase Jin connection )ith@ generally merits a )ide

    interpretation(((; it )as their submission that :connected )ith; re uires a *ery )ide interpretation,

    a in to :ha*ing to do )ith; in 5 5!, S(2( The applicants submitted that the fact that there may bespecific exemptions in the 3T! go*erned by particular rules does not mean that the >%U cannot

    grant a tax exemption under another !ct(

    The applicants argued that though the 3T! )as enacted after the 5 5!, there is nothing in the

    3T! that could be said to amend or repeal the 5 5!( ! later la) can only implicitly amend an

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    earlier la) )here t)o pro*isions in uestion cannot coCexist( S( 2 of the 5 5! co*ers a number

    of possible matters, most of )hich ha*e nothing to do )ith tax( Thus the taxing legislation

    cannot possibly be said to repeal implicitly a pro*ision )ith )ider import( S( 2 of the !ct does not

    grant an exemption from tax, it empo)ers the .inister to grant such an exemption( 3t empo)ers

    the >%U to agree to refrain from enforcing the 3T! in certain circumstances )hich are :incidentalto or connected )ith; the matters in the 5 5!(

    The applicants submitted that there are other authorities gi*en to the >%U acting through the

    .inister to enter the !2 5S!, including !rticle 2"( ( These authorities include preC)ritten

    constitution po)ers preser*ed by the #onstitution( This is e*idenced in !rticle 274 of the

    #onstitution( The applicants contended that the existing common la) or prerogati*e po)ers

    *ested in the 5resident and the rest of the executi*e continue to apply, including the po)er to)ai*e or *ary payment of tax )hich existed prior to the enactment of the #onstitution( Therefore

    the preC)ritten constitution po)ers are one of the sources of the .inster@s po)ers to enter into

    !rticle 2"( (

    The applicants contended that under the #onstitution of Uganda, the .inster had po)ers to

    enter the 5S! !rticle 2"( ( %bDecti*e 3 of the #onstitution re uired all organs and agencies of the

    State to apply the obDecti*es and principles in the #onstitution in interpreting any other la) or

    implementing any policy decisions( These obDecti*es include the right to de*elopment obDecti*e

    3K- and stimulation of industrial de*elopment by adoption of appropriate policies obDecti*e

    K3 ii--( The terms of the 5 5! are )orded to support the honouring of obligations such as !rticle

    2"( as it encompassed policies aimed at stimulating industry and encouraging pri*ate initiati*e

    for the benefit of Uganda(

    The applicants argued that !rticle 2 of the #onstitution pro*ides for the supremacy of the

    #onstitution( The applicants argued that the #onstitution does not ma e express pro*isions of granting tax exemptions or not( There is also no express pro*ision that the general po)ers of

    the #onstitution shall pre*ail o*er statute la) )here the t)o are inconsistent( The applicants

    argued that the *esting of executi*e po)er in the #onstitution in the 5resident gi*es him *ery

    )ide po)ers( There is no specific pro*ision pre*enting the 5resident from granting a tax

    exemption in the #onstitution( The applicants submitted that !rticle 11 2- of the #onstitution also

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    confers )ide po)ers on the cabinet( This is the source of the .inster@s po)ers to enter into

    !rticle 2"( ( !rticle 2"( does not see to amend the 3T!(

    3n respect of issue 1(", the applicants re uested the Tribunal not to ma e any ruling on the

    application of international la) to the present dispute( 3n short, the applicants abandoned thesaid issue(

    !s regards issue1(4, the applicants contended that the respondent )as an agent of >%U( %U, it is also bound by >%U( The Uganda ?e*enue !uthority !ct 1&&1

    U?!!- established the respondent as a central body for the assessment and collection of

    specified re*enue and to administer and enforce the la)s relating to such re*enue( Under the

    said !ct, the !uthority is an agency of the >%U( The applicants cited Heritage Oil and GasLimited !R" #i*il !ppeal 14 of 2'11 )here the court said that U?! is not autonomous of

    >%U( U?! as a statutory agent is part and parcel of >%U( 3t cannot therefore be seen to

    disassociate itself from the 5S!( Thus the 5S!s are agreements entered into by the >%U but to

    )hich the respondent is also a party( The applicants argued that the effect of the decision in

    Heritage is that the >%U cannot simply ignore the !2 5S! !rticle 2"( ( The .inster signed on

    behalf of the >%U( The respondent as an agent of >%U clearly cannot ignore a legally binding

    obligation of the >%U, its principal(

    The applicants argued the Tribunal should enforce !rticle 2"( exercising the Durisdiction

    conferred on it by the T!T !ct( The applicants contended that the Tribunal@s po)ers are )ide(

    They include the po)ers of it to :stand in the shoes; of the decision ma er and exercise all the

    po)ers he or she had at the time the decision )as made( The Tribunal can ma e a ne)

    decision in substitution of the original one(

    3ssues 1( and 1(+ dealt )ith the doctrines of estoppel and of legitimate expectationrespecti*ely( The applicants contended that estoppel refers to circumstances in )hich by the

    operation of la) an indi*idual or body is pre*ented from beha*ing in a particular manner(

    ?eferences to estoppel include reference to legitimate expectation( 9egitimate expectation

    applies to pre*ent the >%U from ignoring its obligations under the !2 5S! !rticle 2"( (

    Similarly, the principle of pacta s#nt ser anda may also operate to pre*ent unfairness(

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    The applicants also relied on :legitimate expectation;, a principle distinct from estoppel( The

    applicants argued that since estoppel cannot apply to the >%U, the references to estoppel in

    the obDection refer to >%U being estopped by other principles of fairness particularly legitimate

    expectation and pacta s#nt ser anda ( The applicants contended that legitimate expectation canand does apply to pre*ent the >%U from ignoring its obligations under the !2 5S! !rticle 2"( (

    Similarly, the principle of pacta s#nt ser anda applies(

    The applicants cited the case of Co#ncil o$ Ci il Ser ices !nion %inister $or Ci il Ser ice

    L1&8 M !# "74, )here 9ord /raser said

    :! legitimate expectation may arise either from an express promise gi*en on behalf of a public

    authority or from the existence of a regular practice )hich the claimant can reasonably expect to

    continue(((;

    The applicants argued that its legitimate expectation is clearly )ithin the terms as defined( The

    applicants submitted that the principle of legitimate expectation applies so as to estop an

    agency of the state going bac on its representation( The applicant submitted that the >%U

    through the .inister entered into the 5S!( The >%U has bound the re*enue authority, the U?!,

    as its agent, to honour its agreement( The Tribunal should ensure that the respondent does this(

    The applicants relied on the e*idence of their )itnesses to rely on the application of the principleof legitimate expectation( !raham testified that :Tax reliefs or exemptions are

    part of ensuring that the entering into a 5S! is economically *iable( (((( 3t is common for

    go*ernments to pro*ide certain incenti*es to encourage oil production( (((; They concluded that

    !rticle 2"( ga*e them the :confidence to proceed on the basis that there )ould be no tax(;

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    e( p %)* !nderwriting "gencies Ltd+ L1&8&M ST# 87" )here 6ingham 9 lin ed the concept of

    legitimate expectation and estoppel in saying

    :3f in pri*ate la) a body )ould be ((( estopped from so acting a public authority should generally

    be in no better position( The doctrine of legitimate expectation is rooted in fairness(;

    Therefore the respondent as an agent of the >%U, )hich had agreed that there )ould be no taxto be charged, should be estopped from acting unfairly by charging tax(

    The applicants argued that )hile estoppel is a pri*ate la) remedy, legitimate expectation is a

    public la) remedy( %U or the respondent,

    this does not mean that public bodies ha*e a :free rein; to beha*e in a manner )hich is unfair

    and preDudicial to the rights of the indi*idual( The applicants contended that the doctrine of

    legitimate expectation )as also confirmed in the decision of the =ouse of 9ords in ,ast S#sse(

    Co#nty Co#ncil- e( parte Reprotech ./e0sham1 Ltd+ L2''2M 4 !ll ? 8, )here 9ord =offman

    stated at paragraph "

    :((( 3t seems to me that in this area, public la) has already absorbed )hate*er is useful from the

    moral *alues )hich underlie the pri*ate la) concept of estoppel and the time has come for it to

    stand upon its o)n feet(;

    The applicants submitted that legitimate expectation can apply to restrict the acti*ities of an

    agency of a state, including the discharge of its functions under a statute( The applicants cited

    the case of /reston &RC L1&8 M !# 8" )here the #ourt sa) no reason )hy it should notre*ie)

    :((((( a decision ta en by the commissioners Lof 3nland ?e*enueM if that decision is unfair to the tax

    payer because the conduct of the commissioners is e ui*alent to a breach of contract(((;

    3nR &RC' e( p %)* !nderwriting "gencies Ltd L1&8&M ST# 87" the court noted

    :(((3f a public authority so conducts itself as to create a legitimate expectation that a certain course

    )ill be follo)ed it )ould often be unfair if the authority )ere permitted to follo) a different course

    to the detriment of the one )ho entertained the expectation(((;

    The applicants therefore argued that )here the re*enue authority so conducted itself to create alegitimate expectation that the state )ill not charge tax in particular circumstances, tax shall not

    be charged( 3f the taxpayer has a legitimate expectation the state must eep its )ord( =ence if a

    party )ere to sho) that the representations )ere made to it by a state or an agency of the state

    and it has legitimate expectation then the state )ould be bound by those representations(

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    The applicants argued that the de*elopment of legitimate expectation can be seen in a decision

    of the =igh #ourt of Henya in Rep#0lic and Others "ttorney General L2''+M 2 ! 2+ )here

    the court stated that

    :The principle )hich Dustifies the importance of procedural protection has come to be no)n as

    legitimate expectation( Such an expectation arises )here a person responsible for ta ing adecision has induced in someone )ho may be affected by the decision a reasonable expectation

    that he )ill recei*e or retain a benefit((((;

    The applicants argued that the doctrine of legitimate expectation has also been applied in a

    number of other cases in Henya( These include Rep#0lic %inister $or Local Go ernment and

    another e( parte /a#l %#geithi 2oel 345567 *LR %iscellaneo#s Ci il "pplication 865 o$ 4556 ,

    Rep#0lic and others "ttorney General and another 345597 4 ," 49: ( The applicants, therefore,

    argued the Tribunal should accept that the doctrine of legitimate expectation forms part of the

    la) of Uganda( They contended that the principle )as applied in the =igh #ourt of Uganda in

    the case of *ato ;=# 2"(

    The applicants also relied on the doctrine of pacta s#nt ser anda , )hich re uires those entering

    into contracts to honour their obligations( The applicant contended that respondent as agent of

    the >%U is not entitled to collect tax from the applicants in contra*ention of !rticle 2"( of the

    !2 5S!(

    %n issue 2, the applicants contended that they sold ++(+7A of the interests they held in the

    bloc s( %f the ++(+7A interest, 'A interest )as )hat they ac uired from =eritage, 1+(+7A )as

    their original interest( The applicants contended that they purchased the =eritage interests

    exercising their preCemption rights for the purpose of selling them and to facilitate the

    de*elopment of the areas( The applicants obDected to the respondent@s argument that the

    interests they sold )ere indi*isible( The applicants argued that there )ere no accounting

    principles )hich discourage transactions carried out in the )ay the applicants sold their interests

    to # %%# and Total i(e( by selling all of the =eritage interests first and a small proportion of the

    original interests(

    The applicants argued that the respondent@s alternati*e proposal of Jfirst in first out@ /3/%-

    model )as aimed at yielding the greatest amount of tax )hich o*errides the clear pro*isions of

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    the S5!s( The applicants cited the case of Stanton Drayton L1&8"M 1 !# '1 )here the court

    noted that the consideration in any particular case must be determined by reference to the

    contract )hich the parties concerned concluded(

    3n respect of computation of capital gains, the applicants contended that this is determined bythe rules set out in 5art 3K! of the 3T!( The applicants submitted that S( 8&6 pro*ided for

    inconsistencies( c-, 8&/, the 8 th Schedule and

    S( 2 contain the pro*isions of the taxation of disposals of interests in a petroleum agreement(

    S( 22 is not applicable as it is inconsistent )ith 5art 3K!( The applicants see no tenable reason

    )hy incidental expenditure incurred in impro*ing or altering the assets under the 5S! should not

    be deducted under S( 2 +-(

    3n reference to the double dip point raised in the obDection decision by the respondent, the

    applicants argued it can only ha*e effect in t)o circumstances( The first in respect of the

    possible future use of the carried for)ard potential deductions against cost oil( The second in

    respect of the potential use by a transferee of the deduction against cost oil(

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    The applicants submitted that S( 8&>, )hich is headed :Transfer of interests in a 5etroleum

    !greement;, sets out the rules for dealing )ith the allo)able deductions upon the transfer of an

    interest( The applicants contended that there are separate charging codes for the original

    interests /irst disposals- and subse uent disposals(

    The applicants submitted that S( 8&> c- is used for determining the cost base )here there is an

    original transfer of interest( The cost base )ill be determined in accordance )ith 5art O3 of the

    !ct( 5art O3 comprises Section 4& N 4 of the 3T!( 3n 5art O3, the principal rules for the

    computation of the tax base are set out in S( 2 of the 3T!( The applicants submitted )here

    there is a first disposal the rules fix the cost base by ta ing into consideration )hat the taxpayer

    expended on the interest( The applicants contended that the transfer of the original interests andthe !2 interests )ere subDect to the regime in S( 8&> c- of the 3T!( The applicants contended

    that the cost base of the original !1 and !"! interests and the !2 interests included

    incidental expenditure incurred to purchase, produce, construct or impro*e these interests( The

    incidental expenses that )ere communicated by the applicants to the respondent )ere 47

    million

    5art 3K! contains separate charging rules for subse uent transfers of interests in petroleum

    agreements in S( 8&> d-( d- for

    subse uent disposals( The applicants are the :transferee contractors; and =eritage is the

    :Transferor #ontractor;( 3n determining the applicant@s cost base for the gain in the disposal to

    Total and # %%# it is =eritage@s gain )hich )as computed at US$ 1,4 ',''',''' as held in

    Heritage Oil and Gas Limited !R" !pplications 2+ and 28 of 2'1'( The transferor contractor@sgain is deemed to be the transferee contractor@s cost base(

    The applicants submitted that deductions in income computation is dealt )ith by S( 8 of the

    3T!( The applicants further submitted that S( 8 allo)s expenditure on petroleum operations as

    a deduction in respect of income only against cost oil, if there is none, the expenditure is carried

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    for)ard( #ost oil is defined in S( 8&!( S( 8 1- pro*ides the rules for deductions allo)able

    against income by allo)ing them only against cost oil( Thus the income deductions are gi*en

    against cost oil only from the year in )hich commercial production commences, )hich has not

    started( !s the applicants ha*e no cost oil, the applicants ha*e not deducted anything( Therefore

    in respect of the original interests and !2 interests there )as no deduction allo)ed(

    The applicants contended that excess costs are not defined( =o)e*er reference to the term may

    be obtained from S( 8 2- of the 3T!( xcess costs under S( 8&> d- i- are the excess of the

    total deductions gi*en in relation to petroleum operations less the cost oil for the year of income(

    The applicants contended that excess costs cannot arise as commercial production has not

    started( There are no excess costs to be ta en into account and none to deduct from the cost

    base under S( 8&> d- i-(

    The third issue )as in respect to the applicants@ entitlement to rein*estment relief( S( 4 of the

    3T! pro*ides for in*oluntary disposals and the entitlement to rein*estment relief( The applicants

    had to sho) that the disposal )as in*oluntary and the proceeds are to be rein*ested in assets of

    a li e ind )ithin the specified period(

    The applicants farmed do)n an aggregate of ++(+7A of their interests( The applicants argued

    that they intended to dispose of 'A of their interests( They needed >%U@s appro*al for the

    sale( The >%U )anted three e ual partners to in*est in the 9a e !lbert 6asin( Since the

    applicants needed that >%U@s consent to proceed )ith the sale, they had no choice but to

    dispose ++(+7A of their interests( The disposal of the extra 1+(+7A of the interests )as not

    made *oluntarily(

    The applicants cited the authorities of B#ilding Society Commissioners o$ &nland Re en#e +

    T# 2+ and !R" V Bank o$ Baroda =#TC''C##C#!C' C2'' , )hich broadly interpreted anddiscussed :in*oluntary; disposal( The applicants referred to the e*idence of !

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    =o)e*er, the applicants also contended that, since the hearing before the Tribunal occurred

    before the one year period expired e*idence of their expenditure on assets of a li e ind )ould

    not be gi*en(

    =a*ing discussed the po)ers and Durisdiction of the Tribunal, the applicants prayed that theassessments and the obDection decision of the respondent be set aside( They also prayed that

    the Tribunal finds that !rticle 2"( of the 5S! is *alid under the la)s of Uganda and therefore

    they are entitled to exemption from payment of capital gains tax( They also prayed that all the

    costs incurred by the applicants, including exploration costs be allo)able under S( 2 of the 3T!(

    They prayed that the Tribunal finds that there is no restriction to be made for excess costs for

    purposes of S( 8& >- d- of the 3T!( They also prayed that the Tribunal finds that the applicants

    are entitled to rein*estment relief to a tune of 1+(+7A interests in !s 1, 2 and "! )hich is thesum of US$ 1+4,721 so expended for purposes of rein*estment( The applicants in short prayed

    that the Tribunal ma es ne) assessments of nil liability on each of the applicants( 3n the e*ent of

    such, they prayed that the "'A deposit by them on filing the application be refunded to them(

    3n its reply, the respondent submitted that this matter is an attempt by the applicants to a*oid

    paying income tax on an enormous gain resulting from the largest transaction in the history of

    Uganda, the sale of interests )orth US$ 2(& billion to Total and # %%#( 3t argued that this is

    through the inappropriate manipulation of figures and distortion of the Uganda tax la) by the

    applicants(

    %n 3ssue 1(1, the respondent submitted that !rticle 2"( of the !2 5S! deals )ith )hat is

    referred to as transfer taxes )hich are distinct from taxes on income or gains resulting from

    transfers and is therefore irrele*ant to the taxability of capital gains( The respondent argued that

    income or gains tax applies only to the extent that income of gain is actually realised )hereas a

    transfer tax is charged on a transfer )hether a gain or loss is realised and irrespecti*e of )hether consideration is paid for the transfer( The respondent argued that the language of

    !rticle 2"( is concerned only )ith taxes that ha*e :assignment or transfer; as the base of the

    tax( The respondent ga*e examples of transfer tax exemptions( 3t also referred to pro*isions of

    other countries C !ngola and uatorial >uinea, similar to !rticle 2"( of the !2 5S!(

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    The respondent submitted that pro*isions purporting to pro*ide exemptions from tax must be

    narro)ly construed( The respondent cited the authorities of Ba0i0asssa Commissioner

    General !ganda Re en#e "#thority L2'1"M U>#%..# 21, Hel ering ;orthwest Steel Rolling

    %ills' &nc+ Supreme #ourt United States-, "11 U(S( 4+, Commissioner o$ &nternal Re en#e

    2aco0son' Supreme #ourt United States-, ""+, U(S( 28, %ayo )o#ndation $or %edical ,d#cation = Research et+ al+ !nited States , Supreme #ourt United States-, 1"1 S( #t( 7'4,

    ,dward %a#ghan .S#r eyor o$ >a(es1 >he General >r#stees o$ the )ree Ch#rch o$ Scotland ,

    #ourt of Session Scotland-, 18&"- 2'?( 7 &(

    The respondent referred to the testimony of .r( rnest ?ubondo, and .r( .oses HaDubi, )ho

    supported the position that !rticle 2"( of the !2 5S! did not confer a tax exemption( The

    respondent argued that there is no e*idence on record that contradicted this testimony(

    The respondent also referred to the 2'1' S5! )hich )as signed by the applicants and =eritage(

    The said S5! defined transfer tax to mean :stamp duty payable under the la)s of the ?epublic

    of Uganda;( onC transfer Taxes )ere defined to mean :any taxes other than Transfer Taxes(;

    Under #lause 7(1 of the !greement, all transfer taxes )ere to be borne by the buyer( Under

    #lause 7(2 any onCTransfer tax including any capital gains tax shall be borne by the seller( The

    S5!s executed bet)een the applicants, # %%# and Total maintained the clear distinction

    bet)een transfer taxes )hich )as to be paid by the buyer and capital gains tax by the seller(

    !s regards transfer tax, the respondent cited ( ?ogersC>labush, &B)D &nternational >a(

    Glossary +th ?e*( ed(, 36/0 2''& )hich percei*es transfer tax as a :general term to refer to a tax

    le*ied on the transfer of goods and rights e(g( purchase andEor sale of securities and immo*able

    property(((; 3t also cited Black’s Law Dictionary &th ed( 2''&, 1 &7 )hich defines transfer tax as

    :a tax imposed on the transfer of property, exp( by )ill, inheritance, or gift;, )hile West’s

    ,ncyclopaedia o$ "merican Law 2nd

    ed( 2''8, 7& defines it as :a charge imposed by thego*ernment upon the passing of title to real property or a *aluable interest in such property(;

    The respondent contended that under the % #0, taxes on income, profits and capital gains are

    separated from taxes imposed on other bases including taxes on financial and capital

    transactions( The respondent contended that transfer tax is a type of :indirect tax; )hile income

    or gains tax constitute :direct taxes;(

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    The respondent submitted that in the US, there ha*e been attempts to distinguish bet)een

    transfer taxes such as stamp duty and property transfer taxes, and taxes imposed on gains

    resulting from a transfer( The respondent cited that authorities of S=% ,nterprises the !nited

    States' Co#rt o$ "ppeals $or the )ederal Circ#it .!nited States1' 1&& /("d 1"17 )here the courtstated that if the tax is based solely on a gain, and not on the siIe of the transfer, it is not a

    transfer tax( The respondent also cited the case of && )i$th " en#e "ssociates ;ew ?ork

    States Department o$ >a(ation and )inance #ourt of !ppeals for the Second #ircuit United

    States-, &+" /, 2d '" )here the court emphasised that if the transaction yields no gain, there is

    no tax due( The nature of gains tax is different from stamp taxes and documentary transfer

    taxes(

    The respondent also cited cases that ha*e been addressed in UH courts( 3n Carreras Gro#p

    Limited Stamp Commissioner , 5ri*y #ouncil of the United Hingdom L2''4M S(T(# 1"77 the

    court pointed out that transfer tax is an ad *alorem on the consideration for the property

    transferred, )hereas the capital gains tax is a tax on capital gains(

    The respondent obDected to the applicants@ reference of the )ords :any tax; in !rticle 2"( to

    ha*e a )ide co*erage( The applicants had leaped to the conclusion that any tax clearly co*ers

    income tax on a capital gain accruing on an assignment or transfer( The respondent argued that

    this )as a result of confusion in the applicants bet)een the nature and the base of the charge(

    The respondent argued that !rticle 2"( )ould be manifestly unla)ful under Uganda la) if the

    applicants@ interpretation of it as an exemption is accepted( The respondent submitted that under

    the #onstitution of Uganda a tax may be imposed through a la) passed by 5arliament( 9i e)ise

    a tax can only be *aried if a la) confers such po)er on the person or authority purporting to

    grant the )ai*er( The respondent cited !rticles 7&, && and 1 2 of the #onstitution of Uganda(The respondent contended that the said pro*isions ma e it clear that the executi*e does not

    ha*e the capacity to )ai*e the la)( The respondent cited that authorities of the Heritage case,

    H(.( ,nterprises and others !ganda Re en#e "#thority =##S o( && of 2''1 and *ampala

    ;issan !ganda Limited !ganda Re en#e "#thority #i*il !ppeal o( 7 of 2''& to support its

    arguments(

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    The respondent submitted that discretionary tax exemptions are no longer allo)ed under the 3T!

    after uly 1&&7( xemptions are no) statutorily pro*ided( The 3T! amended the 1&74 3ncome

    Tax 0ecree and the 1&&1 3n*estment #ode !ct( The respondent contended that through the

    adoption of the 1&& #onstitution and the 3T!, Uganda eliminated discretionary tax exemptions)hich )ere replaced )ith statutorily pro*ided ones(

    The respondent contended that the applicants@ argument that the 1&&" 5S! aimed at bringing

    companies into high ris in*estment in*ol*ing enormous sums of money is not correct(

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    The respondent submitted that the applicants@ contention that the .inister )as authorised to

    grant an income tax exemption on the basis of !rticle 274 of the #onstitution )as unfounded(

    !rticle 274 does not pro*ide for the preser*ation of existing po)ers( 3t only pro*ides that existing

    po)ers must be modified to bring them in conformity )ith the #onstitution( The respondent citedthe authorities of Hon+ Sam *#teesa and others "ttorney General #onstitutional 5etition o(

    4+ of 2'11 and "ttorney General Osotraco Ltd #i*il !ppeal "2 of 2''2, to support its

    argument( The respondent submitted that the applicants do not explain the basis of their

    assertion that :preC)ritten constitution po)ers include a po)er to grant exemption from tax(;

    The respondent asserted that Uganda la) embraces the la) that there can be no estoppel

    against a statute( 3f a contractual agreement is ultra *ires the agreement is null, *oid andunenforceable( The respondent cited the authorities of %ainye$#@a

    "ttorney General #onstitutional 5etition o( 1 of 1&&+, *% ,nterprises Ltd and others !ganda

    Re en#e "#thority L2''8M U>#omm# 21, Heritage Oil = Gas Limited !R" #i*il !ppeal 14 of

    2'11, /ride ,(porters Ltd !R" =##S '" of 2''+, !R" Golden Lea es = Resorts Ltd and

    "pollo Hotel Corporation Ltd+ .! '78"E 2''7, !R" Bwama ,(porters Limited #i*il !ppeal + of

    2''", *ampala ;issan !ganda Ltd+ !R" #i*il !ppeal 7 of 2''&(

    The respondent submitted that the applicants@ arguments that the doctrine of estoppel should be

    restricted by that of legitimate expectation should not be ta en seriously( The notion that the

    terms of a statute may be )ai*ed by an agreement that gi*es rise to a legitimate expectation is

    contrary to the rule of estoppel against a statute( The respondent argued that the applicants@

    citation of the case of *ato ;he &rish )oot0all "ssociation - L2'11M 3G6

    ++ )here the court stated that :3t is trite la) that an expectation grounded upon an ultra *ires

    representation cannot be legitimate(; 3n Rowland ,n ironment "gency L2'' M #h(1 the #ourt

    of !ppeal stated that : nglish domestic la) does not allo) the indi*idual to retain the benefit

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    )hich is the subDect of the legitimate expectation, ho)e*er strong, if creating or maintaining that

    benefit is beyond the po)er of that public body(; The respondent also cited the authority of "l

    )ayed and others "d ocate General $or Scotland 2''4 S(T(# 17'" )here the court affirmed

    that an #ltra ires agreement cannot gi*e rise to a legitimate expectation( %ther cases cited by

    the respondent included Wilkinson &nland Re en#e L2'' M 1

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    costs to US$ +1,&'","87 )hich resulted in a tax liability of US$ 4+7,271,&74( The respondent

    communicated the current assessments to the applicants on 2 nd o*ember 2'12( The applicants

    paid the "'A deposit of the tax before filing the application lea*ing a balance of US$

    "2 ,447, "+EP(

    The respondent determined that the applicants had a taxable gain of US$ 1,11",""2,2'' from

    the sale of the !2 interests, a taxable gain of US$ 44&,8"1, ' for their sale of the 'A

    undi*ided interests in !1 and !"! the :original interests;- and a loss of US$ 2 , &', '" from

    the sale of a portion of their 'A undi*ided interests in !1 and !"! the :=eritage 3nterests-

    for a total taxable gain of US$ 1, 7, 7",247(

    3n calculating the applicants@ gains, the respondent disallo)ed preCexisting petroleum operationscosts of US$ "2', 4 ,81& from being included in the applicants@ cost base because such

    expenses )ere deductible against cost oil pursuant to S( 8 of the 3T!( The respondent also

    disallo)ed a deduction for interest expense of US$ 11", 42&,'&+ under the thin capitalisation

    rules under S( 8& of the 3T!, )hich it contended )as not in dispute( The respondent also

    disallo)ed the applicants from using a loss of US$ 2',&87,&"' on !"! to reduce their gain on

    the sale of their !"! interests because such loss related to a separate contract area, !", and

    )as only a*ailable to offset cost oil from the area under S( 8 of the 3T!, )hich is not in

    dispute( The respondent also disallo)ed the applicants@ claim that they are entitled to US$

    1+4,721,''' as rein*estment relief under S( 4 1- c- of the 3T!(

    The respondent submitted that )here a contractor as an original o)ner of interests disposes of

    them, S( 8&> c- is applicable( 3t pro*ides that the cost base for calculating any capital gain or

    loss is determined under 5art O3 of the 3T!( The general rules for the calculation of capital gains

    under 5art O3 are contained in S( 2 of the 3T!( .ore specific rules for the treatment of

    expenditures incurred in relation to petroleum operations are set forth in S( 8 of the 3T!( S(8 1- pro*ides that the amounts deductible in relation to petroleum operations are allo)ed

    only as a deduction against cost oil( The respondent submitted that under S( 8 of the 3T! a

    contractor@s petroleum operations expenditures are allo)ed deductions, )hich )hen they

    exceed the cost oil for a gi*en year, the contractor carries them for)ard into subse uent years(

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    The respondent submitted that the specification that deductions may be ta en :only against cost

    oil; precludes them from being included in an assets@ cost base pursuant to S( 2 +- of the 3T!(

    The respondent agreed )ith the applicants that )hen the contractor disposes of an interest in a

    petroleum agreement pre*iously ac uired, S 8&> of the 3T! applies( The respondent submittedthat regardless of )hether the cost base is calculated under S( 8&> c- or S( 8&> d- the

    applicants are not entitled to include their exploration, de*elopment or production costs in their

    cost base in calculating the gain they realised on the disposal of their interest because the costs

    are only reco*erable against cost oil( 3n contrast, under S( 8&> d- of the 3T!, the applicants are

    not entitled to include incidental expenditures in their cost base(

    The respondent contended that the applicants recei*ed US$ 1 ',''',''' as excess costs, from=eritage )hen they purchased the latter@s interest( The respondent argued that although

    # %%# and Total may reco*er excess costs from cost oil, the applicants@ argument that their

    cost base should include the US$ 1 ',''',''' ignores the application of S( 8&> d- of the 3T!(

    The respondent argued that under S( 8&> d- i- the applicant@s cost base for purposes of

    calculating gain on the sale of =eritage@s interest cannot include the US$ 1 ',''','''( 3n

    calculating the applicants@ gain from the sale, the respondent reduced the applicants@ cost base

    by US$ 1 ',''','' )hich )ere exploration costs that )ere deemed as excess costs under S(

    8 2- of the 3T! and must be subtracted pursuant to S( 8&> d- i- of the 3T!( The respondent

    as ed the Tribunal to allo) the reduction of US$ 1 ',''',''' as excess costs that )ould be

    deductible by # %%# and Total(

    The respondent contended that the exploration costs of US$ "2', 4 ,81& claimed to ha*e been

    incurred by the applicants on !1, !2 and !"! )ere not substantiated nor audited by the

    respondent( The applicants claim to ha*e transferred these costs to Total and # %%#, at the

    same time they see to reco*er them by including them in their cost base( The respondentsubmitted that the US$ "2', 4 ,81& )ere part of the bundle of rights and interests in the 5S!s

    that )as sold for the consideration of US$ 2,&"",""',4''( The respondent contended that they

    should not include them in the cost base because they are reco*erable against cost oil( The

    respondent contended that Sections 8 1- and 8 2- do not disallo) deductions for

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    petroleum operation expenditures in the years )here there is no sufficient cost oilB they merely

    suspend the deductions until future years(

    The respondent contended that the applicants@ argument that prior to the commencement of

    commercial production, no deductions are allo)ed as there is no excess costs is a misreadingof 5art 3K! of the 3T!( The respondent argued that exploration, operation and de*elopment

    operations are by their *ery nature underta en prior to the commencement of commercial

    production( S( 8 1- of the 3T! specifically permits deductions for exploration and de*elopment

    operations costs and limits these deductions to cost oil in the year they )ere incurred( The

    respondent concluded that the portion of excess costs that has been passed along to

    subse uent purchasers under S( 8&> a- of the 3T! cannot be included in the applicants@ cost

    base for purposes of calculating their gain(

    The respondent argued that an alleged loss claimed by the applicants is fictitious( The

    respondent claims that the applicants transformed )hat )as a profitable transaction into a loss

    for tax purposes by applying the Jlast in, first out@ accounting method( The respondent submitted

    that )hat the applicants sold )ere undi*ided interests( The respondent, inter alia, cited Black’s

    Law Dictionary )hich defines :undi*ided interest; as :an interest held in the same title by t)o or

    more persons, )hether their rights are e ual or une ual as to *alue or uantity;( The respondent

    submitted that gi*en the nature of such an interest, a taxpayer cannot choose the cost base that

    it )ishes to allocate to a subse uent sale( The respondent cited the case of 2ohn *+ %c;#lty

    Commissioner o$ &nternal Re en#e , Tax #ourt United States-, T(#( .emo, 1&88C274 )here the

    court held that :! taxpayer )ho o)ns t)o undi*ided oneC half interests in property recei*ed at

    different times, and disposes of an undi*ided oneChalf interest, is deemed to ha*e disposed of

    ' percent of each of the hal*es he o)ned(; The respondent also cited the ruling of the 3nternal

    ?e*enue Ser*ice of the United States, 1&+7, the US case of /orter !nited States , #ourt of

    !ppeals for the Sixth #ircuit United States-, 7"8 /(2d 7"1 and the UH case of >od .&nspector o$ >a(es1 %#dd L1&87M S(T(#( 141( The respondent a*erred that :it is not possible to treat

    portions of an undi*ided interest as separate and distinct interests(;

    The respondent submitted that the 93/% accounting method is not only inappropriate but is also

    not acceptable under 3nternational /inancial ?eporting Standards( S( 4' 1- of the 3T! re uires

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    that a taxpayer@s methods of accounting shall conform to generally accepted standards(

    3nternational !ccounting Standard 2 specifies that :the Standard does not permit the use of the

    Qlast in first out@ 93/%- formula to measure the cost of in*entories(; The respondent also cited

    the case of %inister o$ ;ational Re en#e "naconda "merican Brass Ltd+ L1& +M !(#( 8 )here

    the application of the 93/% )as *itiated in the case(

    The respondent contended that the applicants@ argument that :)hat the parties ha*e agreed to

    sell must also determine )hat has been bought and sold for tax purposes; does not hold( Under

    S( &1 of the 3T!, the #ommissioner has po)ers to reCcharacterise a transaction that )as

    entered into as part of a tax a*oidance scheme, or does not ha*e substantial economic effect or

    does not reflect the substance( The applicants contended that the cost base should be

    recalculated using either the /3/% method or the a*eraging method(

    !s regards incidental expenses, the respondent admitted that it accepted the applicants@

    incidental expenditures of US$ +1,&'","87 incurred )ith respect to =eritage interests( =o)e*er,

    the respondent as ed the Tribunal to exclude those costs( The respondent contended that S(

    8&> d- go*erns the calculation of the cost base for a subse uent disposal of an interest in a

    petroleum agreement( othing in the Section allo)s a transferor to increase its cost base in the

    subse uent disposal by the amount of incidental expenditures(

    %n issue ", the respondent submitted that the applicants are not entitled to rein*estment relief(

    The respondent argued that under S( 4 1- c- a taxpayer must meet four conditionsB i- the

    disposal of the asset must be in*oluntary, ii- the proceeds from the rein*estment must be

    rein*ested, iii- the rein*estment must be in an asset of a li e ind, and i*- the rein*estment in

    an asset of a li e ind must be made )ithin one year of the disposal( The respondent contended

    that the applicants ha*e not met any of the four conditions(

    The respondent alleged that the applicants ha*e failed to discharge the burden of pro*ing that

    the disposal of 1+(+7A interest )as in*oluntary( .ost of the e*idence )as based on the

    testimony of .r( 5aul .c0ade, )hich )as based on his belief( 3n crossCexamination of .r(

    .c0ade, he admitted that there )ere no correspondences from the >%U( !ccording to .r(

    .artin >raham, >%U communicated through meetings, but these )ere unCminuted(

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    /urthermore, .r( .artin )rote a letter to the .inister of nergy and .ineral 0e*elopment )here

    he indicated that Tullo) )ould farmdo)n at least 'A of their interest( The applicants re uested

    the >%U to appro*e the creation of a basinC)ide partnership )here the applicants, # %%# and

    Total )ere holding ""(""A interests each( !ccording to .r( ?ubondo, it )as Tullo) that decided

    the a)ard of ""(""A interests to each party( The respondent argued that the case of !gandaRe en#e "#thority Bank o$ Baroda L2''7M U>#omm# 8 )here the court held that the disposal

    by the ban of its shares )as in*oluntary can be distinguished from the present case( 3n the said

    case there )as an agreement unli e the current one before the Tribunal(

    The respondent submitted that the applicants are not entitled to the rein*estment relief because

    they did not rein*est the proceeds in an asset of a li e ind( The respondent contended that the

    applicants@ claim that they used the proceeds from the sale of the interests in the 5S! to fundpreCexisting costs is incorrect( The respondent argued that S( 4 "- of the 3T! re uired that the

    rein*estment be made in a :replacement asset;( The commonly accepted definition of

    replacement is :something that replaces;( The respondent claimed that from the e*idence

    adduced the applicants did not use the proceeds from the sale of their interests to ac uire ne)

    interests( !ccording to the e*idence of .r( >raham, the proceeds from the sale )ere used to

    build infrastructure and others( The respondent argued that such expenditure )as used to fund

    obligations under the 5S!s that existed prior to the sale( 3t argued that such use of sale

    proceeds to fund preCexisting obligations is clearly not an ac uisition of a replacement asset as

    re uired by S( 4 "- of the 3T!( The respondent cited the US >eneral #ounsel .emorandum

    o( "& 72 )here it is stated that the rein*estment pro*ision )as intended to be a relief pro*ision

    for a taxpayer to restore its economic position to the prior position( The respondent contended

    that the applicants by using the sales proceeds to fund their de*elopment obligations under the

    5S!s they are discharging preCexisting debt( This is not an asset of li e ind ac uired and there

    is no rein*estment at all( The respondent also argued that the applicant rein*estment )as not

    made )ithin one year of disposal(

    The respondent submitted that in the e*ent the Tribunal )ere to find that the applicants )ere

    eligible for rein*estment relief, the relief should be limited to a fraction of the amount to )hich

    they claim they are entitled( The in*oluntary disposal of interests represent 2 A of the total

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    interests that the applicants sold 1+(+7AE++(+7A P 2 A- )hich is US$ 41(" million of the US$

    1+ million the applicants claimed ha*e expended on the 5S!s(

    The respondent prayed that the Tribunal dismisses the application and orders that the

    applicants pay the outstanding tax liability plus interest( They also prayed that the Tribunal findsthat !rticle 2"( of the !2 5S! does not purport to pro*ide an exemption to the imposition of

    tax pursuant to the 3T!( 3f the Tribunal )ere to find that !rticle 2"( of the !2 5S! purported to

    pro*ide an income tax exemption it )ould be null and *oid a0 initio under the la)s of Uganda(

    The Tribunal should find that the respondent is not estopped from imposing tax from the

    disposal of the interests in the !2( The respondent also prayed that the Tribunal finds that the

    concept of legitimate expectation pro*ides no basis for not imposing tax as imposed by the 3T!(

    The respondent also )anted the Tribunal to find that the applicants disposed ++(+7A of its1''A interest and not the 'A ac uired from =eritage( 3t )as also prayed that the Tribunal

    applies the a*erage cost accounting method or in the alternati*e the /3/%@ method as the basis

    of calculating the gain obtained by the applicants( The respondent also )anted the Tribunal not

    to include the exploration, de*elopment or production costs including the excess costs ac uired

    from =eritage in their cost base( The respondent also )anted the Tribunal to find that the

    applicants are not eligible for rein*estment relief( 3n the e*ent the Tribunal finds other)ise, it

    should exercise its po)er under S( 1& of the T!T !ct and remit the matter to the respondent for

    reconsideration( The respondent also prayed for costs of the application(

    3n its reply to the respondent@s submissions, the applicants complained about the approaches

    used by the former( They argued the respondent has raised ne) issues and arguments that

    )ere not raised before( They complained about the language use by the respondent(( The

    applicants argued that the respondent@s use of authorities from other Durisdictions does not ta e

    into consideration the )eight such decisions may ha*e and their rele*ance to the Tribunal( The

    applicants argued that some of the said authorities should be considered as e*idence and notla)( The respondent should not ha*e relied on e*idence improperly submitted to the court to

    )hich the applicants )ere not gi*en an opportunity to challenge(

    3n respect of issue 1, the applicants replied that the respondent@s application of the principles of

    statutory interpretation in the analysis of !rticle 2"( )as fla)ed and simplistic( They argued that

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    !rticle 2"( of the 5S! is a contractual pro*ision and not a pro*ision of a statute( %U( There is a difference )hen an exemption is granted by the

    >o*ernment as opposed to statutory body acting outside its po)ers( The applicants submitted

    that as a matter of constitutional la), the >%U )as empo)ered to enter into !rticle 2"( and the

    .inister acting for and on behalf of the >%U, had authority to sign the 5S!(

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    The applicants argued that !rticle 1 2 2- of the #onstitution does not say that tax can only be

    )ai*ed or *aried( !rticle 1 2 2- merely pro*ides that )here a taxing la) passed in accordance

    )ith !rticle 1 2 1- grants a person authority to )ai*e or *ary tax there must be periodic reports

    to 5arliament by the said person( The 3T! )hich is the taxing authority, the applicants submitted,confer general po)erLsM on any person or authority to )ai*e or *ary a tax imposed by that la)(

    The applicants also argued that !rticle 2"( of the !2 5S! is not a :)ai*er or *ariation;( 3t is an

    exemption from tax, )hich tax is therefore ne*er chargeable( 3t is not a )ai*er or *ariation

    granted :pursuant to a la) enacted under !rticle 1 2 1-( The applicants also argued that !rticle

    2"( of the !2 5S! does not *iolate !rticle 1 2 of the #onstitution for the simple reason that it

    does not in*ol*e :imposing; a tax(

    The applicants also argued that the respondent@s application of !rticle 7& of the #onstitution is

    misconcei*ed( !rticle 7& applies to the po)er to ma e la)s, not to the terms of an agreement(

    The applicants also argued that the respondent@s submission on !rticle && of the #onstitution is

    not correct( !rticle && does not mention a restriction on the 5resident@s authority to :)ai*e the

    la);( The applicant argued that the 5resident has po)er to grant a tax exemption( >ranting an

    exemption does not sho) the >o*ernment@s failure to act according to the #onstitution( The

    applicants argued that !rticle && of the #onstitution should be read in conDunction )ith !rticle

    11" of the #onstitution( 3t pro*ides for the delegation of po)ers to cabinet ministers( The

    .inister )as appointed by the 5resident )ith inherent po)ers to enter into agreements such as

    the !2 5S!(

    The applicants argued that the respondent@s reference to the remo*al of broad discretionary

    exemptions under the 3ncome Tax 0ecree and the 3n*estment #ode has no rele*ance to the

    matter before the Tribunal( /irstly, they relate to completely different specific statutory po)ers

    granted to a different minister, the finance minister( Secondly, the said 0ecree and #ode ceasedto ha*e effect in 1&&7 and the !2 5S! )as entered into by the .inister in 2''1( The

    respondent@s assertion that S( 12 of the 3ncome Tax 0ecree granted broad discretionary

    exemptions is inaccurate( S(12 pro*ided specific statutory exemptions( The applicants argued

    that respondent does not rely on e*idence in ma ing these s)eeping allegations of facts(

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    The applicants argued that the granting of a capital gains tax exemption in relation to

    assignment or transfer of an interest in !2 5S! is clearly connected )ith the granting of a

    petroleum licence, and exploration or de*elopment under the licence as from the e*idence of

    the )itness( There is no reason )hy such an exemption should not be regarded as incidental to

    the matters set abo*e(

    !s regards estoppel, the applicants argued that the respondent failed to distinguish bet)een an

    act of go*ernment and an act of a statutory body( !rticle 2"( is not #ltra ires because the

    go*ernment did ha*e po)er to enter in the !2 5S! !rticle 2"( ( The >%U is not a statutory

    body( #onse uently it does not ha*e statutory po)ers( The applicants posed a uestion :3f the

    go*ernment is not able to grant tax exemptions, then )ho canF; There is no statutory prohibition

    on the >%U gi*ing a tax exemption( The >%U as a principal has po)ers to bind U?!, its agent,and has done so( The applicants argued that the cases cited by the respondent in respect to

    estoppel are therefore not applicable( The respondent cannot identify a statutory po)er !rticle

    2"( is said to be in excess of(

    The applicants contended that the respondent@s argument on the sale of undi*ided interests )as

    an attempt to introduce a ne) issue that )as not raised at the scheduling( The applicants did

    not adduce any e*idence in respect thereof because they )ere not notified( They therefore

    argued that it )ould be manifestly unfair for the respondent to be allo)ed to argue this ne)

    point( The applicants also argued that for there to be undi*ided interests, there ha*e to be t)o or

    more Doint o)ners( /rom the moment the TU9 ac uired =eritage interests it alone held the )hole

    of the interests in those 5S!s( /rom that moment there )as no :tenants in common, there )as

    no :coCo)nership;, )hich concepts are in land la)( The applicants argued that the Tribunal is

    not concerned )ith the disposal of land(

    The applicants submitted that the respondent )as a)are that they intended to sell =eritageinterests since the drafts of the # %%#ETotal contracts )ere sent to the >%U and the

    respondent in %ctober 2'1'( The applicants submitted that >%U appro*ed the draft 5S!s

    )here =eritage interests )ere sold( The )ord :interest; )as defined in the draft agreements to

    include the 1+(+7A interest of the original interests( The respondent issued its assessments

    no)ing that the applicants )ere transferring =eritage interests(

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    The applicants contended that the respondent did not gi*e any authority as )hy it is opposed to

    the :last in first out; accounting method( They also argued that there is no support in Uganda or

    else)here for applying any other rule in respect of the disposal of an undi*ided interest(

    !s regards S( 8&> of the 3T!, the applicants argued that the cost base in respect of the =eritage

    interests comprises the =eritage gain less, if rele*ant, any :excess costs;( They are not see ing

    to :include the US$ 1 ',''',''' rather it is the respondent )ho should argue that such sum

    should be deducted from the =eritage gain as excess costs;( The applicants argued that there

    are no excess costs to date( The applicants argued that the respondent appears to be confusing

    the right to deduct expenditure under S( 8 )ith the deduction of excess costs from a

    transferee contractor@s cost base )here it has disposed of its interest( The applicants submittedthat S( 8 of the 3T! limits the use of expenditure against profits from oil production but it does

    not cancel the relief in respect of a capital expenditure, in a computation of a capital gain under

    S( 2 +-( To them, )hat S(8&> d- states is that )hat must be deducted from the transferor@s gain

    is the excess costs up to the date of the disposal deductible by the transferee contractor( !t the

    date of disposal, there being no cost oil, there are no :excess costs; that can be deducted from

    the =eritage gain(

    The applicants submitted that they are entitled to a deduction for their expenditure of US$ "2'

    million )hich )as passed on to # %%# and Total( !s regards the respondent@s allegation that

    the applicants failed to substantiate the costs of US$ "2', 4 , 81& incurred as exploration

    costs, the applicants submitted that the said figure deri*es from communication bet)een the

    parties in o*ember 2'12 and the tax returns for the year ended "1 st 0ecember 2''&, submitted

    in une 2'12 and pro*ided in the communication in o*ember 2'12(

    The applicants referred to their computation )here the applicants purchased their interests from=eritage at US$ 77 million for !1 and US$ 7 million for !"! from )hich they deducted the

    purchase price for the =eritage interests, US$ 77",1"4,2 8 for !1 and US$ 7",+" ,74' for

    !"!, producing a loss( The applicants contended that the respondent misread S( 22 of the 3T!(

    3t only relates to insurance situations(

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    !s regards the sale of =eritage interests, the applicants submitted that =eritage )anted to sell

    i