4 January 2017

Uganda: How Govt Cleared Shs6 Billion Payout to Officials in Oil Tax Deal

Photo: The Observer
Uganda’s crude oil pipeline (file photo).

Kampala — President Museveni and Cabinet sanctioned the Shs6b payout as "a reward" to officials in various ministries and agencies who handled the case between Uganda Revenue Authority (URA) and the UK-based oil company Heritage, according to both official and unofficial accounts.

The money was shared among 42 officials who were subdivided into three categories - core, noncore and support staff, people familiar with the matter said.

Following URA's court win against both Heritage and the Anglo-Irish Tullow Oil Uganda Ltd, a subsidiary of Tullow Oil Plc, President Museveni in late 2015, hosted the government team that "put up a spirited fight" to recognise them for their efforts and it is here that the idea of the officials bagging "a honorarium" was mooted.

For the deal to materialise, sources added, the team had to appear organised and designated "a would-be accounting officer", in this case the URA Commissioner General, M

President Museveni and Cabinet sanctioned the Shs6b payout as "a reward" to officials in various ministries and agencies who handled the case between Uganda Revenue Authority (URA) and the UK-based oil company Heritage, according to both official and unofficial accounts.

The money was shared among 42 officials who were subdivided into three categories - core, noncore and support staff, people familiar with the matter said.

Following URA's court win against both Heritage and the Anglo-Irish Tullow Oil Uganda Ltd, a subsidiary of Tullow Oil Plc, President Museveni in late 2015, hosted the government team that "put up a spirited fight" to recognise them for their efforts and it is here that the idea of the officials bagging "a honorarium" was mooted.

For the deal to materialise, sources added, the team had to appear organised and designated "a would-be accounting officer", in this case the URA Commissioner General, Ms Doris Akol, to lead the process with advice from the then Attorney General and approval from Cabinet.

"President Museveni accepted the proposal but on condition that all applicable taxes are deducted," a source noted.

Ms Akol, who prior to becoming the URA commissioner-general, headed the body's legal department that led the court battles against both Tullow and Heritage, was not readily available for comment on the matter as she did not pick or return our calls by press time.

However, Finance ministry spokesperson Jim Mugunga, besides clarifying that it was Shs6b and not Shs7b as the online news website ChimpReports that broke the story indicated, defended the payout as a recognition of the efforts of the officials involved.

"The honorarium is less than 1 per cent of the total money that the team was able to secure from the two cases," Mr Mugunga argued. "And besides, all the money paid out was taxed."

Asked why and who tasked URA to distribute the money, Mr Mugunga said the Treasury did so to ensure that all applicable taxes were collected.

After Heritage sold its 50 per cent interest in Uganda's oil fields in August 2010 at $1.5 billion (Shs5 trillion) to Tullow, yielding the first biggest windfall of the country's nascent petroleum sector at the time, URA slapped a $404 million (Shs1.4 trillion) capital gains tax on the transaction.

The tax dispute became a protracted legal battle and different courts, including a Ugandan Tax Appeals Tribunal and a commercial court in London, took four years to resolve the matter. A recent expose by the International Consortium of Investigative Journalists showed that Heritage knew about the imminent tax liability weeks before it was officially imposed and contracted tax accountants and lawyers to fight it off as unwarranted and illegal.

Heritage settled for two options: tackle the levy head-on and, on failing, move the business and assets to a tax haven with the professional help of lawyers and accountants. But because Tullow, as the buyer, had yet to pay Heritage, government threatened not to renew its exploration licences, which were due to expire, unless it deducted and remitted the equivalent capital gains tax.

After a hard bargain, in April 2011, Tullow capitulated and sent to government $121 million (Shs403b), an equivalent of a 30 per cent threshold down payment before filing of tax appeals under the country's laws. The balance of $283 million (Shs943b) was deposited on an escrow account with Standard Chartered Bank in London, pending resolution of the tax dispute that ended in 2013.

Another $30 million (Shs100b) was separately assessed on a $100 million (Shs356.8b) that Heritage additionally paid Tullow Uganda Ltd as cash settlement arising from a breach of the companies' Sharing and Production Agreement.

Heriatge later opposed these tax payments as "collusion" between Tullow and the Ugandan government, resulting in the London case that Justice Burton on June 14, 2013, decided in Tullow's favour.

In another case, URA in June 2015 settled for $250m (Shs824b) from Tullow after three years of legal battles over Capital Gains Taxes when the latter sold 66.66 per cent of its stake to CNOOC and TOTAL for $2.9b, making it the largest transaction to date in Uganda's history against the $142m that Tullow had been arguing was the right tax assessment.

Notable recipients

  • Ms Akol received Shs242m
  • Former AG Peter Nyombi Shs226m
  • Shs393m wired to account of former Finance PS Chris Kassami, who passed on last year.
  • Former deputy AG Fred Ruhindi got Shs93m
  • KCCA executive director Jenifer Musisi, who previously served as head URA's legal department, received Shs121m
  • Lawrence Kiiza, a senior official in the ministry of Finance, got Shs102m
  • Solicitor General Francis Atoke got Shs234m
  • Director of Legal Affairs at the Solicitor General's office, Mr Christopher Gashirabake, received Shs242m

s Doris Akol, to lead the process with advice from the then Attorney General and approval from Cabinet.

"President Museveni accepted the proposal but on condition that all applicable taxes are deducted," a source noted.

Ms Akol, who prior to becoming the URA commissioner-general, headed the body's legal department that led the court battles against both Tullow and Heritage, was not readily available for comment on the matter as she did not pick or return our calls by press time.

However, Finance ministry spokesperson Jim Mugunga, besides clarifying that it was Shs6b and not Shs7b as the online news website ChimpReports that broke the story indicated, defended the payout as a recognition of the efforts of the officials involved.

"The honorarium is less than 1 per cent of the total money that the team was able to secure from the two cases," Mr Mugunga argued. "And besides, all the money paid out was taxed."

Asked why and who tasked URA to distribute the money, Mr Mugunga said the Treasury did so to ensure that all applicable taxes were collected.

After Heritage sold its 50 per cent interest in Uganda's oil fields in August 2010 at $1.5 billion (Shs5 trillion) to Tullow, yielding the first biggest windfall of the country's nascent petroleum sector at the time, URA slapped a $404 million (Shs1.4 trillion) capital gains tax on the transaction.

The tax dispute became a protracted legal battle and different courts, including a Ugandan Tax Appeals Tribunal and a commercial court in London, took four years to resolve the matter. A recent expose by the International Consortium of Investigative Journalists showed that Heritage knew about the imminent tax liability weeks before it was officially imposed and contracted tax accountants and lawyers to fight it off as unwarranted and illegal.

Heritage settled for two options: tackle the levy head-on and, on failing, move the business and assets to a tax haven with the professional help of lawyers and accountants. But because Tullow, as the buyer, had yet to pay Heritage, government threatened not to renew its exploration licences, which were due to expire, unless it deducted and remitted the equivalent capital gains tax.

After a hard bargain, in April 2011, Tullow capitulated and sent to government $121 million (Shs403b), an equivalent of a 30 per cent threshold down payment before filing of tax appeals under the country's laws. The balance of $283 million (Shs943b) was deposited on an escrow account with Standard Chartered Bank in London, pending resolution of the tax dispute that ended in 2013.

Another $30 million (Shs100b) was separately assessed on a $100 million (Shs356.8b) that Heritage additionally paid Tullow Uganda Ltd as cash settlement arising from a breach of the companies' Sharing and Production Agreement.

Heriatge later opposed these tax payments as "collusion" between Tullow and the Ugandan government, resulting in the London case that Justice Burton on June 14, 2013, decided in Tullow's favour.

In another case, URA in June 2015 settled for $250m (Shs824b) from Tullow after three years of legal battles over Capital Gains Taxes when the latter sold 66.66 per cent of its stake to CNOOC and TOTAL for $2.9b, making it the largest transaction to date in Uganda's history against the $142m that Tullow had been arguing was the right tax assessment.

Notable recipients

  • Ms Akol received Shs242m
  • Former AG Peter Nyombi Shs226m
  • Shs393m wired to account of former Finance PS Chris Kassami, who passed on last year.
  • Former deputy AG Fred Ruhindi got Shs93m
  • KCCA executive director Jenifer Musisi, who previously served as head URA's legal department, received Shs121m
  • Lawrence Kiiza, a senior official in the ministry of Finance, got Shs102m
  • Solicitor General Francis Atoke got Shs234m
  • Director of Legal Affairs at the Solicitor General's office, Mr Christopher Gashirabake, received Shs242m

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