Tullow changed position after tax advice

Oil exploration company Tullow changed its position and decided to pay the Ugandan government $313 million (€245 million) in capital gains tax following advice from a Ugandan lawyer, a court heard today.

Tullow is suing Heritage at the High Court in London to recover $313 million (€245 million) of capital gains tax it paid on its $1.45 billion (€1.13 billion) acquisition of Heritage's two Ugandan oil blocks.

Initially, Tullow did not appeal against a tax request notice from the Ugandan government stating it owed $313 million in capital gains after it bought out the other firm.

Tullow’s head of tax Richard Inch today gave his second day of evidence on the 10th day of the case against Heritage over who was responsible for the tax liabilities.

Mr Inch said legal advice received in September 2010 stated the firm did not have to challenge an agency notice from the African tax authorities because it was not valid.

However, he told the court the position changed when alternative legal advice emerged in November 2010 which said that Tullow had to pay and recover the tax from Heritage.

He said at a meeting in Gulu in November 2010, he received “cursory” advice from Ugandan lawyer Peter Kabatzi that the agency notice would be valid in a Ugandan court.

Mr Inch said, following this advice, the company requested a more comprehensive opinion from Mr Kabatzi’s law firm KAA. Although he received the updated opinion on November 30th, he had to ask one of his colleagues to clarify it.

In a conversation with the Tullow lawyer who clarified the advice, Mr Inch said he was told: “(The lawyer) confirmed to me what (Peter Kabatzi) was saying was we were deemed to be in possession in accordance with the section, ie a court would deem us in possession,” Mr Inch said.

Contrary position
Although contrary to the previous position, this advice led the company to pay the Ugandan government's tax requests – being deemed to be in possession of the asset meant the company was required to pay the tax, Mr Inch told the court.

However, cross-examining defence counsel Khawar Qureshi accused Mr Inch of lying about the nature of the advice. Referring to a memo of the Gulu meeting on November 19th, Mr Qureshi said: “In the entirety of the document we can see it's not cursory, it’s not high level there is no reflection of Mr Kabasti’s opinion anywhere in the text we can see on the Heritage issue,” Mr Qureshi said.

Ugandan tax experts are due to evidence tomorrow Counsels closing speeches are expected to take place at the end of April or mid May.

In yesterday’s court report Mr Inch was quoted as saying: “We were obviously furious. We felt this had been some kind of stitch-up between us and Heritage.” This should have read: “They were obviously furious. They felt this had been some kind of stitch-up between us and Heritage.” They being a reference to the Ugandan authorities.

The report also stated that Tullow made the €243.3 million tax payment to the Ugandan government by way of a loan or advanced royalties. These were in fact options considered by Tullow for recouping the payment later. They were not acted on.