The respondent argued that capital gains tax is not a transfer tax. A capital gain arises when there is a gain on an asset or an interest. It therefore is not a transfer tax. However the said gain cannot be realised and taxed unless there is a disposal, sale or transfer. While the Tribunal would agree with the respondent that capital gains tax is not a transfer tax, Article 23.5 of the EA2 PSA does not mention transfer tax. A transfer is one thing and a ‘transfer tax’ is another. The Tribunal does not think that the Minister of Mineral and Energy Development, who signed on behalf of the GOU or any reasonable person, would know what a transfer tax is, or whether capital gains tax was a transfer tax.

The Tribunal would not wish to import the terms “transfer tax” into Article 23.5. The term “transfer tax’ was defined in the SPAs and not the EA2 PSA and the parties are different. The SPAs were made long after the PSA. Any arguments by the respondent in respect of transfer tax are diversionary and shall not be accepted by the Tribunal. The Tribunal therefore finds that Article 23.5 of the EA2 PSA included an exemption to capital gains tax. Issue 1.1 is decided in favour of the applicants.   Issue 1.2 was in respect of the legal validity of Article 23.5 of the EA2 PSA under Ugandan law. In its objection decision, the respondent contended that in the event Article 23.5 of the EA2 PSA granted an exemption to the applicants in respect of capital gains tax, it would be manifestly unlawful under Uganda law. Firstly, the Minister was acting ultra vires the authority granted to him. Secondly, a tax can only be imposed or waived through a law passed by the Parliament.

On the contrary, the applicants, in their submission, submitted that the GOU was empowered to enter Article 23.5 of the EA2 PSA. Firstly, the minister would do so under the powers conferred by the Petroleum and Energy Production Act (PEPA). Secondly, the GOU would enter such agreement under the powers which pre-date Uganda’s written constitution and have been preserved after the introduction of the written constitution and under other powers expressly conferred by the Constitution.   The applicants argued vehemently that the Minister of Energy had powers to sign for a tax exemption under the PEPA. The long title of the PEPA reads: “An act to make provision for the exploration and production of petroleum and for other matters incidental thereto or connected” S. 2 of the PEPA reads: “The Government may enter into an agreement, not inconsistent with this Act, with any person with respect to all or any of the following matters- (a)      the grant of a licence; (b)      the conditions for granting or renewing the licence; (c)      the conduct by a contractor of explorations or development operations on behalf of any person to whom a licence may be granted and the arrangements in any such case for production sharing; (d)      the manner in which the Minister or the Commissioner will exercise any discretion conferred on him or her under this Act; (e)      any other matter incidental to or connected with the foregoing…”

Pages: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57