The Minister’s consent in respect of the farmdown of interest and transfer of operatorship (Exhibit A48) was obtained on the 15th February 2012. In the said letter the Minster looked forward to the applicants closing the transaction. We already stated that completion of the transfer was provided for under Clause 4 of the SPAs. Under Clause 4.2 of the SPA: “Immediately upon the fulfilment of Tullow’s obligation under Clause 4.1 the purchaser shall pay to them the interim consideration, minus the deposit (which Tullow shall become entitled to retain absolutely), by means of a direct transfer…” The only way the completion of the transfer could be seen was by payment of the interim consideration. According to Mr. Graham the applicants eventually sold 66.67% of their interests in each of the PSAs to CNOOC and Total on 21st February 2012, each purchaser taking 33.33% of the interests.
In a letter dated 21st February 2012, Exhibit A49, Mr. Eoin Mekie wrote to the Minister of Energy and Mineral Development indicating the completion of the farmdown, payment of taxes and transition of operations. This could have been immediately after the date the purchasers paid the consideration. This date was not disputed by the respondent. Hence the Tribunal will take the 21st February 2012 as the date of the completion of the transfer or disposal. The applicants filed the application before the Tribunal, on the 25th March 2011, at a time when the transaction had not taken place. The respondent issued assessments on the 2nd November 2012 against the applicants totalling to US$ 467,271,974. The Tribunal started listening to the applicants’ case on the 26th November 2012. The applicants closed their case on the 28th November 2012.
The applicants had one year from the 21st February 2012, which period lapsed on the 13th February 2013, as to make a reinvestment in asset of a like kind. At the time the applicants closed their case, they were within the time period to make a reinvestment in an asset of a like kind. Hence it was premature for the applicants to adduce evidence of a reinvestment in an asset of a like kind. The applicants by the nature of this application could not fulfil the last three conditions. In the interest of justice the Tribunal will extend period by the applicants to make a reinvestment of an asset of a like kind within a period of one year from the date of the transaction. 6. 3 COMPUTATION OF TAX LIABILITY. (i) WHAT DID THE APPLICANTS DISPOSE OF? One of the most contentious sub-issues was what did the applicants dispose of. This is because the description of what was disposed of determines the gain or loss made and ultimately the tax liability. The applicants argued the issue of undivided interests was not an agreed one, it should be struck out. Issues can be added at any time of a trial as long as they do not cause prejudice to any parties.
The Tribunal notes that both parties have addressed the said issue. Since it is a bone of contention and forms a basis in calculation of the gain or loss it cannot be ignored. The applicants contended that they purchased the Heritage’s 50% interests in exploration areas EA1 and EA3A with the intention of selling them. They argued that what they sold first was Heritage interests and then their original interests in EA2. The applicants used a ‘last in first out’ approach. The respondent objected to the applicants’ approach and argued that the interests sold by the applicants were indivisible. Hence if the interests are indivisible, they argued, that the applicants are not in a position to “pick and choose” which interests they sold. They argued that “it is not possible to treat portions of an undivided interest as separate and distinct assets”.
The respondents contended that the best approach would be one of “first in first out”. In the case of Heritage Oil and Gas Limited v Uganda Revenue Authority TAT Application 26 of 2010, the Tribunal noted that what was sold can only be ascertained by looking at the four corners of the pages comprised in the Sale and Purchase Agreement (SPA). What did the parties agree to buy and sell? In Stanton v Drayton Commercial Limited 1983 AC 501 the House of Lords focused on what was in the agreement. At page 508, the court noted: “The vendor [Eagle Star] will sell and the purchaser [the taxpayer company] will purchase all the securities in the said portfolio at the price of [pounds] 3,937,962 to be satisfied by the allotment by [the taxpayer company] to [Eagle Star] of 2,461, 226 ordinary shares of 25p each in [the taxpayer company], the issue price of each share for the purpose of satisfying the consideration being 160p.” Hence in order to determine what was sold one has to look at the SPAs of the parties.
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