CASE BRIEF OF HERITAGE OIL AND GAS LTD V UGANDA REVENUE AUTHORITY CIVIL APPEAL NO.14 OF 2011

FACTS

The appellant entered into a product-sharing agreement for petroleum exploration, development and production with the government of the Republic of Uganda, the said agreement contained an arbitration clause to the effect that the dispute under the agreement couldn’t be settled within sixty days would be referred to arbitration in the united nations commission for international trade arbitration rules. The appellant sold their interests to Tullow Uganda Ltd under a sale and purchase agreement and supplemental agreement thereto, as a result of the sale and under the authority of the Income Tax Act, (ITA), the respondent issued tax assessments for Capital Gains Tax which the appellant objected to and filed two applications in the Tribunal, that is TAT Applications No. 26 and 28 of 2010. Before the hearing of the two applications could be finalized, the filed Misc. Appl. No. 6 of 2011 in the Tribunal under sections 5 and 71 of the Arbitration and Conciliation Act (Cap 4) (hereinafter referred to as “the ACA”), rule 30 of the Tax Appeals Tribunal (Procedure) Rules (TAT Rules) and section 101 of the CPA, seeking to stay the proceedings in those applications and have the matter referred to arbitration per the arbitration clause in the PSA (Product Sharing Agreement). The Tribunal heard and dismissed the application with costs hence this appeal.

GROUNDS OF APPEAL

1. The Tribunal erred in law in declining to grant the application to have the legal proceedings under Tax 3 Appeals Tribunal Applications Nos.26 and 28 of 2010 stayed and referred back to Arbitration.

2. The Tribunal erred in law in holding that the Arbitration and Conciliation Act (Cap. 4) is inoperable as the Respondent was not a party to the Production Sharing Agreements.

3. The Tribunal erred in law in holding that a contractual provision in an agreement cannot fetter the Tax Appeals Tribunal mandate.

RULE OF LAW

Tax disputes cannot be subject to arbitration for any attempt to do so would be contrary to the laws of Uganda and it would be contrary to section 14 of the PSA.

The tax appeals tribunal is not mandated to stay proceedings and refer tax disputes for arbitration.

The constitutional mandate of a tribunal cannot be fettered by a contractual provision in an agreement and the judgement of Egonda J, in the case of K.M.Enterprises and Others v Uganda Revenue Authority HCCS No. 599 of 2001, was cited where it was stated that: - “…exercise of statutory powers and duties cannot be fettered or overridden by agreement, estoppel, lapse of time, mistake and such other circumstances…”

HOLDING

The court of appeal rendered the three grounds of appeal to have failed hence failure of the appeal.

REASONING

Ground 1 and 2 failed because section 5 of the ACA is inoperable and tax matters are statutory and not contractual, for this would only succeed on a small aspect being that the tax appeals tribunal misapplied itself and arrived at a wrong conclusion that the PSA does not bind the URA.

The court further refrained from engaging in an argument due to the absence of any provisions of law allowing the tribunal to refer proceedings before it to the tribunal.

CONCLUSION

The tax appeals tribunal is not subject to arbitration clauses in contractual agreements for as a constitutional body, its main purpose is clearly stated under article 152(1) which provides that no tax shall be imposed except under the authority of an act of parliament. The Income Tax Act and other tax statutes stipulate the mandate of the URA to collect taxes and this mandate cannot be fettered by an agreement.

This case strengthens and emphasizes the duty of the URA as well as that of the tax appeals tribunal being one that is sensitive regarding that it concerns the taxes of the country whose fate cannot be transferred into the hands of individuals or any foreign body by the contractual powers of an agreement due to their sensitivity. It further draws a limitation on what matters can be considered for arbitration and those that cannot and what bodies have the mandate to transfer matters or disputes for arbitration as stated within the agreements that are arrived at by parties.