Uganda and Mauritius finally settle on a tax agreement after months of negotiations

• After lengthy negotiations, Uganda and Mauritius have reached an agreement to modify their bilateral DTA from 2015.
• Under the existing DTA, certain technical services such as accounting, property valuation, engineering, and ICT consulting were not subject to taxation.
• The purchase of Heritage Oil and Gas assets by Tullow Oil and the taxation of earnings from Crane Bank has highlighted past tax conflicts related to Uganda’s DTA with Mauritius.

After months of negotiations, Uganda and Mauritius have reached an agreement on modifications to their 2015 bilateral double taxation agreement (DTA). According to Uganda’s Finance Ministry, among the modifications were exclusive taxing rights for all hydrocarbon-based transactions in Uganda’s favor.

“The changes are awaiting ratification by the partner states,” said Moses Kaggwa, Director for Economic Affairs at the Ministry of Finance, Planning, and Economic Development.

It is important to note that technical services, accounting, property valuation, engineering, and information and communications technology consulting are not taxed under the 2006 DTA between the two nations. The Ugandan $10 billion commercial oil production program and the development of offshore subsidiaries by companies in the oil and gas sector are cited as justifications for the taxation of technical services.

The late 2000s purchase of Heritage Oil and Gas’ assets in the Albertine Graben by Tullow Oil and the taxation of earnings received by a significant shareholder in the bankrupt Crane Bank are only two examples of prior tax conflicts connected to Uganda’s DTA with Mauritius.

2009 saw Tullow Oil purchase half of Heritage Oil and Gas’s Ugandan holdings, which were worth $1.5 billion. The two oil corporations opposed Uganda’s demand for a $404 million capital gains tax against this deal for months.

Heritage Oil and Gas argued that the transaction was exempt from capital gains tax pursuant to the terms of a production sharing agreement (PSA) signed with the government, while Tullow Oil argued that the transaction was exempt from income tax in Uganda because it was negotiated in Mauritius and qualified for the tax benefits provided by the DTA signed between the two countries.

White Saphire Ltd., a significant stakeholder in the now-defunct Crane Bank Ltd., and the bank filed a lawsuit against URA in 2015 to dispute an extra tax assessment of Ush558 million ($152,793) assessed against earnings White Saphire received from the collapsed institution in 2014.

According to court records, White Saphire received Ush11 billion ($3 million) in dividend payments from the erstwhile Crane Bank in 2014.

URA insisted that the company’s beneficial owner, Rasik Kantaria, was neither a resident of Uganda nor Mauritius and was subject to a higher rate of 15% while White Saphire’s attorneys contended that the company was registered in Mauritius and qualified for a discounted 10 percent withholding tax rate on dividends provided by Uganda’s DTA with Mauritius.

Up to this point, Uganda has signed 11 DTAs with other nations, including the Netherlands, South Africa, the United Kingdom, and India.