By ERICK KABENDERA
In Summary
- Oil giant Shell has taken Tanzania to the tax tribunal over the method used to determine that it owes $520 million in capital gains tax, causing delays in the construction of the country’s first liquefied natural gas plant.
- Royal Dutch Shell Tanzania was slapped with the capital gains tax after its £47 billion ($67 billion) takeover of a 60 per cent stake in blocks 1 and 4 in southern Tanzania from BG Group. The blocks contain 16 trillion cubic feet of natural gas.
- Shell has in recent months focused on the viability of the LNG project in view of a land dispute over compensation. Analysts believe the tax dispute could provide a window for Shell to renegotiate the terms of the project.
Oil giant Shell has taken Tanzania to the tax tribunal over
the method used to determine that it owes $520 million in capital gains
tax, causing delays in the construction of the country’s first liquefied
natural gas plant.
Shell wants the tax tribunal to bar the Tanzania Revenue
Authority from demanding the dues. There are fears that a prolonged
dispute could halt a $30 billion liquefied natural gas (LNG) facility
that Shell and other partners are investing in, leading to smaller
plants being pursued by individual investors. The plant was to be
completed in 2025.
Royal Dutch Shell Tanzania was slapped with the capital gains
tax after its £47 billion ($67 billion) takeover of a 60 per cent stake
in blocks 1 and 4 in southern Tanzania from BG Group. The blocks contain
16 trillion cubic feet of natural gas.
TRA says its assessment was based on the market value of the
assets, a factor of volumes and global natural gas prices, and Shell’s
acquisition costs.
The taxman further referred to a precedent set in 2013 when
Ophir sold its 20 per cent stake in block 1 and 4 to Pavilion Energy at
$1.3 billion and TRA received $228 million in capital gain tax.
BG controls 60 per cent of these blocks with Ophir and Pavilion Energy sharing the rest.
Shell argues that it had allocated only 1.8 per cent (the
equivalent of $850 million) of the total price paid to the Tanzania unit
for the purchase of the stake in BG Group, whose Tanzania subsidiary
had already spent about $1.5 billion, hence indicating a loss, not a
gain.
TRA has asked Shell to provide information on the method used to
allocate only 1.8 per cent of the total sale to its Tanzania business.
Sources indicated that Shell had not provided sufficient evidence to TRA
before it decided to appeal to the tax tribunal.
Richard Kayombo, TRA director of education and taxpayer
services, said that the matter was still in progress but the law barred
TRA from discussing the details.
“The law does not allow us to discuss details of the affairs of a
taxpayer, especially on issues that have not been concluded as this may
jeopardise whatever is being discussed at various levels,” Mr Kayombo
said.
Shell has in recent months focused on the viability of the LNG
project in view of a land dispute over compensation. Analysts believe
the tax dispute could provide a window for Shell to renegotiate the
terms of the project.
In 2012, Public Accounts Committee chairman Zitto Kabwe pushed
for the government to amend the tax laws to introduce 20 per cent
capital gains tax for sale of shares or securities by companies whose
assets are in Tanzania.
The matter became a big political issues with MPs from both the
opposition and CCM complaining that the government was losing revenues
due to lack of a legal mechanism to stop tax leakages.
As a results, the laws were amended in 2013 to allow the government to charge capital gains tax on the companies.
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