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Oil Firm Floors TRA in Sh15.6 Billion Tax Row

Discussion in 'Habari na Hoja mchanganyiko' started by Saint Ivuga, Jul 16, 2011.

  1. Saint Ivuga

    Saint Ivuga JF-Expert Member

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    Jul 16, 2011
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    [h=1]Oil Firm Floors TRA in Sh15.6 Billion Tax Row
    [/h] Bernard James
    July 2011

    [HR][/HR]



    Dar es Salaam — The Tanzania Revenue Authority (TRA) has lost a bid to have a Norwegian oil exploration firm pay government Sh15.6 billion withholding tax.
    The Tax Revenue Appeals Board (Trab) has decided that Odfjell Invests Limited enjoyed a residence status, and ordered TRA to cancel a Sh15 billion tax liability it had imposed on the company last year.


    "It is our respective finding that the appellant company is a resident in Tanzania and that, as such, the withholding tax liability imposed on it is unlawful. The respondent (TRA) is hereby ordered to vacate it," observed Trab in a recent decision. The decision means the company will not pay a 15 per cent withholding tax on its gross income, but the normal corporation tax.
    Trab also agreed that the company was using substantial machinery in the drilling work, which under international tax jurisprudence, gives it a permanent establishment status.
    Under Tanzania's income tax law, a company, or individuals with residence status, is not liable to pay withholding tax. TRA can only tax the firm normal corporation tax, but not a 15 per cent withholding tax on its gross income.
    This mean if a taxpayer is a resident individual or a resident company, it will pay income tax on its total income. However, non-residents pay income tax on repatriated income derived from a permanent establishment, withholding tax on investment returns.


    The decision is a setback to the tax watchdog which in recent past has been losing cases involving billions of shillings the country badly needs to supplement the budget.
    Earlier this year, TRA lost a bid to recover Sh9 billion in unpaid taxes arising from the sale of diamonds in the United Kingdom. Trab nullified the tax liability TRA had imposed on Williamson Diamond Limited in unremitted tax.
    Parliamentarians and activists often voice dismay over little proceeds the country earns from multinationals investing in the minerals and energy sector.
    Odfjell, a Norwegian company which has been contracted by Ophir Energy Plc to do exploration of oil and gas in three offshore gas wells in Mtwara, filed an appeal at Trab challenging the refusal by TRA to accept its residence status.


    The company is incorporated in Bermuda and wholly owned by Odfjell Drilling, based in Norway. It argued that it was a resident company in terms of the Income Tax Act, and that TRA wrongly applied the law to categorise it as non-resident, and consequently its TIN and VAT registrations.
    TRA had refused to recognise Odfjell's place of business in Mtwara as its domestic permanent establishment in Tanzania, and decided to withdraw and cancel the company's TIN and VAT certificates.
    The refusal was also based on a term of the contract indicating that the drilling programme would take at least 140 days, a time not sufficient under the law to grant a company residence status. A company may be granted residence status if it has a programme of at least 183 days
     
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