Uganda: New Pipeline Law May Plug Double Taxation Loopholes

Uganda’s cupboard final week handed the East Africa Crude Oil Pipeline (EACOP) Bill 2021, putting in a supreme authorized framework that defines key sections of the tax regime for the undertaking, and the foundations round how locals will take part in providing items and providers.
The invoice is likely one of the final essential paperwork wanted to formalize the beginning of the development of the pipeline. Uganda has set a goal of April 2025 to provide its first business barrel of oil. The invoice nonetheless must go to parliament for debate, though there isn’t any official declaration over precisely when that may occur.
While Uganda has signed a variety of agreements for the East Africa Crude Oil Pipeline undertaking, such because the Host Government Agreement, this invoice is supposed to supply readability and keep away from any clashes within the interpretation of the regulation.

The new EACOP invoice additionally gives the three way partnership companions of the undertaking – France’s TotalEnergies and China’s Cnooc – confidence that their funding is protected against any change in regulation by way of the insertion of a stabilization clause. The EACOP invoice overrides every other act in terms of the pipeline undertaking.
“This Act takes priority over all current legal guidelines regarding any matter below this Act, and the place there’s a battle between this Act and every other written regulation, aside from the Constitution, this Act shall prevail,” the invoice reads partially.
Nothing has created debate over the past decade among the many three way partnership corporations and the federal government of Uganda greater than the tax regime within the nation’s oil trade.

The disagreements between the 2 sides have seen amendments to the Income Tax Act as Uganda rushed to seal any loopholes from its oil tax basket.
The oil corporations have additionally previously complained of Uganda’s flip-flopping amendments across the Income Tax Act as strikes meant to focus on them.
The new EACOP invoice defines what taxes the pipeline firm pays. But it’s authorities’s fears over the unfavourable affect of double taxation treaties that the invoice lays naked.
Uganda has missed out on billions of shillings as worldwide corporations have engaged in aggressive tax planning to be able to shift revenue out of useful resource nations corresponding to Uganda to low- tax jurisdictions. The corporations exploit the double taxation treaty to attain their aim of paying decrease charges.

The rule dictates that double taxation treaties reign supreme over native laws.

“In many respects, DTAs encourage monetary transparency. The flipside, nevertheless, is that the tax charges for the nonresident traders deriving passive earnings from Uganda (corresponding to dividends, pursuits, royalties, and technical charges) are far too low, most of them having been negotiated over 10 years in the past with out being adjusted for financial modifications over time,” a 2018 report, titled, A Scoping Study of Illicit Financial Flows Impacting Uganda, by the Washington-based suppose tank, Global Financial Integrity, notes. It provides: “Whereas the low charges might entice traders, they might additionally allow illicit monetary flows.”
However, the brand new invoice tries to attenuate these flows. According to the brand new invoice, the pipeline firm, which will probably be integrated within the United Kingdom, will probably be handled as a resident in Uganda for tax functions.
“The Project Company shall be an organization integrated in England and Wales and with its administration; management and place of efficient administration shall be in Uganda,” the invoice factors out.
The undertaking firm will take pleasure in some tax advantages. For instance, the tariff earnings from working the EACOP system is not going to be subjected to company earnings tax for a specified interval. Also, the importation of products for the EACOP is not going to be subjected to withholding tax.
For a very long time, specialists have suggested that tax may not be the money cow from Uganda’s oil trade; relatively, the roles created within the trade. It is a sentiment that Uganda’s authorities seems to share now.

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The invoice is sort of heavy on the native content material guidelines that the trade should abide with. The invoice requires Ugandans to be given first precedence throughout the procurement course of offered they meet the standards the undertaking firm is searching for.
Where Ugandans don’t meet the requirements, overseas corporations are known as to associate with the native suppliers. Also, the invoice says {that a} overseas firm that has a stronger native content material inside its proposal ought to win a young if the bid value distinction is lower than 5 per cent.
Other than that, there are different contracts which were ring-fenced purely for Ugandans. The invoice encourages overseas corporations to have coaching and succession plans for Ugandans.
The Petroleum Authority of Uganda has been given powers to watch and make sure that corporations abide by the native content material guidelines. Companies should submit periodic native content material plans to PAU as a part of the supervision course of.

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