Uganda and Mauritius have agreed on changes to their 2015 bilateral double taxation agreement (DTA) after months of talks.

Among the changes are exclusive taxing rights for all hydrocarbon-based transactions in favour of Uganda, according to Uganda’s Finance Ministry.

“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.

However, talks over a double taxation treaty with the Netherlands failed over technical services with the latter suggesting five percent withholding tax while Kampala insists on 10 percent.

Technical services angle

The 2006 DTA between the two does not provide for taxation of technical services, accounting, property valuation, engineering and information and communications technology consultancy.

Sources cite the country’s $10 billion commercial oil production programme and establishment of offshore subsidiaries by players involved in the oil and gas industry, as the rationale for taxing technical services.

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“The amendments in our DTAs are meant to plug loopholes encountered by URA in tax collection. DTAs are intended to provide fair tax treatment to foreign investors but not to facilitate tax avoidance and base erosion,” said Enoch Barata, a tax lawyer.

Previous tax disputes linked to Uganda’s DTA with Mauritius include an acquisition of Heritage Oil and Gas’s assets located in the Albertine Graben by Tullow Oil in the late 2000s and taxation of dividends earned by a major shareholder in the defunct Crane Bank.

In 2009, Tullow Oil acquired 50 percent of Heritage Oil and Gas’s Ugandan assets valued at $1.5 billion. Uganda demanded a $404 million capital gains tax against this transaction, a decision the two oil companies resisted for months.

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

In 2015, White Saphire Ltd- a major shareholder in the defunct Crane Bank Ltd and the latter jointly sued URA over an additional tax bill of Ush558 million ($152,793) levied against dividends earned by White Saphire from the failed lender in 2014.

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White Saphire earned Ush11 billion ($3 million) in dividends issued by the former Crane Bank in 2014, according to court documents.
Whereas White Saphire’s lawyers argued that the company was registered in Mauritius and was eligible for a discounted 10 percent withholding tax rate on dividends provided by Uganda’s DTA with Mauritius, 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 percent.

Uganda has signed 11 DTAs to date, with different countries, including the United Kingdom, South Africa, India, Denmark and the Netherlands.