Tanzania Revenue Authority (TRA) and Russian company JSC Atomredmetzoloto (AMRZ) are in fierce legal battle over the $205.8 million (Sh330billion) that TRA demands from the company as an income tax and stamp duty emanating from the latter’s purchase of Mkuju River Uranium mining site from Mantra Resources of Australia in 2011.
The legal battle is before the Tax Revenue Appeals Board that begun hearing of the matter on Monday March 5, 2011 in Dar es Salaam under the chairmanship of Pentarin Kente.
However the board was yet to go into details of the tax appeal as presented by AMRZ through its legal representative, FB Attorneys led by counsel Fayaz Bhojan as it initially dealt with preliminary objection submitted by respondent (TRA) who argued that the appeal was brought to the board prematurely. TRA is represented by a team led by its lawyer, Sweetbert Salvatory.
As per available communications, AMRZ decided to appeal to the tax revenues appeals board late last year upon receipt of a letter from TRA dated November 30, 2011 that among other things expressed TRA’s intention to issue an assessment on investment income and the amount of income tax and stamp duty payable to TRA.
The last paragraph of the letter states: “In right of the above, Tanzania Revenue Authority (TRA) is intending to issue an assessment on investment income as the transaction involved a domestic asset and thus the income earned has a source in the United Republic of Tanzania by virtue of section 68(1) (a) of the Income Tax Act.
The adjustment done is on the sale price of the property which is $980,000,000 times a rate of 20 percent, therefore the tax payable is $196,000,000.
Also you are supposed to pay Stamp Duty on conveyance of property under article 22 of the Stamp Duty Act cap 189 (Revised Edition) of 2006 which is US $980,000,000 times a rate of 1 percent, therefore the tax payable is $9,800,000.”
On some of the reasons to support the appeal the appellant (ARMZ) prays that: “The appellant is a non-resident company that has no presence in Tanzania, is not registered in Tanzania with no Tax Identification Number (TIN) and hence any decisions by the respondent (TRA) on the appellant are ultra vires and the appellant challenges the jurisdiction of the respondent in making such decisions.”
ARMZ also argues that the payment for acquisition of shares by the appellant of Mantra Resources Limited of Australia has no source of income whatsoever in Tanzania.
The Russian firm owned by State Atomic Agency Corporation (Rosatom) maintains that the appellant acquired shares from Mantra Resources Ltd a company registered in Australia and not Mantra Tanzania Limited which is a company registered in the United Republic.
Furthermore the appellant contends that the respondent erred in law and/or fact in saying that the appellant acquires shares of Mkuju River Project which has no shares and cannot be acquired.
The Russian firm also assert that the respondent erred in law and/or fact in concluding that there was a change in control of Mantra Tanzania Ltd following the appellant’s purchase of shares in Mantra Resources of Australia.
Other legal arguments by the appellant is that the respondent erred in law by concluding that there was a realization of a domestic asset by the appellant in Tanzania and that the appellant had a tax liability arising from investment income from the United Republic.
But TRA argues in their letter dated November 30, 2011 that: “We agree that ARMZ is a non-resident company that had acquired shares of a foreign company from another non-resident company. It is equally true that the Commissioner has jurisdiction to tax non-residents if there is a nexus connecting the non-resident person and the source of income in Tanzania.
The nexus arises where the source of income originates in the tax jurisdiction. The source of income is determined in accordance with the source rules as provided for under section 68 of the Income Tax Act.”
“The location of the capital assets is the crucial jurisdiction condition that must be fulfilled in order to attract chargeability to tax of income arising from the transfer of a capital asset. The location of asset in our case is Mkuju River Project which is in Tanzania’s Ruvuma Region, the asset has been defined in the Income Tax Act as domestic asset which carries the following meaning;
(a) an asset owned by a resident person (other than foreign land or buildings or an asset held by a foreign permanent establishment;
(b) an interest in land or building situated in the United Republic; and
(c) shares in a resident corporation whether the owner of the shares together with associates controls or within the previous five years controlled, either directly or indirectly 25 percent or more of the voting power in the corporation;
Thus TRA says that the argument that the transaction involved merely a sale of shares of a foreign company to one non-resident to another is not acceptable. “It would be simplistic to assume that the entire transaction between the non-residents was fulfilled merely upon the transfer of shares of the Australia company.
The commercial and business understanding between the parties postulated that what was being transferred from one non-resident to the other was the ‘controlling interest’ in Mantra Tanzania property which is a domestic asset. The object and intent of the parties was to achieve the transfer of control over the Tanzania asset, the sale of shares of the Australian company was put into place as a mode of effectuating the goal,” stresses TRA.
The national tax collectors went further by noting that even the price of $1 billion paid by the ARMZ factored in diverse rights and entitlements that were being transferred to the ARMZ as many of these entitlements were not relatable to the transfer of the shares per se.
“The transactional documents were not merely incidental or consequential to the transfer of the Mantra Australia shares, but recognised independently the rights and entitlements of the vendor in relation to the Tanzania domestic assets which were being transferred to the ARMZ, ” TRA intoned.
TRA also says that the consideration was paid for acquisition of the Mkuju project and without it the transfer could come to an end. It notes that ARMZ and Uranium One, the associated company and beneficiary of the complex arrangement concluded the share transfer only after having secured necessary legal clearance of use and rights to the Mkuju project in Tanzania.
The legal clearance was granted by Ministry of Energy and Minerals and the Fair Competition Agency, and sale of shares was well connected with acquisition of domestic assets.
The Mkuju River Uranium project has estimated resources of 101.4 million pounds (24 million kilograms) of uranium oxide concentrate,which if available in bulk would represent about 77 per cent of global mined output in 2010. The project is slated to last for 12 years as the country expects to earn $5 million a year through royalties.
In the preliminary objection to the appeal, TRA through its lawyer Sweetbert Salvatory prays to the tax revenues appeals board to dismiss the appeal as it was submitted prematurely and the appellant was supposed to wait until the assessment on the payable amount was completed and communicated.
“Even if we agree that the appellant is entitled to come to this board, we will still humbly submit that the said provision of the law, section 14(2) of tax revenues appeals board does not give rise to the appeal in this case.
This is because as submitted earlier on in this case the Commissioner General has not issued a notice on existence of liability to pay tax. This law requires that the person can go to the board in case the Commissioner General has issued a notice on existence of liability to pay tax, in this case there is no such notice.
He affirmed that a person can only access the board before assessment for cases related to taxes which do not require assessment schemes. Such taxes are PAYE (pay as you earn), stamp duty and withholding tax.
However appellant’s leading counsel ……..Fayaz submitted that the preliminary objection had no merit and intended to delay the hearing of substantive issues detailed in the appeal.
“The amount of money involved is staggering; this is a record amount in Africa just on income tax. It is $196 million that equivalent to Sh320 billion, 2 percent of the country’s GDP (Gross Domestic Product); it is not a small amount by local or international standards.
You intend to issue an assessment without certifying the purported existence of liability,” said Fayaz as he argued that the decision had already been reached by TRA.
He added: “The notice sent by the respondent is a decision in accordance to the law. The decision is an intention to issue an assessment, the critical paragraph is the last one which is very clear. Its language is very well drafted in unambiguous words and very simple to understand.”
Fayaz said also that the suggestion by respondent counsel that a person can access the board only after assessment was not correct.
Presiding chairman, Pentarin Kente set Tuesday March 13 for issuance of ruling on the preliminary objection.