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Libya Oil Warms up to Settlement with Tax Auth.

UK based general manager requests for arbitration settlement if ERCA drops interest, penalty


Abdulsalah Yuneus, the United Kingdom (UK) based general manager of Libya Oil Ethiopia, has requested an arbitration settlement on the condition that Ethiopian Revenues and Customs Authority (ERCA) removes the interest and penalties, senior officials told Fortune.

The senior executive, who recently arrived from London, had a three hour discussion with Melaku Fenta, director general, and a senior official from the law enforcement department. Yuneus met with these top officials personally after a discussion with officials from the tax audit and law enforcement departments.

Yuneus’ visit is an attempt to settle the dispute of Libya Oil’s tax arrears.

ERCA had posted a tax assessment notification on April 2011, claiming a total of 210 million Br in tax arrears, of which 105.2 million Br comes from dividend taxes, alleging that the oil company did not disclose the actual sale price from Shell Ethiopia. ERCA accused Libya Oil of not paying taxes accordingly, after acquiring assets and the operation from Shell Ethiopia, which closed up shop in the country after its parent company withdrew from Africa's downstream market in 2008.

The interest rate used by ERCA is 25pc greater than the highest commercial lending interest rate that prevailed during the preceding quarter, and interest was accrued from the date that the taxpayer was obliged to pay the tax due, according to the income tax law.

Accordingly, around 18pc is added as interest rate on the principle tax, according to sources inside the Large Taxpayers Offices (LTO) of the ERCA.

Of the dividend tax, the original taxed amount is 39.1 million Br, while the interest is 19.7 million Br, and the penalty is 46.3 million Br, according to sources.

Interest is always included for delayed payments and cannot be waived, but provided that the company is willing to pay the interest, a significant percentage of the penalty may be waived, according to the official.

Shell has transferred all of its downstream assets and operations in Ethiopia to Libya Oil for 99 million Br, after paying seven million Br in capital gain tax. ERCA, however, claims that the actual sale amounts to 323 million Br, claiming that it has acquired evidence which states the actual transaction amount from British Customs, Her Majesty Revenues Authority of London.

ERCA claims 191 million Br of capital gains tax, including interest and penalties. “Had they declared the actual amount, they should have paid 16 million Br,” the official said.

Yuneus, who is also one of the three Libyan shareholders, argues that his company cannot be liable for capital gains tax, which should have paid by the Shell Petroleum Company, which was the transferor of properties.

ERCA holds the company criminally liable for the capital gains tax, and for intentionally failing to disclose the actual sale amount, and is asking for damages that the authority incurred because of the non-disclosure, according to an official from the legal department.

The authority has the copy of the contract agreement that the two companies have signed as evidence for the non-disclosure of details of the agreements, the official claimed.

The oil company has been filing appeals to different government offices including the prime minister’s office, claiming that the payment ERCA is demanding, will force the company to surrender their operation in the Ethiopian market.

To date, Libya Oil has close to 200 employees and supplies petroleum to 180 retail stations across the country. The company also has 146 capital investments in the country, and has paid 109 million Br in taxes to ERCA from 2008 to 2010, according to data from the company.

The oil company has also filed a complaint with the Review Committee, which is accountable for ERCA, on the assessment of the taxes, but the committee affirmed the assessment of the authority on July 13, 2011. Libya Oil received the decision of the committee an a letter signed by Asfawossen Asfaw, manager of ERCA's LTO. 

The company has to appeal to the appellate commission, which is accountable to the Ministry of Justice (MoJ), within 30 days after the decision of the review committee, after paying 50pc of the amount claimed by the authority.

However, the representatives from the private sector who were selected from the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA) did not attend the sessions, the official claimed.

This was one of the debatable issues during the first public private dialogue forum on tax issues held in February 2011. ERCA officials attending the forum were alleging that a total of three letters were written to the chamber requesting to select a representative, but they have not responded.

ERCA officials had advised the UK manager on the best course of action for his company. “Options other than an arbitration settlement will not be a wise decision for the company, as the authority has ample evidence about the details of the transaction,” the official claimed. 

Managers of Libya Oil have refused to comment on the matter.



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