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Case outcome: Appeal dismissed with costs. The Court upheld the position that payments by a Tanzanian resident to a non-resident for services performed outside Tanzania are subject to withholding tax where those services are consumed or utilised in Tanzania.
Dominion Tanzania Limited was a company incorporated in Tanzania and engaged in oil and gas exploration in offshore Block 7. Its exploration operations involved acquiring raw seismic data in Tanzania through a local contractor and sending that data to the United Kingdom, principally London, for processing, production and interpretation. The overseas contractor also assisted in developing drilling programmes, which were subsequently sent to Dominion for use in its Tanzanian operations.
On 11 November 2013, the Commissioner General of the Tanzania Revenue Authority (TRA) issued a withholding tax certificate imposing a tax liability of TZS 1,089,269,761 on payments Dominion had made to a UK-based company for processing and interpreting seismic data.
Dominion disputed the assessment, arguing that the services were performed outside Tanzania by a non-resident and therefore did not attract Tanzanian withholding tax.
The Tax Revenue Appeals Board ruled in favour of TRA. The Tax Revenue Appeals Tribunal subsequently upheld that decision in Tax Appeal No. 54 of 2019 on 2 December 2020. Dominion then appealed to the Court of Appeal.
The Court identified two principal issues:
1. Whether payments made by a Tanzanian resident to a non-resident for services performed outside Tanzania were subject to withholding tax under sections 6(1)(b), 69(i)(i) and 83(1)(b) of the Income Tax Act, 2004, where the services were utilised in Tanzania.
2. Whether the Finance Act 2020 changed the existing law on the source of payments for services under section 69(i)(i), and whether the amendments could apply retrospectively to the dispute.
The Court dismissed Dominion's argument that the physical location where the services were performed determined whether withholding tax was payable.
Relying principally on Tullow Tanzania BV v Commissioner General, Tanzania Revenue Authority, Civil Appeal No. 24 of 2018, the Court adopted a purposive interpretation of the relevant provisions of the Income Tax Act.
It held that the applicable provisions must be read together. Under this interpretation, payments to non-residents for services utilised or consumed in Tanzania are subject to withholding tax, notwithstanding that the services were performed abroad.
The Court reasoned that the recipient of the services was also the payer and that the source of the payment was Tanzania because Dominion, a Tanzanian resident, utilised the services in its Tanzanian operations.
The Court rejected the invitation to restore the earlier approach in Commissioner General, TRA v Pan African Energy Tanzania Limited, which had taken a different position regarding services performed outside Tanzania. It reaffirmed the approach in Tullow Tanzania BV, which had also been followed in other tax appeals, including Aggreko International Projects Limited and Ophir Tanzania (Block 1) Limited.
Dominion argued that the 2020 amendments could not retrospectively impose a tax liability that did not previously exist.
The Court acknowledged the general principle against retrospective application of legislation, referring to Article 138(1) of the Constitution of the United Republic of Tanzania and the decision in BIDCO Oil and Soap Limited v Commissioner General, TRA, Civil Appeal No. 89 of 2009.
However, the Court distinguished between introducing a new tax liability retrospectively and clarifying the meaning of an existing statutory provision.
It observed that section 69(i)(i) had been amended in 2016 and again in 2020. The 2016 amendment defined services rendered to include transmitting or delivering services in Tanzania, irrespective of where they were performed. The 2020 amendment expressly addressed services consumed in Tanzania, irrespective of where they were rendered.
The Court concluded that these amendments clarified the existing legal position rather than changing it. Consequently, it held that the amendments did not introduce a new tax obligation retrospectively in the circumstances of the case.
The Court found both grounds of appeal unmeritorious and dismissed the appeal with costs, thereby upholding the Tribunal's decision.
The judgment establishes that the physical location of a service provider is not, by itself, decisive in determining whether a payment to a non-resident has a Tanzanian source for withholding tax purposes.
For cross-border transactions, the analysis must consider the statutory provisions governing the source of income and whether the services are consumed or utilised in Tanzania.
This is particularly relevant to the oil and gas industry, where technical, geological, engineering and consultancy services may be performed overseas but used in Tanzanian exploration and production activities.
The Court favoured an interpretation that considered sections 6, 69 and 83 together, rather than isolating the words concerning the place where services were rendered.
The decision reinforces the principle that tax statutes should be interpreted as a coherent whole, while the taxpayer's liability must still be grounded in the applicable legislation.
The decision is significant because it treats the 2016 and 2020 amendments as clarifications of the law rather than the creation of a new tax obligation.
For tax disputes involving periods before legislative amendments, this raises an important distinction: whether an amendment merely clarifies an existing statutory meaning or substantively changes the law. The answer depends on the wording, context and legal effect of the amendment, rather than simply the date on which it was enacted.
The Court reaffirmed the interpretation in Tullow Tanzania BV and declined to depart from it in favour of Pan African Energy. This strengthened the consistency of the Court's approach to withholding tax on cross-border service fees.
Businesses operating in Tanzania should consider the withholding tax implications of payments to overseas service providers even where the work is performed entirely outside Tanzania.
In practice, they should:
Review overseas service contracts to identify payments that may fall within the statutory withholding tax provisions.
Assess where services are consumed or utilised, rather than relying solely on the location of the service provider or the place of performance.
Evaluate withholding obligations before remittance, including the applicable statutory rate and any relevant double taxation agreement.
Maintain supporting documentation, including contracts, invoices, descriptions of services, evidence of where the services are used, and relevant tax advice.
Review historical transactions carefully, especially where the applicable statutory wording changed between the relevant tax period and the date of assessment.
The precise tax treatment and rate must be determined under the law applicable to the relevant payment and period.
The central principle emerging from Dominion Tanzania Limited v Commissioner General (TRA) is that payments made by a Tanzanian resident to a non-resident for services performed abroad may be subject to Tanzanian withholding tax where those services are consumed or utilised in Tanzania.
The decision also confirms that, in the Court's interpretation of the relevant provisions, the 2016 and 2020 amendments clarified rather than changed the pre-existing legal position.
The case is an important authority on cross-border service payments, the source of income under Tanzania's Income Tax Act, and the distinction between clarificatory amendments and retrospective taxation.
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