Statoil Tanzania AS, a company incorporated in Tanzania and engaged in oil and gas exploration, entered into a Production Sharing Agreement (PSA) with the Government of Tanzania and the Tanzania Petroleum Development Corporation (TPDC) on 18 April 2007 concerning offshore Block 2.
Statoil subsequently entered into a Farm-Out Agreement with ExxonMobil Exploration and Production Tanzania Limited, assigning part of its petroleum interests under the PSA to ExxonMobil. The agreement was executed outside Mainland Tanzania.
Following a tax audit conducted in 2013, the Tanzania Revenue Authority (TRA) assessed stamp duty arising from the Farm-Out Agreement and demanded TZS 170,414,448. The amount was subsequently deducted from Statoil's VAT refunds.
Statoil challenged the assessment, arguing that Article 27(e) of the PSA exempted it from tax liabilities associated with the assignment and operations of the petroleum interests.
The Tax Revenue Appeals Board ruled in Statoil's favour. However, on appeal by the Commissioner General, the Tax Revenue Appeals Tribunal reversed the Board's decision, holding that Statoil had failed to establish its entitlement to the claimed exemption.
Statoil then appealed to the Court of Appeal.
The Court considered the following principal issues:
1. Whether Statoil had established a valid exemption from stamp duty under the PSA, despite failing to produce the PSA and a Government Gazette notice granting the exemption.
2. Whether the Farm-Out Agreement executed outside Mainland Tanzania was chargeable to stamp duty, and whether the duty became payable before the agreement arrived in Mainland Tanzania.
3. Whether the Commissioner General acted unlawfully by issuing a notice confirming the assessment without first issuing a separate objection determination letter.
The Court dismissed Statoil's argument that Article 27(e) of the PSA automatically exempted it from stamp duty.
It relied on section 16(1) of the Stamp Duty Act, Cap. 189, which empowers the Minister to exempt chargeable instruments from stamp duty through a notice published in the Gazette.
The Court held that a contractual provision in a PSA does not, by itself, establish a statutory stamp duty exemption. Statoil had failed to produce both the PSA and the relevant Government Gazette notice.
Under section 18(2)(b) of the Tax Revenue Appeals Act, the burden rested on Statoil to prove that the assessment was excessive or erroneous. It failed to discharge that burden.
The Court considered section 5(1)(b) of the Stamp Duty Act, which makes an instrument executed outside Mainland Tanzania chargeable where it relates to property in Mainland Tanzania or to a matter or thing to be performed there.
The Court upheld the assessment in the circumstances of the case. It also referred to section 26, which requires a chargeable instrument executed outside Mainland Tanzania to be stamped within 30 days of its first arrival in Mainland Tanzania.
The Court's decision rested significantly on Statoil's failure to prove its claimed exemption and compliance with the applicable requirements.
Statoil argued that the TRA had prejudiced it by issuing a notice confirming the assessment without first issuing a separate determination letter.
The Court rejected this argument because Statoil had treated the confirmation notice as the final decision and had successfully used it to pursue its appeal before the Board. The Court also noted that the TRA had requested the PSA and supporting documents, but Statoil had failed to provide them.
The Court therefore found no merit in the procedural ground.
Final decision: The Court of Appeal dismissed the appeal in its entirety, with costs.
First, tax exemptions must be legally established. A contractual promise of tax exemption does not automatically satisfy statutory requirements. Where the applicable legislation requires a ministerial notice published in the Gazette, the taxpayer must establish that the required legal instrument exists and applies to the transaction.
Second, the burden of proof in tax appeals rests on the taxpayer challenging the assessment. Section 18(2)(b) of the Tax Revenue Appeals Act requires the appellant to prove that the assessment or decision is excessive or erroneous. A taxpayer cannot succeed merely by alleging that the tax authority's position is wrong.
Third, foreign execution does not automatically remove an instrument from Tanzanian stamp duty. Section 5(1)(b) extends the charging provision to qualifying instruments executed outside Mainland Tanzania when they relate to property or matters within Mainland Tanzania.
Fourth, procedural irregularities must be assessed in their factual context. Although tax objection procedures protect fairness and due process, the Court found that Statoil could not rely on the absence of a separate determination letter in the circumstances, particularly given its earlier position and its failure to provide requested documents.
Fifth, proper documentary compliance is critical in tax disputes. Taxpayers relying on government agreements, exemptions or special tax arrangements should retain and produce the underlying agreements, applicable exemption notices and evidence of compliance with registration and other statutory requirements.
Speak directly with our advocates. We turn precedent into actionable advice for your matter.