Agreed Fiscal Regime

On 9 December 2021, Parliament of Uganda passed the East African Crude Oil Pipeline Special Provisions Bill 2021. The Bill was assented to by the President on 20th December 2021 and gazetted as an Act on 24th December 2021 and thereby took effect as law.

The object of this Act is to enable the Intergovernmental Agreement between the Republic of Uganda and the United Republic of Tanzania, the Host Government Agreement signed between the Government of Uganda and the East African Crude Oil Pipeline Company Limited (the Project Company) and to facilitate the development of the East African Crude Oil Pipeline (EACOP) Project.

The Act establishes a separate tax regime for the EACOP Project, level 1 contractors and level 2 contractors. Level 1 contractor is a direct contractor of the Project Company and a level 2 contractor is a direct contractor of a level 1 contractor.

We highlight below the agreed fiscal regime under the EACOP Act, 2021.

 

Detailed Discussion

1. Application of Arm’s Length Principle

The Act provides that the arm’s length principle will apply to any transactions between associates regarding the EACOP project except for transactions or arrangements between the Ugandan head office and its permanent establishment in Tanzania.

Implication

The transactions between the companies participating in the EACOP project and their associates are required to be at arm’s length save for the transactions between the Ugandan head office and its permanent establishment in Tanzania. The aim is to ensure that the project company and its permanent establishment in Tanzania can trade without restriction on the prices charged between them. However, all other participants will be required to follow the arm’s length principle which will enhance the tax base of these companies

 

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