Tullow Oil response re alleged tax avoidance

21 February 2013

Business & Human Rights Resource Centre invitedTullow Oilto respond to the following items:

-“Making a Killing: Oil Companies, Tax Avoidance and Subsidies”, Platform press release, 16 Feb 2013

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-“Making a Killing: Oil Companies Tax Avoidance & Subsidies” [PDF], Platform briefing, 16 Feb 2013

Tullow Oilsent us the following response.
Thank you for the chance to reply to this.

There are three main allegations against Tullow in this report:

  1. That Tullow has avoided paying corporation tax in the UK
  2. That Tullow is attempting to avoid paying CGT and VAT in Uganda
  3. That Tullow has promoted a race to the bottom in Kenya and Uganda

All three allegations are incorrect and show a misunderstanding of how companies like Tullow pay tax, and what our obligations are. Platform’s report, where it concerns Tullow, is simplistic and partial. Platform is a political organisation with a clear agenda and they have not, at any stage, attempted to engage with Tullow or to discuss these issues with us.

  1. Tullow has not avoided paying corporation tax in the UK. Very simply, we pay corporation tax to the UK Exchequer on the profits that we make in the UK. We operate in 25 countries globally and make less than 10% of our revenues in the UK; hence we pay less than 10% of our corporate tax bill in the UK. Clearly we pay other taxes in the UK – Employer NI, PAYE, VAT, Petroleum Revenue Tax, business rates – among others. The idea that we would pay corporation tax on profits made outside the UK to the UK Exchequer, i.e. on our overall profits, requires an unusual interpretation of the fiduciary duties of a UK plc.

It is also the case, as I have intimated above, that there is much more to taxation than Corporation Tax, and referring to it as the sole judge of a company’s contribution to the Exchequer is facile, as any examination of the 12,000 pages of Tolley’s Tax Guide would demonstrate. In fact, it is our view that the key barometer of whether a multinational company is paying its share is the effective tax rate across the countries in which it works. In 2011 our effective tax rate across the group was32% ($384m); this rose in 2012 to 42% ($450m). These two figures clearly demonstrate that Tullow pays its taxes as required and any suggestion of avoidance of tax in any of the jurisdictions in which we operate is misguided and ignores some simple facts as outlined in our financial statements.

Note: the difference in UK Corporation Tax payments between 2011 and 2012 is mostly due to lower production income ($47m decrease) in the UK in 2012.

  1. In Uganda we have disputes with governments over VAT and CGT liabilities / assessments. We are a commercial organisation that has invested billions of dollars in Uganda. We believe that we have certain rights in our agreements with the Government of Uganda over CGT and VAT and we are following the correct procedures, as per these agreements, to resolve our disputes over tax. We are following due process and we will abide by the rulings that the various authorities make. Again, the idea that this is somehow avoidance of tax shows a misunderstanding of Tullow’s fiduciary obligations both in Uganda and to our shareholders.
  2. The final allegation is also without credibility. It is a statement of fact that Tullow’s contracts with the Governments of Kenya and Uganda are different and that fiscal terms in Kenya are less tough for oil companies than they are in Uganda. This reflects Kenya’s unsuccessful – until recently - exploration efforts in the second half of the 20th century.

With regard to a race to bottom, it is that case that Tullow’s presence usually results in exactly the opposite. Because of our success in making oil discoveries in new provinces, countries which have struggled to attract exploration companies in the past are able to attract companies on more favourable terms as a direct result of Tullow’s success. Kenya provides a good example of this.