Managers of Libya Oil (Ethiopia) Ltd, a Mauritius registered oil distributor, have appealed to the Prime Minister’s Office and the Director General of the Ethiopian Revenues and Customs Authority (ERCA), claiming that demand from the latter in dividend tax will force them to “surrender” their operation in the Ethiopian market, with serious consequences to their employees, transporters, retail stations as well as major government contractors.
The authority has served a tax notice in April 2011 to the oil company, claiming a total of 210 million Br in tax arrears for acquiring assets and operations of Shell Ethiopia, which closed shops in the country after its parent company withdrew from the downstream market.
Shell Ethiopia Ltd had been engaged in the distribution of petroleum products in Ethiopia since 1948; in November 2008, it had transferred all of its assets and operations in Ethiopia to Oil Libya for 99 million Br. The company paid seven million Birr for capital gain tax, following the transfer. Tax authorities claim that the actual sale was amounted to 323 billion Br, claiming that local officials had gone to London for an investigation to learn the nature of the transaction.
Owned by the Libyan government and registered in Mauritius, Libya Oil resumed operation on May 2009. Its local subsidiary, Oil Libya Ethiopia, was incorporated with five shareholders: Libya Oil Holdings Ltd and Tamoil Africa Holdings Ltd as well as three Libyan citizens.
After almost two years of operation, Rafaai Mohammed, general manager of the company, was confronted with a notice from the federal tax office, stating that their company should pay 119 million Br in capital gains tax and an additional 91 million Br in dividend taxes. Tax authorities believed that the company has failed to truthfully declare the amount for which it acquired the former Shell’s assets and operations.
Shell Ethiopia, whose headquarters and depot are located on Debrezeit Road, was the largest oil distributor in Ethiopia, claiming close to 50pc of the market. Libya Oil (Ethiopia) Ltd, which employs close to 200 people, now supplies petroleum products to 180 retail stations across the country.
“Should ERCA continue in its course of action, the decision will immediately force the company to surrender its operation,” warns the company in a written response, and signed by Bahru Temesgen, external affairs manager of the company.
Managers of Libya Oil (Ethiopia) argue that capital gains tax could only be demanded from a transferer of properties, in this case Shell Petroleum Company Limited, which used to own 99pc of Shell Ethiopia Ltd.
Libya Oil Holdings Ltd is the transferee, while its subsidiary in Ethiopia, Libya Oil (Ethiopia) was the object of sale, the oil company argued in its letter.
ERCA’s claim to serve our company dividend tax assessment notification is simply a transgression of the acclaimed legal concept of tax certainty along with the concept of res judicata as clearly stipulated in the Ethiopian Civil Procedure, The company said in its response.
Managers of the oil company reiterated legal battles its predecessor fought 22 years ago, where they said the Supreme Court ruled in favour of Shell Ethiopia that it should not declare and pay dividends locally for it was a branch to the head office in London.
These constituted the substance of their appeals addressed to the Prime Minister’s Office and Melaku Fenta, director general of ERCA.
“We firmly believe that our reality and perspective will be understood to save the life of the geese,” the company said in its written response.
However, both offices have declined to examine the complaint from the oil company, advising its managers to exhaust the formal appeal mechanism, sources say. Libya Oil (Ethiopia) has to deposit 50pc of the amount it is requested to pay, added with penalty and interests, in order to pursue their appeals at the tax appeal commission.
“Both the director and the office [ERCA] have no legal mandate to entertain the case,” a senior official at the authority, who was not authorised to talk to the media said.
While the company is filing complaints to government offices that in the hopes of securing an appeal, auditors at ERCA are busy calculating other types of taxes, such as business profit tax, sources inside the Authority disclosed.