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INTERNATIONAL TAX ARBITRATION AND PETROLEUM DISPUTE RESOLUTION:

A CASE STUDY OF UGANDA

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INTERNATIONAL TAX ARBITRATION AND PETROLEUM DISPUTE RESOLUTION:
A CASE STUDY OF UGANDA

By
Mukalere Hope Mwagale* / Tajudeen Sanni (PhD)**

Abstract
Uganda’s estimated petroleum reserve capacity is currently 6.5 billion barrels, of which no less than 1.4
billion barrels are projected to be recoverable. The blocs in the Albertine Graben in western Uganda were initially
jointly licensed to Anglo-Canadian, Heritage Oil and the Anglo-Irish company, Tullow Oil. Heritage sold their stake
to Tullow for US$ 1.5 billion.A Production Sharing Agreement between Heritage Oil and Gas and the Uganda
Government was the root of a dispute where Government, through its tax organ, the Uganda Revenue Authority
issued capital gains tax assessments for Heritage Oil and Gas company that it insisted was not meant to pay. The
Government instituted a suit in the Tax Appeals Tribunal to recover unpaid taxes resulting from the transaction. The
company on the other side rushed to the High Court. When both the Court and Tribunal ruled in favour of the
Government, the Oil Company lodged a case in the International Court of Arbitration, which also ruled in favour of
the Government. The dispute is a pointer in the direction of what is the appropriate forum for arbitration in Uganda.
The research addresses the effectiveness of international tax arbitration in as far as petroleum tax dispute resolution
is concerned, with specific reference to enforcement of arbitral awards. The research finds that there are several
international instruments on international tax arbitration and focused on the New York Convention and the United
Nations Commission on International Trade Law (UNCITRAL), which Uganda has domesticated. The research found
that the major challenges to enforcement of arbitral awards in Uganda are: public policy due to conflict between
domestic public policy and international public policy; the doctrine of arbitrability where problems arise when a
matter that is arbitrable in one jurisdiction fails the test of arbitrability in Uganda, due to differences in legal
frameworks; the scope of the courts’ control of arbitral awards, where court is to determine the validity of an
arbitration agreement as a pre-requisite to referring a matter to arbitration; and national and political bias. It is
recommended, amongst other things, that the stakeholders should fasten the operationalization of the Petroleum
Authority of Uganda and this should work hand in hand with Center for Alternative Dispute Resolution and the Tax
Appeals Tribunals to promote arbitration in the settlement of petroleum tax disputes. Further, the Arbitration and
Conciliation Act should be amended and specifically provide that any dispute should be referred to arbitration in case
of existence of an arbitration clause in a contract or an arbitration agreement. Finally, the laws governing the
petroleum upstream, midstream and downstream sector need to be amended to make provision for the settlement of
petroleum tax disputes through arbitration.

Introduction
Dispute resolution is an essential part of a functioning constitutional legal system. 1 It is well
known that the traditional formal dispute resolution mechanisms are riddled with a number of
inefficiencies2, and in most cases, there is need for a more effective means of resolving disputes in
particular contexts, hence the birth of alternative dispute resolution mechanisms.
One genus of international disputes that has not received much attention is the resolution of
international petroleum tax disputes.
The term arbitration is defined as a determination of a dispute by one or more independent third
parties rather than by a court. Arbitrators are appointed by the parties in accordance with the terms of the
arbitration agreement or in default of court.3 International tax arbitration is the referral of disputes to an

 LLB, LLM
** LLB, LLM, BL, LLD, Lecturer, Kampala International University
1
Yitzhak Hadari, Compulsory Arbitration in International Transfer Pricing and Other Double Taxation Disputes, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1483621 (last visited March. 20, 2015). See also Ojijo. (2012) Legal Rhetoric.
Principles, Presumptions, Rules, Tests, and Maxims of Laws. Kampala. P. 467
2
Totaro, Gianna., “Avoid court at all costs” The Australian Financial Review Nov. 14 2008. (April 19, 2010)
3
Jonathan Law, Elizabeth A Martin, Oxford Dictionary of Law. 7 th Ed.
independent foreign venue to resolve the same based on agreement, rather than litigation.4 Effectively, the
determinants of international tax arbitration which make it preferred for dispute resolution in tax matters is
its contribution to public interest, doctrine of sovereignty, globalization, allocation of tax revenues, and
enforcement of arbitral proceedings.
The complexity of international petroleum tax practice calls for special regulatory framework in
drafting the clauses of such agreements, to protect tax payers on one side, and prevent tax evasion on the
other.5 This is specially heightened in cases where the tax subject is a matter of national economic
importance, like natural resource exploitation6. A further complexity arises due to the unequal power
relations between multinationals and the taxing authorities, who are predominantly in least developed
countries7. This is further compounded by the complex nature of these agreements, and their novelty in as
far as lingua and legalese are concerned in their negotiation.8 A significant feature of international
arbitration is the fact that a number of legal systems may be relevant in the disputes.9 In such an instance,
issues such as the law applicable to determine the capacity to enter into the arbitration agreement; the law
applicable to the arbitration agreement itself; the law applicable to the arbitration proceedings (lex arbitri);
the law applicable to the dispute itself (lex causae); and the law applicable to the enforcement of the award,
would have to be deliberated upon.10

Background
Globally, countries have already added arbitration clauses to newly negotiated tax treaties.11
Within the EU, the Arbitration Convention protects taxpayers in transfer pricing disputes, and the ECJ is
called upon to decide tax treaty conflicts under recent tax treaties. The ICC proposed a model arbitration
provision. Without doubting the ability of international tax arbitration, it has in practical terms played a
significant role in resolving tax disputes12. There are emerging new approaches to resolving tax disputes,
including mandatory binding arbitration clauses in income tax treaties13.
Many developing countries are reluctant to resort to international petroleum tax arbitration as
most fear that the Government is abdicating its right to determine tax disputes – an incorrect perception in
our view. The reason why most developing countries are skeptical of international tax arbitration is
political in nature as sovereignty of states is not compromised in any manner by this process.
An even more serious question is whether the petroleum tax arbitration rules are in public
interest. Many authors e who have looked at this question have suggested that the tax arbitration rules are
better designed to serve the international business community than serve the public interest14. The result is
that the international business community now can bypass the domestic administrative and judicial
procedures normally available for resolving tax disputes and instead move into a secret forum outside the
scrutiny of the taxpaying public.

4
A. Christian, Your Own Personal Tax Law: Dispute Resolution under OECD Model Tax Convention, 17 Williamette. J. Int‟L &
Dispute Resolution (2009)
5
See Allison D. Christians, Tax Treaties for Investment and Aid to Sub-Saharan Africa, 71(2) BROOK. L.REV. 639, 641 (2005)
6
Id
7
Supra note 5 above
8
Jean-Philippe Chetcuti, The EU Tax Arbitration Convention, at 6.6, http://www.inter-lawyer.com/lex-e-scripta/articles/eu-tax-arb-
conv.htm#_Toc518052897 (last visited March. 10, 2015)
9
Jumoke Akinjide-Balogun, Oil and Gas arbitration. Seminar On “International Commercial Arbitration in the African Sub-
Region: Meeting the User‟s Need” http://www.akinjideanco.com/oil gas. html accessed 20th March 2015
10
Ibid
11
See OECD, Guidelines for Conducting Advanced Pricing Arrangements Under the Mutual Agreement Procedure (“MAP
APAs”), available at http://www.oecd.org/dataoecd/10/10/38008392.pdf (last visited March. 10, 2015).
12
Natalia Cruz; International Tax Arbitration and the Sovereignty Objection: The South American Perspective, Tax Notes
International 2008.
13
See for instance, 2010 OECD Model Tax Convention on Income and Capital Flow, Article 25; available at
http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/model-tax-convention-on-income-and-on-capital-
2010_9789264175181-en accessed on March 12, 2015
14
Jean Phillippe; The EU Tax Arbitration Convention at page 606
 Heritage Oil & Gas Limited entered into a Production Sharing Agreement (PSA) for petroleum
exploration, development and production with the Government of the Republic of Uganda (the
Government) on 1st July 2004. The agreement contained an arbitration clause to the effect that any disputes
stemming from the agreement which could not be settled amicably within sixty days would be referred to
arbitration in accordance with the United Nations Commission for International Trade Law (UNCITRAL)
Arbitration Rules15.
Heritage Oil & Gas Limited sold its interests under the agreement to Tullow Uganda Limited
under a sale and purchase agreement and a supplemental agreement thereto. As a result of the sale, and
under the authority of the Income Tax Act, (ITA), Uganda Revenue Authority issued tax assessments for
Capital Gains Tax which the company appellant objected to and consequently filed a claim before the Tax
Appeals Tribunal, which proceedings were stayed pending Arbitration in accordance with the Arbitration
clause in the Production Sharing Agreement.

Legal Issues Arising

Despite several positive attributes and widespread use, arbitration does not provide a definitive
answer to all international petroleum tax disputes16. In Uganda, following the dispute between the Ugandan
government with Heritage Oil and Tullow Oil, the regime of international petroleum tax arbitration has
raised eyebrows, due to the specific application of arbitration in this case, which has led to general
disapproval of international legal dispute resolution.
The manner and style of resolution of the conflict has raised issues as to whether arbitration as a
whole is bad for the resolution of tax disputes involving powerful multinational corporations and
developing countries like Uganda and whether it is possible for arbitration to be restructured and applied in
ways that are beneficial to developing countries. This is especially relevant given the fact that the
procedures are complex, the practice novel to Uganda, and the subject matter emotive.
The manner in which Uganda was dragged to international legal fora to solve a dispute of its
natural resource preempts the skewed power relations between poor countries and rich transnational
corporations, and makes known the fact that international petroleum tax arbitration is subject of global
power plays which are beyond the province of law. This also reveals the glaring fact that there are no
specific rules governing arbitration in petroleum dispute resolution in Uganda. The Production Sharing
Contract between Uganda and Heritage Oil Limited specifically states that any dispute arising under the
Agreement, if not settled within 60 days shall be referred to arbitration in accordance with the UNCITRAL
rules.17
Further, whereas the laws in Uganda have addressed various fields of arbitration and taxation,
international petroleum tax arbitration is relatively recent, unaddressed and controversial. The laws used for
international tax arbitration are the general laws applicable to arbitration and the major law on petroleum,
the Petroleum (Exploration, Development and Production) Act, provides no rules on petroleum arbitration.
This lacuna necessitates a critical analysis of the law relating to international petroleum taxation in Uganda,
from a comparative perspective, so as to ensure protection of the tax payer. In this vein, the objectives of
this study are: to examine the legal framework on International Tax Arbitration; to determine the
appropriate forum for arbitration in the petroleum industry in Uganda; and to establish the
challenges/obstacles to effective enforcement of arbitration awards in Uganda.

The Theory of Arbitration

There are four arbitration theories which help to understand the nature of arbitration: the
contractual theory; the jurisdictional theory; the mixed or hybrid theory; and the autonomous theory. 18 This
paper centered on the mixed /hybrid arbitration theory because it is an amalgamation of the other three
15
Heritage Oil & Gas Limited v Uganda Revenue Authority Civil Appeal No. 14 of 2011
16
Id.
17
Article 26
18
A. Samuel, Jurisdictional Problems in International Commercial Arbitration: A Study of Belgian, Dutch, English, French,
Swedish, Swiss, US, and West Germany, 1989. Schulthess Polygraphischer Verlag, Zurich, P. 33
arbitration theories. It states that an arbitral award falls half way between being a judgement and a contract.
An arbitrator does not perform the public function and an award is not a contract. The parties, agreeing on
arbitration, create private jurisdiction and set its limits. By agreeing on Arbitration, parties agree not to go
to court. The arbitration agreement is treated as being similar to an exclusive jurisdiction clause, in that the
decision- making powers of the municipal courts are substituted for the arbitrators. Both contractual and
jurisdictional elements of arbitration are at play.
Despite being closest to the nature of arbitration, the theory has still been criticised for not being
able to provide a basis for the reform of arbitral law. Nevertheless, the research found that this is the best
theory that can counter the weaknesses of the theory of globalisation especially through the contractual and
autonomous theories that make states welcome the idea of international tax arbitration thus aiding the
resolution of petroleum tax disputes.

The Concept of International Arbitration in Tax Disputes

The “Arbitration Convention”19 represents a valuable precedent which merits consideration in
framing the appropriate terms for international arbitration provisions in general.
Yves argues that arbitral disputes relating to tax measures fall into two main categories: (1)
claims that a tax measure violates the investment protections contained in an investment treaty between an
investor's home State and a host State; and (2) claims that a tax measure breaches an investor's rights under
a contract with a host State or entitles it to compensation or indemnification under a contract with a state
enterprise.20 The advantages include the desire to avoid the uncertainties and local practices associated with
litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative
enforceability of arbitration agreements and arbitral awards (as contrasted with forum selection clauses and
national court judgments), the commercial expertise of arbitrators, the parties' freedom to select and design
the arbitral procedures, confidentiality and other benefits.21
The International Bar Association (IBA)'s Rules on the Taking of Evidence in International
Commercial Arbitration, revised in 201022 blend common and civil systems so that parties may narrowly
tailor disclosure to the agreement's particular subject matter. This has been argued by Sherby to be the
leading advantage of international tax arbitration.23
Some salient features of international tax arbitration include: Anchoring on a treaty24, exhaustion of the
mutual agreement procedure25, consent based26, no independent right of initiation27, and the rule of
exhaustion of local remedies.

Enforceability of International Petroleum Tax Awards

19
Gary B. Born, International Commercial Arbitration, 187, 197, 217 (2009); Julian M. Lew, Loukas A. Mistelis & Stefan M.
Kröll, Comparative International Commercial Arbitration 1-10 to 1-11, 6-1 to 6-6 (2003) Convention on the Recognition and
Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”), June 10, 1958,
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html
20
Yves Dezalay & Bryant G. Garth, Dealing in Virtue: International Commercial Arbitration and The Construction of a
Transnational Legal Order 9-10, 124, 198 (1996)
21
Sachs, Klaus. "CMS Guide to Arbitration: Foreword". CMS Legal. Retrieved 1 March 2015.
22
Yves Dezalay & Bryant G. Garth, Dealing in Virtue: International Commercial Arbitration and The Construction of a
Transnational Legal Order 9-10, 124, 198 (1996)
23
Eric Sherby, “A Different Type of International Arbitration Clause,” Int’l Law News (American Bar Association) Winter 2005 at
10.
24
Brian J. Arnold & Michael J. McIntyre, International Tax Primer, second edition, at 6. See also at 105
25
Barin, Babak; Little, Andrew; Pepper, Randy (2006). The Osler Guide to Commercial Arbitration in Canada. The Netherlands:
Kluwer Law International. p. 34. ISBN 90-411-2428-4.
26
Bukar, B., Mandatory and Other Forms of Arbitration Under Some Selected Oil, Gas and Investment Legislations in Nigeria, Oil,
Gas & Energy Law Intelligence, February 2008 at http://www.ogel.org/journal-advance-publication-article.asp?key=224 (last
visited on 18th April 2015)
27
Jackson H. Ralston, International Arbitration from Athens To Locarno 153-154; John L. Simpson & Hazel Fox, International
Arbitration: Law and Practice 1 (1959)
 The New York Convention is by no means necessarily the most favorable enforcement regime.
Prevailing parties should consider whether local law or multilateral or bilateral treaties provide a more
attractive alternative. Doing so is specifically contemplated by the New York Convention, which states:
The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements
concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor
deprive any interested party of any right he may have to avail himself of an arbitral award in the manner
and to the extent allowed by the law or the treaties of the country where such award is sought to be relied
upon.28
For purposes of enforceability under the NYC, it would appear that the proper place where an
award should be made is at the place of arbitration, as properly determined.29 The bindingness of an award
must derive from a national system, a lex loci arbitri, which in turn defines the lex arbitri.30 This ensures
the continued link between the award and the rest of the arbitral proceedings. As Mann puts it, the award:
…is no more than a part, the final and vital part of a procedure which must have a territorial central point or
seat. It would be very odd, if possibly without the knowledge of the parties or even unwittingly, the
arbitrators had the power to sever that part from the preceding procedure and thus give a totally different
character to the whole.31

The legal framework for International tax arbitration

It is said that tax matters are a subsidiary factor concerning financial decisions, but once the non-
tax barriers are eliminated, tax consequences increase in importance.32 These consequences give rise to
disputes that have in turn given more importance to tax arbitration especially in the petroleum industry.

The New York Convention

Historically, many international organizations have attempted to ensure the enforceability of
arbitral awards through multilateral treaties, beginning with the Geneva Protocol of 192333 and followed by
the Geneva Convention of 1927.34 While the Geneva Treaties are essentially historical remnants today,35
they remain the building blocks of the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards of 1958 (New York Convention).
To rectify the deficiencies in the Geneva Treaties, the United Nations Economic and Social
Council in 1956 drafted a multilateral convention to provide for a more "pro-enforcement"
arbitral process that would further protect the integrity of international arbitration awards.36 For example,
the Geneva Treaties apply only to commercial claims, but the New York Convention can apply to both
commercial and noncommercial matters.37 Also, unlike the Geneva Treaties, the New York Convention
allows for the enforcement of an award in a noncontracting country.38 As a result, the New York
Convention "confers legitimacy upon awards granted in any state, whether or not a contracting state, and
whether or not the parties are subject to the jurisdiction of different contracting states." 39 A conference at
the United Nations headquarters in 1958 ultimately produced the Convention on the Recognition and
28
New York Convention Article VII (1), June 10, 1958, 9 U.S.C. & 201, 330 U.N.T.S. 38
29
Article V (1) (e); English Arbitration Act 1996, S.2
30
Paulsson, J., Arbitration Unbound: Award Detached from its Country of Origin. (Supra) pp.360-361
31
Mann F., Where is an Award Made? (1985) 1 Arbitration International 107
32
Arnold Brian J and Harris Neil H. “Colloquium on NAFTA and Tradition: NAFTA and the Taxation of Corporate Investment: A
View from Within NAFTA”. New York University Tax Review. Summer, 1994. 49 Tax L Rev. 529, (Lexis-nexis) pages 1,2.
33
Protocol on Arbitration Clauses, Sept. 24, 1923, 27 L.N.T.S. 157
34
Convention on the Execution of Foreign Arbitral Awards, Sept. 26, 1927, 92 L.N.T.S. 301
35
The New York Convention specifically states that "the Geneva [Treaties] ... shall cease to have effect between Contracting
States." Convention on the Recognition and Enforcement of Foreign Arbitral Awards,June 10, 1958, art. VII(2), 21 U.S.T. 2517,
2521, 330 U.N.T.S. 3, 44
36
Elise P. Wheeless, Article V(1)(b) of the New York Convention, 7 EMORY INT'L L.REV. 805, 806 (1993).
37
However, parties to the New York Convention can opt for the "commercial reservation," allowing application to only
commercial claims.
38
NewYork Convention,Art. I(1), 21 U.S.T. at 2519, 330 U.N.T.S. at 38.
39
Cindy Silverstein, Iran Aircraft Industries v. Avco Coiporation: Was a Volation of Due Process Due?, 20 BROOK. J. INT'L L.
443, 454 (1994).
Enforcement of Foreign Arbitral Awards, popularly known as the New York Convention. The New York
Convention has been hailed as the "cornerstone of current international commercial arbitration."40

Defenses to enforcement under the New York Convention

Article V of the New York Convention distinguishes five grounds on which an award can be
refused. Grounds for refusal include: (1) incapacity of the parties; (2) improper notice of the appointment of
the arbitrator or of the arbitration itself;41 (3) lack ofjurisdiction, i.e., " the award deals with a difference...
not falling within the terms of the submission to arbitration”;42 (4) procedural irregularities;43 and (5) an
invalid award based on the ground that the award was not "binding on the parties, or has been set aside or
suspended by a competent authority of the country in which.., that award was made."44

United Nations Commission on International Trade Law (UNCITRAL)

Pursuant to Article 35(1) of the Model Law, any award is to be recognised as binding and
enforceable, subject to the provisions in Articles 35(2) and 35(6). Reciprocity of the enforcement of awards
is not a condition of enforcement under the Model Law, nor is the presentation of the arbitration agreement.
The grounds on which recognition can be refused45 reflect those listed in the New York Convention.
The UNCITRAL system may be the only one capable of ensuring that the arbitral proceedings are
not unnecessarily disrupted. This is evident under Article 16 (3) of the Model Law.
Regardless of its short falls, the UNCITRAL Model Law is by far the basic law on which most countries,
including Uganda, have modeled their laws on arbitration.

The Appropriate Forum for Arbitration in Uganda

Uganda was a British colony and thus English legal system and law are predominant in Uganda.
The laws applicable in Uganda are statutory law, common law, doctrines of equity and customary law
when it does not conflict with statutory law.46 The United Nations Commission on International Trade Law
(UNCITRAL) came up with the UNCITRAL Arbitration Rules of 1976, the UNCITRAL Conciliation
Rules of 1976 and the UNCITRAL Model Law on International Commercial Arbitration. These
UNCITRAL documents coupled with the Convention on Recognition and Enforcement of Foreign Arbitral
Awards (the New York Convention) of 1958 are the bedrock of the Arbitration and Conciliation Act of
Uganda.47

1. The Arbitration and Conciliation Act

The Ugandan Arbitration and Conciliation Act48was enacted to amend the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign arbitral awards, to define the
law relating to conciliation of disputes and to make other provision relating to the foregoing. 49 Its
provisions on arbitration apply to both domestic arbitration and international arbitration.50
The Act establishes the Centre for Arbitration and Dispute Resolution (CADRE).51 This Centre is
charged with inter alia: to make appropriate rules, administrative procedure and forms for effective
performance of the arbitration, conciliation or Alternative Dispute Resolution process; to establish and
enforce a code of ethics for arbitrators, conciliators, neutrals and experts; to qualify and accredit arbitrators,

40
ALBERTJ. VAN DEN BERG, THE NEW YORK ARBITRATION CONVENTION OF 1958 1 (1981).
41
New York Convention art. V(l)(b)
42
Id. art. V(l)(c)
43
Id. art. V(1)(d)
44
Id. art. V(l) (e)
45
Article 35(6) of the Model Law
46
Judicature Act, Cap 13, Laws of Uganda.
47
Cap 4, Laws of Uganda
48
Ibid
49
Ibid, Preamble
50
Ibid, S. 1.
51
Ibid, s. 67.
conciliators and experts; to provide administrative services and other technical services in aid of arbitration,
conciliation and alternative dispute resolution; to facilitate certification, registration and authentication of
arbitration awards and conciliation settlements; to avail skills, training and promote the use of alternative
dispute resolution methods for stakeholders; and to do all other acts as are required, necessary or conducive
to the proper implementation of the objectives of the Act.52
The Act provides that when seized of an action in a matter in respect of which the parties have
made an arbitration agreement referred to in section 39,53 the court is to, at the request of one of the parties,
refer the parties to arbitration, unless it finds that the agreement is null and void, inoperative or incapable of
being performed.54 This points to the autonomy of the arbitration agreement as it was in Power and City
Contract Vs LTL Project (PVT) Ltd55where Hon. Justice Stephen Musota held that such a clause to refer a
dispute to arbitration is a contract with an enduring and special effect and that it has a binding effect on the
parties thereto.
The Act also has provisions on the enforcement of an arbitral award rendered pursuant to the
Convention on the Settlement of Investment Disputes between States and Nationals of other States (the
“ICSID Convention”).56
Arbitration in Uganda has the potential to boost international tax arbitration. It is important to point
out that CADRE in Uganda plays a more active role in domestic arbitration. International tax arbitration
would however require minimal intervention by the institution especially in areas of making appropriate
rules, administrative procedure and forms for effective performance of the arbitration, establishing and
enforcing a code of ethics for arbitrators. This is because where Parties to an international arbitration
choose the applicable rules, CADRE would seem to interfere if it imposed the Ugandan rules on the
process even if one of the parties is Ugandan. Uganda can therefore come up with a transnational tax
arbitration framework and streamline its domestic framework with the same so that the CADRE can be
more efficient, especially in terms of international tax arbitration.

2. The Tax Appeals Tribunal Act

The Uganda Revenue Authority Act mandates the Uganda Revenue Authority to make tax
assessments and to collect tax. In the case of K. M. Enterprises and Others Vs Uganda Revenue
Authority,57 it was stated that the mandate of the URA to collect tax in accordance with the laws of Uganda
cannot be fettered or overridden by an agreement. It is in this vein that Article 14 of the Production Sharing
Contract between Uganda Government and Heritage Oil provides that taxes would be paid in accordance
with the laws of Uganda.
The Constitution of the Republic of Uganda makes provision for Parliament to make laws to
establish tax tribunals.58 In pursuit of this mandate, Parliament enacted the Tax Appeals Tribunals Act.59
There are established tax appeals tribunals consisting of a chairperson and four other members as appointed
in accordance with the Act60 which are mandated to review any taxation decision in respect of which an
application is properly made.61

52
Ibid. s.68
53
S. 39(1) is to the effect that a “New York Convention award” means an arbitral award made, in pursuance of an arbitration
agreement, in the territory of a State (other than Uganda) which is a party to the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (the “New York Convention”) adopted by the United Nations Conference on International Commercial
Arbitration on 10th June, 1958. ss. (2) thereof further states that an award is be treated as made at the seat of the arbitration,
regardless of where it was signed, dispatched or delivered to any of the parties.
54
S. 40.
55
HCMA No. 0062 of 2011
56
Part 4 (ss. 45-47).
57
HCCS No. 599 of 2001
58
Article 152 (3)
59
Cap 345, Laws of Uganda
60
Section 2, Tax Appeals Tribunals Act, Cap 345
61
Ibid Section 14
 The rules of procedure under the Tax Appeals Tribunal are governed by the Tax Appeals Tribunals
(Procedure) Rules, 2012 which provide that the rules shall apply to all proceedings of the tribunal,62 subject
to Section 22 of the Tax Appeals Tribunals Act. The Rules were made pursuant to the Tax Appeals
Tribunals Act.63
The case of Heritage Oil and Gas Ltd Vs Uganda Revenue Authority64points out the fact that there
is no provision under the Tax Appeals Tribunals Act allowing the Tribunal to refer proceedings before it to
arbitration. In fact, independence of the Tribunal is emphasized. It appears the parties only have an option
of appealing to the High Court after the decision has been made by the Tribunal.65 This option of appeal
was examined in the case of URA Vs Bank of Baroda- India.66
The above is a clear indication that the statute on the tax appeals Tribunals in Uganda does not aid
tax arbitration at all and at the moment cannot be the right forum for petroleum tax arbitration unless it is
amended to make provision for it. This would be the best option as a forum for petroleum tax arbitration
because tax is a technical area that needs a lot of expertise.
The Petroleum Supply Act67 the primary law for the downstream petroleum sector in Uganda
provides that disputes between holders of permits or licenses, or between such holders and the
Commissioner may be submitted by the parties involved to the Petroleum Committee for non-binding
mediation.
The midstream petroleum sector is governed by the Petroleum (Refining, Conversion,
Transmission and Midstream Storage) Act and it provides68 that a licensee shall negotiate in good faith to
reach an amicable settlement of a dispute concerning a contractual matter that arises or submit the dispute
to the Authority.69 The statute concerning the upstream petroleum sector has no provision on alternative
dispute resolution.70
It is clear that the legal framework on petroleum in Uganda offers no provision to support
arbitration of petroleum tax disputes. The national policies have nothing on the same.71

Challenges to Effective Enforcement of Arbitral Awards in Uganda

1. Public Policy
Public policy is one of the grounds for setting aside arbitral awards that a national court may
consider of its own initiative. However, courts have adopted a different approach to public policy,
especially with regard to national public policy. In fact, international public policy plays an important
function not only in the exclusion of the application of some national rules but it can also influence the
decision of arbitrators when fundamental notions of contractual morality or basic interests concerning
international trade are involved.72 It is meant to protect interests, which cross borders, and is applicable in
international cases.73To this extent, specific domestic public policy may not be applicable to international
commercial arbitration.

62
Rule 2 of SI No. 50, 2012
63
Section 22(3), Tax Appeals Tribunal Act, Cap 345, Laws of Uganda
64
High Court Civil Appeal No. 14 of 2011
65
Section 27 (3) of the Tax Appeals Tribunals Act
66
HCT-00-CC-CA-05-2005
67
Section 40, Petroleum Supply Act No. 13 of 2003.
68
Section 85 (1)
69
Section 85 (2)
70
Petroleum (Exploration, Development and Production) Act, No. 3 of 2013
71
National Oil and Gas Policy for Uganda, February 2008 & the Energy Policy for Uganda, September 2002, Ministry of Energy
and Mineral Development.
72
Harmathy, A. „New Experiences of International Arbitration with special emphasis on legal debates between parties from
Western Europe and Central and Eastern Europe‟. Electronic Journal of Comparative Law, vol. 11.3 (December 2007), p. 12.
Available at http://www.ejcl.org [Accessed on 15/06/2015]
73
Adeline, C., „Transnational Public Policy in Civil and Commercial Matters‟. Law Quarterly Review, 128 pp. 88-113, 2012
 2. The Doctrine of Arbitrability
Arbitrability is also one of the grounds for setting aside arbitral awards that a national court may
consider of its own initiative. Arbitrability refers to the determination of the type of disputes that can be
settled through arbitration and those that are the domain of the national courts. It deals with the question of
whether specific classes of disputes are barred from arbitration because of the subject matter of the
dispute.74 Courts often refer to “public policy” as the basis of the bar.75 The problem arises when a matter
that is arbitrable in one jurisdiction fails the test of arbitrability in a different jurisdiction.

3. Scope of Court‟s Control of Arbitral Awards

In the Ugandan case of East African Development Bank vs Ziwa Horticultural Exporters Ltd76 it
was observed that: “Sec. 677 of the Arbitration and Conciliation Act, provides for mandatory reference to
arbitration of matters before court which are subject to an arbitration agreement; where court is satisfied
that the arbitration agreement is valid, operative and capable of being performed, it may exercise its
discretion and refer the matter to arbitration.” This shows the Ugandan courts‟ support for arbitration
although at the risk of such discretion being misused. Under section 5(1) of the Ugandan Act on Arbitration
and Conciliation, the Court should exercise its discretion to satisfy itself that the arbitration agreement is
valid, operative and capable of being performed.

4. National and Political Bias

The fact that recognition and enforcement procedures are left to the municipal courts and laws has
been criticised because of the national and political bias in the forum place which is especially strong when
the party against whom the enforcement is sought is the state itself or one of its nationals. Such a situation
would be worsened if the subject matter of the dispute is something that greatly contributes to the revenue
of the country, for example, issues to do with energy and natural resources.

5. Institutional Capacity
There exists a problem on the capacity of existing institutions especially the CADRE to meet the
demands for international commercial arbitration. There is still much more needs to be done in order to
enhance their capacity in terms of their number, adequate staff and finances to ensure that they are up to
task in facilitating international commercial arbitration.

Findings
This paper has been concerned with international tax arbitration and petroleum dispute resolution.
In essence, it examined the extent of effectiveness of international tax arbitration and how it can reduce
petroleum tax disputes. To achieve this, the main objectives of the research were to examine the legal
framework on international tax arbitration; to determine the appropriate forum for arbitration in the
petroleum industry in Uganda; and to establish the challenges/obstacles to effective enforcement of
arbitration awards in Uganda.
As regards the first objective, the research found that there are several international instruments
on international tax arbitration and focused on the OECD Model Tax Convention, the EC Arbitration
Convention, the New York Convention and the United Nations Commission on International Trade Law
(UNCITRAL). The research also found that Uganda has domesticated the New York Convention and the
UNCITRAL Model law in the Arbitration and Conciliation Act, Cap 4, Laws of Uganda and thus the
research noted these as the most important legislation on international tax arbitration for Uganda.

74
Laurence Shore “Defining „Arbitrability‟-The United States vs. the rest of the world”, New York Law Journal,
2009, available at http://www.gibsondunn.com/publications/Documents/Shore-DefiningArbitrability.pdf, [ Accessed on
15/06/2015].
75
Ibid, page 1
76
High Court Misc. Appln. No. 1048 of 2000 arising from Companies Cause No. 11 of 2000
77
(present sec. 5)
 On the second objective, the research found that there are basically two places where petroleum
tax arbitration can take place in Uganda. The first is at the Centre for Arbitration and Dispute Resolution as
established by the Arbitration and Conciliation Act. However, it is important to point out that CADRE in
Uganda plays a more active role in domestic arbitration. International tax arbitration would however
require minimal intervention by the institution especially in areas of making appropriate rules,
administrative procedure and forms for effective performance of the arbitration, establishing and enforcing
a code of ethics for arbitrators. Trite to note is that where Parties to an international arbitration choose the
applicable rules, CADRE would seem to interfere if it imposed the Ugandan rules on the process even if
one of the parties is Ugandan. Uganda can therefore come up with a transnational tax arbitration framework
and streamline its domestic framework with the same so that the CADRE can be more efficient.
The alternative place to petroleum tax arbitration according to the research, are the Tax Appeals
Tribunals as established by the Tax Appeals Tribunals Act of Uganda. It was found that there is no
provision under the Tax Appeals Tribunals Act allowing the Tribunal to refer proceedings before it to
arbitration. In fact, independence of the Tribunal is emphasized. This is a clear indication that the statute on
the tax appeals Tribunals in Uganda does not aid tax arbitration at all and at the moment cannot be the right
forum for petroleum tax arbitration unless it is amended to make provision for it. The research noted
however that this would be the best option as a forum for petroleum tax arbitration because tax is a
technical area that needs a lot of expertise.
On the last objective, the research found that the major challenges to enforcement of arbitral
awards in Uganda are: public policy due to conflict between domestic public policy and international public
policy; the doctrine of arbitrability where problems arise when a matter that is arbitrable in one jurisdiction
fails the test of arbitrability in Uganda, due to differences in legal frameworks; the scope of the courts‟
control of arbitral awards, where court is to determine the validity of an arbitration agreement as a pre-
requisite to referring a matter to arbitration; and national and political bias.

Recommendations
The research recommends the following to improve the performance of international tax
arbitration in order to solve petroleum tax disputes:
It is noteworthy that the Centre for Arbitration and Dispute Resolution (CADRE) makes available
to individuals and their legal counsel, at no charge, pre-drafted model arbitration and mediation clauses for
inclusion in their contracts. This is a positive step towards helping parties avoid difficulties that may arise if
they were to have their subject matter declared non-arbitrable when the dispute has already arisen. A
harmonized legal and institutional framework would go a long way in ensuring that arbitrability does not
become a hindering factor in conducting petroleum tax arbitration and subsequently enforcing the arbitral
awards in Uganda. The Tax Appeals Tribunal can have a harmonized legal instrument of operation with
CADRE when it comes to petroleum tax arbitration to maximize the performance of the institutional
framework in Uganda where the two institutions can share expertise.
One of the impediments to be overcome in using international tax arbitration in fostering
effective enforcement of arbitral awards is harmonizing what entails public policy as a ground for setting
aside arbitral awards in international commercial arbitrations. This way the issue of conflict of laws would
be avoided and petroleum tax disputes would be resolved faster.
Uganda needs to develop legal institutions that are not dependent on existing public institutions
(which often are either nonexistent or unreliable) that are capable of operating independently of existing
public institutions and that, preferably, are allowed to operate with a promise that national governmental
and judicial institutions will not interfere unduly with their independent operation and decisions. This
would make tax arbitration smoother and more predictable, which would attract the players in the
petroleum industry to consider it over litigation as a way of resolving tax disputes.
The Tax Appeals Tribunals Act needs to be amended to make provision for the Tribunal to refer
proceedings before it to arbitration. This would foster the resolution of petroleum tax disputes through
arbitration.
 Since parties to an international arbitration choose the applicable rules, CADRE would seem to
interfere if it imposed the Ugandan rules on the process even if one of the parties is Ugandan. Uganda can
therefore come up with a transnational tax arbitration framework and streamline its domestic framework
with the same so that the CADRE can be more efficient, especially in terms of international tax arbitration.
More resources and good will should be channeled into arbitration of tax disputes as this is a
looming problem with the development of the petroleum sector. The CADER should receive more revenue
and staff in order to carry out its tasks effectively and efficiently.
The laws governing the petroleum upstream, midstream and downstream sector need to be
amended to make provision for the settlement of petroleum tax disputes through arbitration. This is because
leaving the powers entirely to the parties to petroleum contracts makes the system weak. This gives leeway
for parties to abandon arbitration and opt for litigation. There should be more certainty to encourage the
development of arbitration of tax disputes in the industry.
The scope of courts‟ control on arbitration should be reduced. The Arbitration and Conciliation
Act should be amended and specifically provide that any dispute should be referred to arbitration in case of
existence of an arbitration clause in a contract or an arbitration agreement. The need for application to court
for the reference should be declared irrelevant by the statute and the need to determine the validity of the
agreement should be left to the domain of the arbitrator and not court to avoid abuse of discretion by the
courts and finally, the stakeholders should fasten the operationalisation of the Petroleum Authority of
Uganda and this should work hand in hand with CADER and the Tax Appeals Tribunals to promote
arbitration in the settlement of petroleum tax disputes.

Conclusion
The fact that Uganda domesticated the basic laws on international arbitration like the
UNCITRAL Model law and the New York Convention, does not translate into efficiency of arbitration in
the country. The system is riddled with challenges especially arbitrability which is a big problem due to
difference in legal regimes and the fact that the lex arbitri and lex loci arbitri have to be in harmony for
enforcement of arbitral awards to occur. The most important concern about whether Uganda is really ready
for tax arbitration points to the forum for arbitration in the petroleum industry in Uganda. It has been
observed that there is a lot of uncertainty on the forum and this can only be cleared with help of several
amendments in the legislation. What is definite is that for arbitration to be efficient in the settlement of
petroleum disputes in Uganda, the first step is to make it mandatory.

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