Africa may be moving to tax gains on indirect share transfers in African companies.
Uganda is trying to collect $85 million in back taxes from a Kuwaiti company called the Zain Group that sold a Dutch holding company that owned mobile telephone carriers in 15 sub-Saharan African countries. The Dutch holding company owned each of the 15 telephone carriers through separate Dutch subsidiaries.
Zain sold the Dutch holding company to a mobile telephone company in India called Bharti Airtel. The sale took place in 2010.
Bharti Airtel is India’s largest cellular service provider. It paid $10.7 billion. Of that amount, $1.7 billion was assumption of debt.
Zain took the position that it did not owe taxes on its gain in any of the African countries involved.
The African telephone companies had 41 million subscribers, including 1.7 million in Uganda.
A Ugandan trial court struck down the assessment in December 2011. An appeals court overturned the trial court decision in September 2014 and sent the case back to the trial court to make a “proper assessment.”
Zain then invoked a competent authority procedure in the Dutch-Uganda tax treaty in September 2015 to try to get a resolution in the matter. A decision in the treaty claim is not expected for some time.
In a similar long-running tax dispute between Vodafone and India, India went after the buyer on grounds that it should have withheld taxes from the seller. It would have been the ultimate irony if Uganda had done the same in this case since the tax would have fallen on an Indian company.