Tullow Oil has dismissed a Ksh23 billion tax assessment issued by the Kenya Revenue Authority over claims of unpaid Value Added Tax (VAT) and Capital Gains Tax tied to the sale of its Kenyan subsidiary to Gulf Energy.
The dispute stems from the transfer of Tullow Kenya BV, a wholly owned subsidiary, to Gulf Energy Group in a deal valued at a minimum of $120 million, equivalent to roughly Ksh15.5 billion.
KRA alleges the transaction resulted in underpaid taxes amounting to about $170 million, or nearly Ksh23 billion. However, Tullow Oil has maintained that the assessment lacks legal basis and insists the transaction complied fully with Kenyan tax regulations and existing agreements.
The company stated that it would challenge the tax demand through Kenya’s formal objection and appeals framework alongside Gulf Energy.
“The Group’s clear and firm position is that the assessment is wholly without merit,” Tullow Oil said, adding that it plans to contest the matter using the established tax dispute channels available under Kenyan law.
Under the country’s tax system, companies can formally object to assessments issued by KRA before disputes escalate to the Tax Appeals Tribunal or the courts.
Tullow Oil further noted that it does not anticipate any immediate financial burden from the dispute, saying no cash payment is required during the objection phase or throughout the appeals process.
The firm also confirmed it has not made any accounting provisions for the contested amount, arguing that the claim does not qualify as a probable financial liability.
Kenya’s Tax Rules on Oil Sector Transactions
Kenya imposes several taxes on oil and gas asset transactions, including Capital Gains Tax, VAT, and in certain cases, withholding tax. The applicable charges largely depend on the structure of the deal and the legal location of the assets involved.
Capital Gains Tax is levied at five percent on profits arising from the transfer of Kenyan property. In the petroleum sector, this can include exploration licences, production rights, and shares in companies whose value is heavily linked to Kenyan oil assets.
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Kenyan tax laws also permit KRA to pursue taxes on indirect transfers, particularly where offshore companies holding Kenyan oil assets are sold.
VAT, charged at 16 percent, may apply where KRA interprets a transaction as the supply of taxable goods or services. Tax disagreements frequently emerge over whether deals should be classified as exempt share sales or taxable asset transfers.
Additionally, withholding tax may apply to payments made to foreign entities, depending on the type of payment involved and the existence of double taxation agreements.
KRA routinely audits major oil and gas transactions, sometimes years after completion. Where disputes arise, taxpayers can challenge assessments through objections, appeals before the Tax Appeals Tribunal, and eventually the courts if necessary.
