Instruments Executed Outside Tanzania Subject to Stamp Duty Payment

Tanzania imposes taxes on cross-border transactions relating to assets in the country such as capital gain tax, VAT and stamp duty. This alert discusses the stamp duty application on instruments (agreements) executed outside Tanzania.

The Tanzania Stamp Duty Act under Section 5 was constructed to the effect that every instrument executed in Mainland Tanzania (the Mainland) or outside the Mainland but relates to any property in the Mainland or to any matter or thing to be performed or done in the Mainland is charged with a stamp duty. However, Section 26 of the Stamp Duty Act requires stamp duty on an instrument executed outside Tanzania to be paid within thirty days of its first arrival in Mainland Tanzania.

The lingering question is, what happens if an instrument is executed outside Tanzania but not brought to Tanzania? would such an instrument be automatically exempt from stamp duty? Based on the strict reading of the law, it may be argued that stamp duty should not apply to instruments that are not brought to Tanzania although this does not imply that the instrument is exempt from stamp duty. Instead, this means that stamp duty payment is deferred until the instrument is brought to Tanzania.

In the Civil Appeal No. 372 of 2020 at the Court of Appeal (CoA) between Statoil Tanzania AS (currently known as Equinor Tanzania AS “Equinor”) and the Commissioner General of the Tanzania Revenue Authority (the Commissioner), Equinor appealed against the Commissioner’s demand notice for stamp duty on the Farm Out Agreement between Equinor and Exxon Mobil (the Farm Out Agreement).

At the CoA, Equinor sought to impugn the decision of the Tax Revenue Appeals Tribunal (TRAT) which held that “the Farm-Out Agreement between Equinor and ExxonMobil executed outside Mainland Tanzania is chargeable to stamp duty immediately upon execution”.

In its submission to the CoA, Equinor argued that the Farm Out Agreement was executed outside Mainland Tanzania and had not been brought to Tanzania (at the time the demand notice was issued), and pursuant to the Stamp Duty Act which requires an instrument executed outside Tanzania to be stamped within thirty (30) days of its arrival in the Mainland, the Farm Out Agreement was not subject to stamp duty. To this effect, the TRAT decision contravenes Section 26 of the Stamp Duty Act. In addition, Equinor submitted that the law was constructed such that chargeable instruments have to be physically present in Tanzania for stamp duty to apply. Separately, Equinor also argued that the Production Sharing Agreement (PSA) between Equinor and the Government of Tanzania, exempted it from paying stamp duty. Equinor also submitted other grounds of appeal which will not discuss in this alert.

The Tanzania Revenue Authority (TRA) on the other hand argued that the decision to charge stamp duty on the appellant’s Farm-Out Agreement is supported by the provision of Section 5 of the Stamp Duty Act, which requires every instrument executed outside the Mainland to be charged stamp duty provided that the instrument relates to a property situated in the Mainland.

Following the submission of both Equinor and the TRA, the CoA prefaced his decision by stating that Section 5 (1) (b) of the Stamp Duty Act is very clear that, any instrument executed outside the Mainland in relation to any property in the Mainland is chargeable with stamp duty. The CoA also proceeded to say (and reiterating its statement) “Truly, section 26 of the Act which governs stamping of a chargeable instrument executed out of Mainland Tanzania provides: “Every chargeable instrument executed out of the Mainland shall be stamped within thirty days of its first arrival in the Mainland.” This in our view, implies that the CoA acknowledged that stamp duty was only payable if the Farm Out Agreement had been brought to Tanzania. However, the CoA diverged from this ground of appeal and relied on Equinor’s claim that it was exempt from stamp duty pursuant to the PSA to make its final decision, stating that Equinor failed to provide proof that it was exempt from paying stamp duty on the Farm Out Agreement including a Gazette Notice from the Minister of Finance, as such stamp duty was payable.

It is our view that, notwithstanding the lack of evidence warranting exemption, the Farm Out Agreement should not have been subject to stamp duty on the basis that it had not been brought to Tanzania. We believe that the CoA diverged from Equinor’s argument that stamp duty was not payable as the Farm Out Agreement was not brought to Tanzania and instead ruled in favour of TRA based on other grounds, such as Equinor’s noncompliance to administrative procedures and not on the merits of the case.

In the Civil Appeal No,52 of 2018 between the National Bank of Commerce (NBC) and Commissioner General Tanzania, the CoA emphasised the importance of courts adhering to plain meaning in the language of a statute when interpreting the law. The plain meaning is the literal rule in that you read the law to mean what it says. The Court stated that: “Courts in Tanzania are bound to apply the plain language of a statute to give effect to the intention of the Legislature”. Citing the case between Chirike Haruna David V. Kangi Alphaxard Lugora & Two Others, Civil Appeal No. 36 of 2012 (unreported), the CoA reiterated the need to employ the plain meaning of the words to discover the intention of the Legislature in a Statute by stating that “…We wish to observe here by way of emphasis, even if it is at the expense of repeating ourselves that one of the cardinal rules of construction is that courts should give legislation its plain meaning.” We, therefore, submit on the basis of the NBC appeal that the Board should interpret the law literally as there is no reason to employ any other rules of interpretation”.

From the above, we are of the view that the CoA should have relied on its decision in the NBC appeal to make a decision on the Equinor appeal, by applying the literal interpretation of Section 26 of the Stamp Duty Act, that stamp duty was not payable on the Farm Out Agreement as it had not been brought to Tanzania. Therefore, it can be argued that the CoA departed from its own decision and used other grounds of appeal advanced by Equinor to quash its appeal.

This decision is relevant in particular to companies in the natural resources sector, as it is often the case that most Farm Out Agreements once signed would usually not be delivered to the United Republic of Tanzania. The decision set out above is instructive on the manner in which Tanzanian courts will interpret the relevant stamp duty provisions in such an instance.

Should you have any questions regarding the information in this legal alert, please do not hesitate to contact, Geofrey Dimoso and Daniel Ngumy.

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Contributor

Juliana Mosha – Senior Associate