Joint and several liability in the payment of capital gains at oil and mining activity

Mozambique is a developing country, with several natural resources that need investments for its exploration, both private and public, national or foreign investments.

Especially in recent years, the oil and mining sectors have been subject to major investments by the discovery of significant quantities of hydrocarbons, coal and other natural resources. These are in fact areas that require a lot of investment, hence we have been witnessing the injection of capital for the exploration of its resources.

Since these are sectors that require high investments, multinationals in these sectors find here a fertile ground for the realization of their investments as there are guaranteed returns of their investments due to the abundance of untapped resources. These industries are quite attractive because of the wealth they can generate, and it is not uncommon to see the shareholdings held in companies operating in these sectors involving foreign entities.These operations usually take place outside Mozambican territory, since, for the reasons mentioned above, the shareholders of entities that hold oil or mining rights are foreigners domiciled outside of Mozambique and this is where lies the question of the extent to which the tax sovereignty of the Mozambican State may cover transactions occurring outside the national territory.

The current Taxes and Specific Rules of Taxation of Petroleum Operations (Regime Específico de Tributação e de Benefícios Fiscais das Operações Petrolíferas) was passed by the Law no. 27/2014 of 23 September, which Regulation was passed by the Decree nr.4/2008 of 9 April, and the tax of the mining sector was made under the Laws nr.11 and 13/2007 both dated 27 June, which Regulation was passed by the Decree nr.5/2008 of 9 April.

These schemes did not set out joint and several liability in case of transfer of shareholdings from entities with petroleum/oil or mining rights, even though the transfer takes place outside of Mozambique. That is, if the seller of shareholdings did not declare in Mozambique, for taxation purposes, any gains obtained by way of capital gains on the sale of such shareholdings, the Mozambican State would lose the resulting tax revenue as aforementioned, the buyer would also not have to pay the tax in question. During the term of the previous schemes, there were several transactions that took place outside the national territory without, however, the state be calling to itself the power to tax such transactions, nevertheless being transactions encompassing assets located in Mozambican territory.

With the amendment of the tax schemes for oil and mining activities undertook by the Law 27/2014 of 23 September and the Regulation thereof, as well as by Law 28/2014 of 23 September and the liability for the payment of capital gains has to be attributed also to the acquires of shareholdings or holders of oil or mining rights (target company) in addition to the seller/transferor, i.e., the new tax schemes began to devote several liability to entities which sphere does not generate capital gains by virtue of the transfer of shareholdings.

According to nr.1 of article 512 of the Civil Code, “the liability is joint and several, when each of the debtors responds for the full benefit and realizes it to everyone, or when each of the creditors has the power to require, on its own, the full benefit and this releases the debtor with all of them”.

This means that regardless of the taxable person originating the tax being the seller, in whose sphere can be generated gains regarded as capital gains, the legislator also wanted to attribute the liability to the acquirer and the target company for the payment of the tax.

However, the effectiveness of this liability is discussed, especially in cases where transactions take place on the Stock Exchange, mainly outside the country, because, as is it well known, transactions are carried out at a rapid pace, in most of the cases without physical contact between buyers and sellers.

There are other query that can be raised on joint and several liability, is on the cases whereby the transactions does not entail oil or mining right. In these cases, is there any joint and several liability as laid down for oil and mining operations?

In the IRPS and IRPC Codes systems there are no legal provisions which expressly and directly set out the joint and several liability for the payment of capital gains as laid down in the Taxes and Specific Rules of Taxation of Petroleum Operations Tax Schemes for Oil and Mining Activity. However, the article 48 of the Regulation of the IRPC Code, albeit indirectly, sets the liability for the payment of the tax to other entities other than the seller, stating that “no transfer of income obtained in national territory subject to IRPC can be made abroad by non-resident entities without showing payment or secured the tax due. “

This is the scheme of joint and several liability in the payment of capital gains applied in Mozambique.

José Mula

Lawyer