CIP accuses Galp of testing Mozambique’s economic sovereignty – AIM

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CIP accuses Galp of testing Mozambique’s economic sovereignty – AIM

3:50 CAT | 08 Aug 2025

FILE - For illustration purposes only. [File photo: Lusa]

The prominent anti-corruption NGO, the Centre for Public Integrity (CIP), has accused the Portuguese oil company, Galp, of testing Mozambique’s economic sovereignty in its ongoing legal dispute with the country’s Tax Authority (AT).

The dispute emerged when Galp decided to sell, over the last year, its position in the consortium exploiting natural gas in Area Four of the Rovuma basin, off the coast of the northern province of Cabo Delgado, to ADNOC, the state-owned oil company of the United Arab Emirates.

Galp sold its assets in Mozambique for 1.2 billion Euros (1.3 billion US dollars at the current exchange rate). This amount, according to AT, results in a taxable capital gain of 162 million Euros (based on the application of the standard 17.6% rate). However, Galp claims that the fair capital gain only corresponds to 26 million Euros.

In order to show its disagreement with the Tax Authority decision, Galp decided to take the case to international arbitration, through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

According to CIP analysis, Galp’s decision to contest the demands of the Tax Authority and resort to international arbitration “puts a State’s legitimate right to tax its subsoil resources at odds with a company’s strategy to minimize its tax burden by resorting to complex corporate structures and international litigation mechanisms.”

“The company will have to prove in court that its deductible investments were almost three times higher than the value the Tax Authority is willing to accept. This discrepancy suggests an aggressive tax interpretation on the part of the company, artificially inflating deductible costs to erode the taxable base and, consequently, the tax payable”, reads the CIP analysis.

CIP believes that the core of the dispute lies in the way the transaction was structured, since Galp did not directly sell its operating license in country, but rather sold shares in Galp Energia Rovuma B.V., its subsidiary based in the Netherlands.

“The objective”, argues CIP, “is to transfer the legal location of the transaction to a foreign jurisdiction, in an attempt to remove it from the fiscal authority of the country where the physical asset and its economic value are located. Its purpose seems to have been to achieve the payment of no taxes twice – that is, not to pay taxes in Mozambique, by invoking extra-territoriality, and not to pay taxes in Holland, under a favourable internal fiscal regimes, known as participation exemption”.

CIP notes that, in the absence of a Double Taxation Agreement with the Netherlands, Mozambican law is the only applicable rule. The relevant Mozambican tax code states that gains from the indirect sale of assets located in Mozambique are considered Mozambican-source income, regardless of where the transaction occurs. This rule, specifically designed to combat aggressive tax planning, is the basis of the AT’s position.

The organization also believes that Galp resorted to international arbitration in order “to exploit the profound imbalance of financial power between the company and the Mozambican State, forcing the country to accept an unfavorable agreement to avoid exorbitant legal costs, conservatively estimated at between 6 and 8 million dollars, representing between 3.4% and 4.6% of the total tax due.”

CIP, citing studies on tax litigation in the extractive sector, says that “in these scenarios, companies don’t necessarily seek to win. Often, their goal is to force concessions and impose an unfair negotiation. In this battlefield, the legal process ceases to be an instrument of justice and becomes a weapon of economic deterrence.”

Source: AIM