TIDMSOU
RNS Number : 3847A
Sound Energy PLC
01 June 2021
1 June 2021
Sound Energy plc
("Sound Energy" or the "Company")
Update re Moroccan Tax Administration Notification
Sound Energy, the Moroccan focused upstream gas company,
provides an update further to its announcement of 3 September 2020
that the Moroccan branch of its wholly-owned subsidiary, Sound
Energy Morocco East Limited ("SEMEL") had received a written
notification by the Moroccan General Tax Administration (the
"Moroccan Tax Administration") of a re-assessment in respect of
Moroccan taxes pursuant to a tax audit undertaken on SEMEL by the
Moroccan Tax Administration during 2020 and related to the fiscal
period 2016 to 2018 (the "Notification"). The Company also
announces the receipt of an additional, but related, notification
from the Moroccan Tax Administration (the "Additional
Notification").
The Company entirely refutes the Moroccan Tax Authority's
position and having taken detailed specialist taxation and legal
advice, is also liaising with Moroccan governmental authorities to
seek a satisfactory conclusion of the matter, whilst the formal
process related to Notification continues, with the next stage
being the first local tax committee (the "LTC" ) hearing on 3 June
2021 in which SEMEL and the Moroccan Tax Administration will
present their respective positions (pursuant the Notification) to
the LTC. The LTC process can take up to 12 months. Thereafter, the
matter may proceed to national committee stage, if not concluded,
thereafter for arbitration. Regarding the Additional Notification,
the Company will formally write to the Moroccan Tax Administration
to formally refute the assessment and the basis thereof.
Notification
In the Notification, the Moroccan Tax Administration suggested
(as announced by the Company on 3 September 2020) that it had
assessed additional corporate and value-added tax SEMEL liabilities
in sharing its intention to examine:
1. The relinquishment, in 2017, by Sound Energy Morocco SARL AU
("SARL AU") of its operatorship and its 37.5% stake in the
Tendrara-Lakhbir Petroleum Agreement. SARL AU is a wholly owned and
now dormant Moroccan subsidiary of SEMEL (originally set up to
operate the exploration activities in Tendrara-Lakhbir exploration
permits, on behalf of the joint venture consortium with the State
of Morocco represented by ONHYM established by Tendrara-Lakhbir
Petroleum Agreement); and
2. The entry in 2017 of SEMEL into the Tendrara-Lakhbir
Petroleum Agreement, with the prior approval from ONHYM and the
governmental bodies.
The Moroccan Tax Administration is asserting that a sale and
purchase transaction may have taken place between the Company's two
wholly owned subsidiaries SARL AU (asserted to be a seller by
Moroccan Tax Administration) and SEMEL (asserted to be a buyer by
the Moroccan Tax Authority). In asserting this position, the
Moroccan Tax Administration is suggesting that such a transaction
would trigger the payment of Corporate Tax, VAT and Withholding
Tax.
The Company entirely refutes the Moroccan Tax Authority's
position and is firmly of the view that no sale and no purchase
took place.
In addition, the Moroccan Tax Administration has indicated that
it assessed the signing in late 2018 by Schlumberger Silk Route
Services Limited ("Schlumberger") and SEMEL of a new petroleum
agreement with ONHYM in Eastern Morocco (the Greater Tendrara
Petroleum Agreement), as a sale and a purchase transaction between
SEMEL and Schlumberger Silk Route Services Limited in relation to a
purported conversion of synthetic interest from the Tendrara
Lakhbir exploration permits to the then newly issued Greater
Tendrara exploration permits. The Moroccan Tax Administration,
despite the clarifications provided by ONHYM, the Moroccan
governmental representative of the upstream sector, appears to have
misunderstood the fact that that Tendrara Lakhbir exploration
permits ceased to exist, in compliance with the Moroccan
Hydrocarbon Code, on being replaced with newly issued exploration
permits called "Greater Tendrara", with new funding obligations
(including the work commitment obligation to drill 4 additional
exploration wells during the period 2018-2026). The issue of the
replacement permits had previously been approved by ONHYM, the
Ministry of Energy and the Ministry of Finance and there was no
such conversion of Schlumberger synthetic rights in Tendrara
Lakhbir Petroleum Agreement which remain only to Tendrara
Concession.
Since receiving the Notification, the Company has, with the
support of its advisors, responded formally to the Moroccan Tax
Administration and has subsequently engaged both formally and
informally with Moroccan Tax Administration and other governmental
bodies in order to seek to successfully resolve the matter.
A meeting was held at the Ministry of Finance on 31 May with the
attendance of Sound Energy COO, several senior representatives of
the State of Morocco (including the Ministry of Finance, the
Moroccan Tax Authority and ONHYM ) and the chairman of Sound Energy
shareholder OGIF (which also received a tax notification related to
its 37.5% stake in Tendrara-Lakhbir permits, abandoned in 2017).
The meeting was held amongst all participants in order to encourage
an informal dialogue of understanding, in order to resolve the
issue of these matters smoothly and in good order.
The Company has taken detailed specialist taxation and legal
advice regarding the matter and remains firmly of the view that the
assessment and the basis of the assessment will be satisfactorily
resolved, although with the ongoing formal process (next hearing of
LTC scheduled on 3 June 2021) the Company cannot speculate on
timing of any resolution.
Additional Notification and Information Request
In addition to the update in relation to the Notification
provided above, Sound Energy also announces that it has now
received an information request (the "Information Request") and a
further written notification from the Moroccan Tax Administration
notifying a re-assessment in respect of Moroccan taxes ("Additional
Notification") pursuant to a tax audit undertaken on SARL AU, the
Company's wholly owned dormant subsidiary, by the Moroccan Tax
Administration during 2021 and related to the fiscal period 2016 to
2017.
In the Information Request, the Moroccan Tax Administration has
asserted that SARL AU remitted, in 2017, certain withholding taxes
late and has consequently levied a penalty of 2.7 million MAD
(approximately US$300,000). The Company is currently gathering
further information regarding the penalty however it believes the
penalty to be incorrectly applied and plans to reply to the
Moroccan Tax Administration formally before 23 June 2021 outlining
its position.
In the Additional Notification, the Moroccan Tax Administration
has notified SARL AU that it has the intention to consider, from a
SARL AU perspective:
3. the matters summarized in items 1 and 2 above and already
raised in the Notification issued to SEMEL in 2020, as a sale and a
purchase transaction. This claim by the Moroccan Tax Administration
essentially mirrors that asserted against SEMEL and, if both were
enforced would result in a double taxation on a single transaction;
and
4. certain direct payments made by Sound Energy from the UK for
costs of exploration on behalf of its wholly owned Moroccan
subsidiary, SARL AU and the JV partners such as the State of
Morocco (represented by ONHYM, who invests no monies and were
'carried' during the exploration phase of Tendrara-Lakhbir
petroleum agreement) as improper transactions (despite having been
validly incurred and having been approved by JV partners).
According to the Moroccan Tax Authority, its assessment of items
3 and 4 above are such that the payment of Corporate Tax, VAT and
Withholding Tax are triggered, claiming that for SARL AU alone,
additional 2017 liabilities of approximately US$22.5 million are
due. These amounts are claimed to be in addition to the
approximately US$14 million claimed under the September 2020
Notification in relation to SEMEL.
The Company has until 23 June 2021 to formally respond to the
Additional Notification and the Information Request. Whilst in line
with the meeting held on 31 May at the Ministry of Finance, the
Company will be engaging constructively with the Moroccan Tax
Administration in order to resolve these matters, it will formally
write to the Moroccan Tax Administration and formally refute the
assessment and the basis thereof.
Further announcements will be made, as appropriate, in due
course.
Commenting, Graham Lyon (Executive Chairman) said:
"Whilst I am satisfied that constructive dialogue is ongoing in
relation to the original notification, I am exceptionally
disappointed to have received the subsequent notifications from the
Moroccan Tax Administration relating to Sound Energy Morocco SARL
AU. Since entering Morocco in 2015, Sound Energy and its partners
have invested over US$140 million, with as yet no production
revenue nor capital gain. This inward investment has not only
created jobs, provided subsequent employment taxation and economic
stimulus in Morocco but has heightened interest in what was
hitherto an often-overlooked country for upstream investments.
One of the attractive features of Morocco from an industry
perspective is its fiscal code as laid out under its Hydrocarbon
Code. This includes a 10-year exemption from corporation tax for
upstream producers, as well as, ironically, import duty and VAT
exemptions. With Sound Energy on the cusp of concluding commercial
arrangements in order to sanction our Phase 1 development project
at the Tendrara Production Concession, the continuation of these
ill-judged tax notifications is an unwelcome distraction from our
goal of delivering value to Sound Energy shareholders and
delivering stakeholder value and economic benefits in Morocco.
The tax framework of the hydrocarbon sector not being applied is
a poor reflection on doing business in Morocco. Hopefully the
meeting held yesterday (31 May 2021), with the assistance of our
State-owned partner ONHYM, at the Ministry of Finance will help to
satisfactorily conclude this matter."
Commenting, Mohammed Seghiri (Chief Operating Officer) said:
"We are surprised by the position of the tax administration
which, despite the lack of neither any field monetization nor
capital gain on one hand and the clarifications given by ONHYM on
the other hand supporting Sound Energy's position, has decided to
seek to tax exploration permits. The attempt to levy double
taxation, first claiming taxes from Sound Energy Morocco East
before later seeking to claim under the same structure from Sound
Energy Morocco SARL AU, for the same exploration work is equally
perplexing. We hope that the State of Morocco will confirm that the
excellent fiscal terms which have been promoted by ONHYM for the
last 20 years, in order to sustain the investment efforts to
explore the Moroccan subsurface, by ourselves and other companies
listed on AIM remain in force."
For further information please contact:
Vigo Communications - PR Adviser Tel: +44 (0)20 7390 0230
Patrick d'Ancona
Chris McMahon
Sound Energy chairman@soundenergyplc.com
Graham Lyon, Executive Chairman
Cenkos Securities - Nominated Adviser Tel: +44 (0)20 7397 8900
Ben Jeynes
Russell Cook
SP Angel Corporate Finance LLP Tel: +44 (0)20 3470 0470
Richard Hail
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