Sound Energy, the Moroccan focused upstream gas company, announces that it has received a written notification by the Moroccan General Tax Administration (the “Moroccan Tax Administration”) of a re-assessment in respect of Moroccan taxes (the “Notification”) pursuant to a tax audit undertaken on Sound Energy Morocco East Limited (“SEME”), the Company’s wholly owned subsidiary, by the Moroccan Tax Administration during 2020 and related to the fiscal periods 2016 to 2018.
According to the Administration’s original assessment, the historical licensing changes detailed in the Notification related to the Tendrara Lakbir Exploration Permits and the transfer of Operatorship from Sound Energy Morocco SARL AU (“SEMS”) to SEME raised taxation claims against SEME. The Moroccan Tax Administration sought to justify this tax claim asserting a so-called acquisition of intangible assets from SEMS by SEME.
In the Notification, the Moroccan Tax Administration has conveyed the decision of the Local Tax committee (“LTC”) that, after several hearings being held, the LTC has found that the charges of SEME relating to the free acquisition of intangible assets be dropped.
The LTC reasoning offered was that, as a claim had also been brought by the Moroccan Tax Administration against SEMS, the LTC considers that taxing the same operation twice would be redundant. The LTC has not dropped the charges relating to the Moroccan Tax Administration’s assessment of a purported disposal of assets by SEME to Schlumberger in relation to the entry of a brand-new petroleum agreement for exploration at Greater Tendrara.
The Company remains clear that the assessments by the Moroccan Tax Administration, as previously announced, arise from a fundamental misunderstanding of the historical licensing changes (relinquishing old licences and entering new licences covering revised acreage with revised terms – with no continuation or transfer of the original licence) and inter-group ownership outside of Morocco.
The dropping of the main tax charge against SEME is a welcome development, however the remaining charge against SEME related to the signing of a brand-new petroleum agreement for Greater Tendrara in October 2018, with its own exploration work commitment negotiated with ONHYM and fully approved by the State of Morocco (represented by the Ministries of Energy and Finance) is still due according to the Moroccan Tax Administration and the tax claims against SEMS remain in due process.
The Company has 60 days from the receipt of the LTC decision to accept or challenge the decision-related SEME tax claim in court.
Sound Energy remains of the strong opinion that the remaining charges, including that against SEME in respect of entry of the new Greater Tendrara petroleum agreement, have been wrongly interpreted by the Moroccan Tax Administration. The Company, together with its advisors, continues to seek to engage constructively with the authorities.
Further announcements will be made, as appropriate, in due course.
