The Tax Appeals Tribunal of Uganda has upheld a Shs 14.4 billion tax assessment against TotalEnergies Marketing Uganda Ltd, dismissing the company’s attempt to classify payments to its Kenyan affiliate as non-taxable reimbursements.
At the center of the dispute was a USD 5.54 per cubic meter handling fee paid by TotalEnergies Uganda to TotalEnergies Marketing Kenya for fuel import logistics. The Tribunal found that these payments were taxable services, not pass-through disbursements as claimed.
Tribunal: Not Reimbursements, But Taxable Services
Total Uganda had argued the fees covered third-party costs such as Kenya Pipeline Company and clearing agents, and only a small margin benefited Total Kenya. However, the Tribunal found the entire fee constituted a handling service, taxable under Uganda’s VAT and Income Tax Acts.
“The Tribunal determines that these payments are not reimbursements but rather consideration for services rendered by Total Kenya to the applicant, functioning as a principal,” the ruling read.
It cited the Service Level Agreement (SLA) between the companies, which treated the entire fee as a handling charge, contradicting Total Uganda’s argument that it included reimbursed components.
Strict Interpretation of Contractual Terms
The Tribunal invoked the Parol Evidence Rule, rejecting any attempt to reinterpret written contracts with after-the-fact explanations.
“The SLA’s annexes do not recognize a scenario where the USD 5.54/m3 represents anything other than a handling charge,” it stated, emphasizing that extrinsic evidence cannot override contract wording.
The SLA clearly defined logistics, operational, and administrative work as the core service offered by Total Kenya, thereby attracting VAT and Withholding Tax (WHT).
VAT and WHT Rulings Explained
- VAT: The Tribunal ruled that Section 12(3) of the VAT Act only exempts services incidental to importation, not logistics coordination. The handling services were invoiced separately and excluded from the customs value of the fuel.
- WHT: The Tribunal concluded that the SLA qualified as a Ugandan source service contract under Section 84 of the Income Tax Act. The company failed to prove otherwise.
Implications: Cross-Border Service Fees Under Scrutiny
This ruling highlights the growing attention on transfer pricing and intercompany agreements used by multinational corporations to shift profits and minimize taxes.
Tax experts say the decision underscores a call for:
- Stricter enforcement of tax laws on intra-group services.
- Closer inspection of logistics and handling fees.
- Clarity in service contracts between regional subsidiaries.
By routing payments through regional affiliates and fragmenting fee structures, some conglomerates try to disguise taxable income, a strategy now under serious scrutiny in Uganda.
Conclusion
The ruling is a landmark for Uganda Revenue Authority (URA), reinforcing its authority in cross-border tax assessments and signaling to multinationals that service fee classifications must align with contract language and tax laws.
The Tribunal dismissed TotalEnergies Uganda’s application with costs, affirming that fuel handling fees paid to Total Kenya are fully taxable.
