Tag: VAT

  • TotalEnergies Uganda Loses Shs 14.4B Tax Case Over Fuel Handling Fees

    TotalEnergies Uganda Loses Shs 14.4B Tax Case Over Fuel Handling Fees

    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.

  • President Museveni to Address Tax Concerns to the Business community

    President Museveni to Address Tax Concerns to the Business community

    President Museveni is scheduled to convene with city traders today to announce his verdict on the tax issues raised by the business community, encompassing the issuance of electronic receipts for Value Added Tax (VAT) registered taxpayers and associated penalties.

    Mr Sandor Walusimbi, the Senior Press Secretary to the President, confirmed the meeting, stating, “The President will engage with the traders tomorrow [Tuesday] at Kololo regarding taxation and other pertinent matters.”

    Last month, traders staged a strike, contesting various issues, including the implementation and enforcement of the Electronic Fiscal Receipting and Invoicing Solution (Efris), penalties for non-compliance, elevated taxes on imported garments, URA’s bank agency notices on traders’ accounts, and allegations of corruption within tax enforcement personnel.

    Traders argue that Efris is intricate, necessitating the employment of individuals with IT and accounting competencies to operate it, which poses challenges for many wholesale traders with limited formal education.

    In response to the traders’ grievances, President Museveni intervened, temporarily halting penalties for Efris defaulters while seeking consultation with multiple ministries regarding the raised concerns.

    Under the law, evading taxes through manipulation of Efris incurs a penalty of Shs6 million.

    Anticipating the President’s decision, traders’ leaders anticipate a significant turnout at the Kololo Ceremonial Grounds. Mr Moses Lwegaba, President of the Federation of Uganda Traders Associations, expects over 10,000 traders to attend, mobilizing them to hear the President’s verdict.

    Commenting on the potential ramifications, tax consultant Mr Samuel Asiimwe cautioned that upholding Efris and VAT across all levels could lead to price hikes, adversely affecting rural consumers.

    Since the implementation of Efris, local manufacturers have been directly distributing their products to rural retailers, a practice wholesale traders argue contravenes the Competition Act of 2023.