High Court upholds Tax Tribunal ruling in favour of Bank of Uganda Pension Trustees

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The High Court in Kampala has upheld a ruling by the Tax Appeals Tribunal (TAT) in favour of the Trustees of the Bank of Uganda Defined Benefit Scheme, dismissing Uganda Revenue Authority’s (URA) appeal and confirming that the pension fund qualifies as a Settlor Trust under Ugandan tax law.

The decision, delivered on 5 June 2023 by Hon. Justice Phillip Odoki, followed a legal dispute that dates back to 2016, when the pension scheme challenged a tax assessment issued by URA totalling UGX 106 million.

The Bank of Uganda defined benefit Scheme is a licensed retirement fund, regulated under the Uganda retirement benefits Regulatory Authority (URBRA) Act. Contributions to the fund come from employees (4%) and from the Bank of Uganda (17.1%).

In 2016, the Scheme requested a Private Ruling from URA, arguing that it operated as a Settlor Trust under Section 71 of the Income Tax Act, with the Bank of Uganda as the Settlor. Given that the Bank is tax-exempt under the law, the Scheme reasoned that its income should also be exempt from income tax.

However, URA disagreed and issued tax assessments against the Scheme, classifying it as a taxable retirement fund under Section 8(4) of the Act. The Trustees took the matter to the Tax Appeals Tribunal, which ruled in their favour. URA later appealed to the High Court.

Issues on Appeal

1. 1. Whether TAT erred in law in holding that the Scheme is a Settlor Trust.
   2. Whether TAT erred in law in holding that the income of the trust is exempt from income tax.

Justice Odoki agreed with the Tribunal’s reasoning. He noted that the Bank of Uganda retained a reversionary interest in the trust, as outlined in the Scheme’s trust deeds of 1998, 2005, and 2014, which qualifies it as a Settlor Trust under Section 70(f)(ii) of the Income Tax Act.

The Court further clarified that the Tribunal did not declare the Scheme tax-exempt. Instead, it determined that under Section 71(5), the tax burden falls on the Settlor in this case, the Bank of Uganda, not the trustees or the Scheme.

However, the Court declined to rule on whether a tax-exempt Settlor can be liable for taxes under a Settlor Trust, noting that the Bank of Uganda had not been joined as a party to the case. The Court emphasised it could only address matters brought before the Tribunal and listed in the appeal.

Court’s final ruling

• Appeal dismissed with costs to the Respondents.
• TAT’s decision affirmed.

What this Means for Tax Law practice.
Legal experts say the ruling sets important precedents in tax law:

1. A trust qualifies as a Settlor Trust if the settlor holds either a power of revocation or a reversionary interest, having both is not required.
2. For Settlor Trusts, tax liability rests with the Settlor, not the trust itself.
3. A tax exemption must be clearly stated in law, it cannot be assumed or implied.
4. High Court jurisdiction in tax appeals is limited to reviewing decisions already considered by the Tribunal.
5. Procedural oversights, such as failing to join all relevant parties—can restrict legal arguments and outcomes.

The team from Ligomarc Advocates that represented Trustees of the Bank of Uganda Defined Benefit Scheme:

Ruth Sebatindira SC, Partner Tax, Olivia Kyarimpa, Partner Dispute Resolution, Damalie Izaula, Junior Associate, Tax