URA wins sh2b tax case against bread company
“Mini Bakeries has not discharged its burden of proving that the royalty and interest adjustments were excessive or should have been made differently. Mini Bakeries has also failed to establish any legal entitlement to a refund or credit of the withholding tax, and VAT is dismissed,” the tribunal ruled.
URA Commissioner General John Musinguzi Rujoki described the decision as “a victory that underscores the authority’s unwavering commitment to protecting Uganda’s tax base.
KAMPALA - The Uganda Revenue Authority (URA) has won a sh2.02b tax dispute against Mini Bakeries Uganda Ltd, the manufacturer of Supa Loaf, after the Tax Appeals Tribunal upheld the tax assessment arising from a transfer pricing audit.
The ruling follows a URA audit covering the period between July 2015 and June 2023, which centres on payments Mini Bakeries made to a related company in Mauritius for the use of the Supa Loaf trademark.
URA challenged a 2% trademark royalty paid by Mini Bakeries to Northgate Holdings Ltd (NGHL) of net sales exclusive of taxes, arguing that the Mauritius-based company was only the legal owner of the trademark and did not perform the functions necessary to justify the payments.
Transfer pricing adjustments
In a ruling dated August 21, the tribunal, led by chairperson Crystal Kabajwara, upheld the transfer pricing adjustments and resulting additional income tax assessment by URA.
“Mini Bakeries Uganda Ltd’s claim for a refund or credit of withholding tax and Value Added Tax is dismissed,” Kabajwara ruled.
The tribunal, therefore, rejected Mini Bakeries’ argument that the royalty payments were supported by international market comparisons and upheld URA’s decision to disallow the payments for tax purposes.
“Mini Bakeries has not discharged its burden of proving that the royalty and interest adjustments were excessive or should have been made differently. Mini Bakeries has also failed to establish any legal entitlement to a refund or credit of the withholding tax, and VAT is dismissed,” the tribunal ruled.
The tribunal noted that Mini Bakeries used the Supa Loaf trademark pursuant to the trademark user agreement and made payments under the agreement, adding that the pricing adjustment did not rescind the agreement or establish that no right or service had been supplied to Mini Bakeries.
VAT payments
The tribunal ruled that Mini Bakeries did not demonstrate that VAT was paid in error, was not lawfully due at the relevant time, or otherwise satisfied the statutory conditions for refund because the corresponding royalty deduction has been disallowed for income tax purposes.
URA also secured a ruling on interest rates applied to unsecured loans that Mini Bakeries advanced to related companies in Kenya and Tanzania between 2018 and 2022.
The tax body argued that the interest rates charged were understated and did not reflect the risks associated with unsecured intra-group financing.
Tribunal rejects tax refund claims
The tribunal also rejected Mini Bakeries’ attempt to recover Withholding Tax and Value Added Tax associated with the royalty payments.
URA argued that disallowing the royalty payments as a deduction for corporate income tax purposes did not invalidate the underlying transactions or remove Uganda’s right to tax income earned by a non-resident under domestic tax law and the Uganda-Mauritius Double Taxation Agreement.
URA take
According to URA, the victory marks a significant milestone in strengthening its audit capacity and sends a clear message to the corporate sector that the Authority has the regulatory tools and legal mandate necessary to address tax-avoidance loopholes.
URA Commissioner General John Musinguzi Rujoki described the decision as “a victory that underscores the authority’s unwavering commitment to protecting Uganda’s tax base.
“This outcome demonstrates that URA has both the technical expertise and legal authority to confront complex multinational tax structures, ensuring that profits generated within Uganda are rightfully taxed here. It is a win not only for the authority, but for the integrity of our national revenue system,” he said.