The Tax Appeals Tribunal (TAT) delivered a mixed verdict in a high-stakes tax dispute involving Kuku Foods, the operator of KFC restaurants in Uganda, ruling that the company is liable for capital gains tax arising from a change in its ownership structure.
However, the Tribunal directed the Uganda Revenue Authority (URA) to recalculate the disputed Shs4.2 billion assessment.
The ruling marks a significant development in Uganda’s growing body of jurisprudence on capital gains taxation, particularly in relation to indirect transfers, offshore corporate transactions, and changes in beneficial ownership involving companies with assets and operations in Uganda.
How the dispute arose
Documents filed before the Tribunal indicate that the dispute arose after URA issued a capital gains tax assessment of Shs4.2 billion against Kuku Foods following a transaction that altered the company’s underlying ownership through entities within its wider corporate structure.
URA argued that the transaction triggered a change-of-ownership provision under the Income Tax Act, which is intended to ensure that gains arising from significant shifts in ownership of companies holding Ugandan assets are subjected to taxation.
URA noted that the law was designed to prevent taxpayers from avoiding tax obligations by structuring transactions through foreign holding companies or conducting transfers outside Uganda while retaining valuable assets and business interests within the country.
Challenged assessment
Kuku Foods challenged the assessment before the Tribunal, arguing that URA had wrongly interpreted the law and improperly imposed tax liability on the company.
According to the proceedings, Kuku Foods disputed both the legal basis of the assessment and the methodology used by URA in arriving at the tax figure.
Kuku Foods contended that the transaction in question did not give rise to a taxable gain in the manner alleged by URA and that the assessment failed to properly reflect the requirements of the Income Tax Act.
The company further questioned URA’s valuation approach and argued that the authority had not sufficiently justified the amount claimed.
The dispute subsequently evolved into a broader contest over the scope of Uganda’s capital gains tax regime and the extent to which ownership changes occurring through offshore corporate structures can attract tax obligations in Uganda.
Tribunal backs URA
In its decision, however, the Tribunal sided with URA on the central legal question.
The Tribunal found that the ownership changes fell within the ambit of Uganda’s change-of-ownership provisions and that the transaction constituted a taxable event under the Income Tax Act.
The Tribunal held that Parliament enacted the relevant provisions to ensure that gains connected to Ugandan assets do not escape taxation merely because transactions are structured through foreign entities or executed outside Uganda’s borders.
According to the Tribunal, the law focuses on the economic substance and effect of a transaction rather than solely on its legal form.
The ruling emphasised that where there is a significant change in the beneficial ownership of an entity holding assets in Uganda, the tax consequences provided for under the law may arise regardless of whether the transaction takes place directly or indirectly.
The Tribunal therefore rejected Kuku Foods’ primary challenge and upheld URA’s position that the ownership restructuring triggered tax liability.
Assessment found wanting
While URA prevailed on the issue of liability, the Tribunal did not uphold the assessment in its entirety.
A key aspect of the dispute concerned the manner in which URA calculated the tax payable.
After reviewing the evidence and submissions presented by both parties, the Tribunal found shortcomings in the computation underlying the Shs4.2 billion assessment.
According to the ruling, URA did not sufficiently demonstrate how it arrived at the final figure and failed to adequately justify certain elements of the calculation.
The Tribunal held that although the transaction itself was taxable, the assessment could not stand because the computation did not fully satisfy the legal and evidential standards required for determining the taxable gain.
In particular, the judges stressed the importance of applying the statutory formula correctly and ensuring that assessments are supported by a transparent and verifiable methodology.
The Tribunal observed that the legitimacy of a tax assessment depends not only on the existence of a tax liability but also on the accuracy of the calculations used to quantify that liability.
As a result, the Tribunal set aside the Shs4.2 billion assessment and directed URA to undertake a fresh computation in accordance with its findings.
“The assessment is set aside for purposes of recomputation,” the Tribunal ruled, while maintaining that the underlying transaction remained subject to tax.
Partial victories
The outcome means that both parties secured partial victories.
For URA, the ruling validates its interpretation of the Income Tax Act and affirms its authority to impose tax on certain ownership changes involving entities holding Ugandan assets.
For Kuku Foods, however, the decision removes the immediate obligation to pay the disputed Shs4.2 billion and gives the company another opportunity to scrutinise and, if necessary, challenge any revised assessment that may emerge from the recomputation process.
Wider implications
The ruling is likely to have implications extending well beyond the parties involved in the case.
The decision provides fresh guidance on the interpretation of Uganda’s capital gains tax provisions, particularly in relation to mergers, acquisitions, group restructurings, and offshore share transfers.
Companies operating in Uganda through complex international corporate structures may now face increased scrutiny from URA whenever significant changes occur in ownership at the parent-company level.
The ruling also serves as a reminder that tax authorities must meet a high standard when calculating assessments, especially in cases involving large and technically complex transactions.
Even where liability exists, assessments may still be overturned if the methodology used to determine the tax payable is found to be flawed, unsupported by evidence, or inconsistent with statutory requirements.
The Kuku Foods dispute highlights two important principles emerging in Uganda’s tax jurisprudence: ownership changes involving Ugandan assets can attract tax obligations even when transactions are structured through offshore entities, and tax assessments must be supported by rigorous calculations capable of withstanding judicial scrutiny.
With the matter now returning to URA for a fresh computation, the final tax bill remains uncertain.
The recalculation could still result in a substantial liability running into billions of shillings, meaning the dispute may not yet be over.
The Tribunal’s ruling has established an important precedent in Uganda’s evolving tax landscape and will likely be cited in future disputes involving capital gains tax, indirect transfers, and corporate ownership changes.
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