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Company to Pay UGX 912M to URA for Mauritius Loan

Agfri Uganda, which manages and gives money to other companies that buy and sell agricultural produce in Uganda, ran to the tribunal after URA presented it with a tax bill of 912 million Shillings for a period between 2014 and 2017.
The Tax Appeals Tribunal has ordered Agfri Uganda Limited to pay 912 million shillings in withholding tax to Uganda Revenue Authority from the money it sent to Mauritius purportedly to pay interest for a loan it had acquired.

Agfri Uganda, which manages and gives money to other companies that buy and sell agricultural produce in Uganda, ran to the tribunal after URA presented it with a tax bill of 912 million Shillings for a period between 2014 and 2017.

The company says it had borrowed money from Agfri Mauritius, it’s parent company and was not eligible to pay the tax. It cited the fact that the lender was not in Uganda, that it had not paid interest to the lender and it was not supposed to pay any taxes on interest to URA. The tribunal judges led by Dr Asa Mugenyi have ruled the company “ought to have withheld tax from Agfri Mauritius” and it must pay the assessed taxes.

This puts a spotlight on companies that report getting loans from parent companies, majorly in tax havens like Mauritius, which lead to an increase in costs and lowering their tax bill here.  Also, trading using related parties, technically called transfer pricing, is used by many companies to avoid paying some taxes.

On its side, URA submitted that Afgri Uganda was expected to pay a withholding tax of 10 per cent in light of the Mauritius-Uganda double taxation agreement. Also, the tax body indicated that Agfri had indicated the interest expense as a financial cost. This means it paid less tax on that account.

According to its financial statements, the company shows it owes 15.6 billion Shillings to its Mauritius parent firm. While it indicated it had not paid any money, its financial statements show that for the year-end March 2014, the company paid 597.3 million Shillings to Agfri Mauritius. It again paid 1.1 billion Shillings for the year to March 2015, 2.4 billion Shillings in 2016 and  4 billion Shillings in 2017.

Court sided with URA saying the “financial statements collaborated with income returns the applicant (Agfri Uganda) filed with URA” which show it had paid interest. Agfri Uganda was represented by lawyers Edward Balaba from Ernst and Young and Lucy Kemigisha from KPMG East Africa.

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