The Tax Appeals Tribunal has ruled that Kuku Foods, the operator of KFC restaurants in Uganda, is liable for capital gains tax arising from changes in its ownership structure.
However, the Tribunal declined to uphold the Uganda Revenue Authority’s Shs4.2b assessment in full. It ordered URA to recompute the tax bill.
The decision gives URA a major legal win on liability. It also gives Kuku Foods relief on the amount immediately demanded by the tax body.
The case centred on whether changes in the company’s wider ownership structure triggered tax obligations under Uganda’s Income Tax Act.
How the Dispute Started
Documents filed before the Tribunal show that URA assessed Kuku Foods for Shs4.2b in capital gains tax.
The assessment followed a transaction that altered the company’s underlying ownership through entities within its broader corporate structure.
URA argued that the transaction activated the change-of-ownership provisions under the Income Tax Act.
According to URA, those provisions are meant to tax gains arising from major ownership shifts in companies that hold Ugandan assets.
The tax body also argued that taxpayers should not avoid Ugandan tax by structuring deals through foreign holding companies or offshore transfers.
URA maintained that such transactions can still have tax consequences where valuable business interests remain in Uganda.
Kuku Foods Challenged URA’s Assessment
Kuku Foods disputed the assessment before the Tax Appeals Tribunal.
The company argued that URA had wrongly interpreted the law and improperly imposed tax liability.
It also challenged the method URA used to arrive at the Shs4.2b figure.
According to the proceedings, Kuku Foods argued that the transaction did not create a taxable gain in the way URA claimed.
The company further contended that the assessment did not properly reflect the requirements of the Income Tax Act.
Kuku Foods also questioned URA’s valuation approach and said the authority had not sufficiently justified the amount demanded.
The dispute therefore raised wider questions about Uganda’s capital gains tax regime. It also tested how far URA can go in taxing ownership changes made through offshore corporate structures.
Tribunal Backs URA on Liability
In its decision, the Tribunal agreed with URA on the main legal issue.
It found that the ownership changes fell within Uganda’s change-of-ownership provisions.
The Tribunal held that the transaction amounted to a taxable event under the Income Tax Act.
It reasoned that Parliament enacted the relevant provisions to stop gains linked to Ugandan assets from escaping tax merely because deals are routed through foreign entities.
The Tribunal also emphasised that tax law looks at the economic substance and effect of a transaction, not only its legal form.
It said significant changes in beneficial ownership of an entity holding assets in Uganda may attract tax consequences.
That may apply whether the transaction occurs directly or indirectly.
As a result, the Tribunal rejected Kuku Foods’ main challenge and upheld URA’s position that the restructuring triggered tax liability.
Shs4.2b Assessment Set Aside
Although URA won on liability, the Tribunal found problems with the computation of the tax bill.
A major issue in the case was how URA calculated the Shs4.2b assessment.
After reviewing the evidence and submissions from both sides, the Tribunal found shortcomings in the computation.
It held that URA had not sufficiently shown how it arrived at the final figure.
The Tribunal also found that the authority had not adequately justified some elements of the calculation.
It said a tax liability can exist, but the final assessment must still meet the required legal and evidential standards.
The Tribunal stressed that URA must apply the statutory formula correctly.
It also said tax assessments must rest on a transparent and verifiable methodology.
The Tribunal therefore set aside the Shs4.2b assessment and directed URA to carry out a fresh computation.
“The assessment is set aside for purposes of recomputation,” the Tribunal ruled.
At the same time, it maintained that the underlying transaction remained taxable.
Both Sides Secure Partial Victories
The outcome gives both parties partial victories.
For URA, the ruling affirms its authority to tax certain ownership changes involving entities with assets in Uganda.
It also supports the tax body’s interpretation of the Income Tax Act on indirect transfers and beneficial ownership changes.
For Kuku Foods, the ruling removes the immediate obligation to pay the disputed Shs4.2b figure.
The company will also have another chance to examine any revised assessment that URA issues after the recomputation.
If Kuku Foods disputes the fresh computation, the matter could still return to formal contestation.
Ruling May Affect Corporate Restructurings
The decision is likely to be closely studied by companies operating in Uganda through complex ownership structures.
It provides guidance on capital gains tax in mergers, acquisitions, group restructurings and offshore share transfers.
Companies with Ugandan assets may face increased URA scrutiny when ownership changes occur at parent company level.
The ruling also sends a message to tax authorities.
Even where a taxpayer is liable, URA must still support its assessment with clear calculations and evidence.
A flawed or unsupported computation can still be set aside.
The Kuku Foods dispute highlights two key principles in Uganda’s developing tax jurisprudence.
First, ownership changes involving Ugandan assets can attract tax even when the transaction is structured through offshore entities.
Second, large tax assessments must be backed by rigorous and verifiable calculations.
The matter now returns to URA for recomputation.
The final tax bill remains uncertain, but the recalculation could still result in a substantial liability running into billions of shillings.
