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Techno Three Uganda Limited v Uganda Revenue Authority (TAT 009/2025)

Introduction

The Tax Appeals Tribunal’s ruling in Techno Three Uganda Limited v Uganda Revenue Authority (TAT 009/2025), delivered on 4th February 2026, represents a watershed moment in Ugandan tax jurisprudence. This case demonstrates exemplary judicial practice by applying purposive statutory interpretation to prevent absurd outcomes while simultaneously providing evidence-based policy recommendations to government. The Tribunal’s approach extends beyond traditional adjudication to embrace an advisory role that could reshape how anti avoidance provisions are applied in Uganda’s tax system.

Brief Facts

Techno Three Uganda Limited, a construction and civil engineering company, challenged an assessment of Shs. 1,118,513,391 issued by the Uganda Revenue Authority for tax years 2018-2020. The URA alleged that the Applicant had overclaimed interest expenses, arguing that it was part of a “group” with common underlying ownership, thereby restricting its interest deduction to 30% of EBITDA under Section 25(3) of the Income Tax Act.

The factual matrix revealed that the Applicant’s shareholders Jang Bahader Singh Wazir and Amandeep Singh had registered three other companies however, these companies were non-operational entities filing nil income tax returns except of one. Critically, the Applicant’s interest expenses arose from borrowings from unrelated third-party Ugandan banks Bank of Baroda and Bank of Africa not from intercompany loans.

Question for Determination

The central issue before the Tribunal was whether the Applicant was liable to pay the assessed tax arising from the Respondent’s restriction of interest deductions. This seemingly straightforward question concealed complex sub-issues:

1. Does common shareholding alone constitute a “group” under Section 25(5)(b)?
2. Should Section 25(3) apply to dormant, non-trading entities?
3. What was the legislative intent behind this provision?
4. Does borrowing from third-party domestic lenders trigger the interest restriction designed to combat multinational profit shifting?

The Court’s Reasoning

The Tribunal’s analysis commenced with a fundamental question: does this case warrant departure from literal statutory interpretation in favour of the purposive approach? The answer, grounded in the principle that literal interpretation should yield when it produces absurdity, was affirmative.

Legislative Intent and Historical Context

In a display of rigorous legal research, the Tribunal examined the Hansard records from the 24 May 2018 parliamentary debate on the Income Tax (Amendment) Bill. This revealed that the Legislature’s primary concern was multinational companies “lending amongst themselves” to reduce chargeable income in Uganda. As MP Mwiru stated, the focus was on “multinational companies” engaged in groups that shift profits through interest deductions. The Tribunal traced the provision’s origin to the 2015 OECD Base Erosion and Profit Shifting (BEPS) Report, Action 6, which recommended curbing excessive interest deductions to prevent tax base erosion.

The historical evolution proved instructive. Before 2018, Section 89 (thin capitalization rules) targeted only foreign-controlled resident companies. The 2018 amendment introduced Section 25(3), extending interest restrictions to local enterprises but retaining the anti-avoidance purpose preventing companies from using interest deductions to artificially reduce taxable income.

Substance Over Form Principle

The Tribunal’s application of the Ramsay Principle that tax outcomes should reflect economic reality rather than mere legal documentation proved decisive. The central finding at paragraph 61-62 established that applying Section 25(3) to groups comprised of dormant, non-trading entities existing only on paper would be unjustified. As the Tribunal stated, the “substance over form principle” ensures “that tax burdens are fair and do not unnecessarily hinder economic growth or encourage artificial, non-productive behaviour.”

The factual analysis revealed the absurdity of the URA’s position. Satech Industries was incorporated after the assessment period and later struck off. The other companies had no business operations, significant assets, or employees. They filed nil returns, indicating no economic activity whatsoever. The interest in question arose from borrowings from unrelated Ugandan banks whose interest income would be taxed in Uganda presenting no base erosion risk that Section 25(3) was designed to prevent.

Tax Cohesion and Policy Context

The Tribunal distinguished between multinational profit shifting and domestic lending. When a multinational group lends internally, interest deductions in Uganda correspond to untaxed income abroad, eroding Uganda’s tax base. However, when a Ugandan company borrows from domestic banks, the interest deduction is matched by taxable interest income in the same jurisdiction maintaining tax cohesion and generating government revenue.

To support its analysis, the Tribunal referenced Uganda’s national development frameworks. Vision 2040 identifies poor access to finance as a major constraint, with Uganda ranking 112th out of 183 countries. The National Development Plan IV notes that interest rates averaged 19.1% over five years against a Central Bank rate of 8.4%, making business expensive for the private sector. The Tenfold Growth Strategy targets growing private sector credit from 11% of GDP (2023) to 100% by 2040. Restricting interest deductions for legitimate domestic borrowing directly contradicts this objective.

The Tribunal also identified perverse incentives created by literal application. A business owner structuring operations into separate companies for legitimate reasons would be denied full interest deductions, while consolidating everything into one company would preserve the deduction allowing form to prevail over economic substance.

Final Determination

The Tribunal ruled that the assessment of Shs. 312,539,675 was untenable and set it aside, awarding costs to the Applicant. The legal principle established requires that “group” status under Section 25(5)(b) demands more than common ownership it requires economic substance, active business operations, and actual economic relationships between members. The provision does not apply to dormant entities, companies incorporated after the assessment period, or borrowing from unrelated third-party domestic lenders.

Recommendations to Government

Crucially, the Tribunal recommended that the Ministry of Finance revisit Section 25(3) and (5), focusing on their intended purpose and alignment with broader economic goals. The specific proposal was to restrict the provision to multinational enterprises, as its core purpose is preventing base erosion and profit shifting by such enterprises. This recommendation aligns with original legislative intent, international best practices under the OECD BEPS framework, Uganda’s development objectives, and principles of tax cohesion.

Conclusion

This ruling’s significance extends far beyond the immediate case, impacting tax interpretation, administration, and policy development in several profound ways. The case establishes a new standard for interpreting anti-avoidance provisions. It demonstrates that purposive interpretation must consider legislative history, international context, and broader policy objectives. The Tribunal showed that mechanical application of tax rules, ignoring economic substance, produces unjust outcomes contrary to legislative intent. This precedent will guide interpretation of similar provisions, requiring tax authorities to examine the substance of transactions rather than merely their legal form.

Perhaps most groundbreaking is the Tribunal’s extension of its role beyond passive adjudication to active policy engagement. Traditional judicial restraint might have stopped at ruling the provision inapplicable to this case. Instead, the Tribunal provided evidence-based analysis using economic data, national development plans, international standards, and parliamentary debates to identify systemic problems and recommend solutions. This represents judicial activism in its best form respecting legislative supremacy while contributing specialized expertise to inform policy reform.

ASIIMWE T/A ASSY LODGES V UGANDA REVENUE AUTHORITY (MISCELLANEOUS CAUSE 21 of 2025) [2025] UGTAT 3 (21 March 2025)

Brief facts

Assy Lodges was issued an additional income tax assessment of UGX 26,868,000 by the Uganda Revenue Authority on 11 October 2023, despite having previously declared and paid UGX 276,000 for the 2021/2022 financial year. After attempting Alternative Dispute Resolution, URA upheld the assessment following a discussion on 11 November 2024. Asiimwe later applied for an extension of time to file a review before the Tax Appeals Tribunal, citing financial hardship and a history of tax compliance. URA opposed the application, arguing it was time barred, that Asiimwe had opted for ADR instead, failed to pay the required 30% of the disputed tax.

Question for determination

Whether the applicant may be granted time within which to apply for an extension of time to review decision by the respondent?

Tribunal’s reasoning

The Applicant submitted that she only became aware of the additional tax assessment on 10 November 2023 in June 2024 due to not having an active email linked to her TIN. After discovering it, she sought and received permission to file an objection out of time, which she did on 5 August 2024. Although she provided documents in a subsequent meeting, the Respondent rejected her objection on 11 November 2024. She explained that financial constraints and lack of access to the objection decision delayed her application for review. She argued that the delay was not intentional or inordinate and invoked Section 16(2) of the Tax Appeals Tribunal Act, urging the Tribunal to exercise discretion to extend time. She relied on Farid Meghani v URA and FRES Uganda Ltd v URA, which outline criteria such as reasonable delay, cause, likelihood of success, and absence of prejudice.

In response, the Respondent opposed the application, asserting that it was filed beyond the statutory six (6) month limit, thus time barred under Sections 16(2) and 16(7) of the Tax Appeals Tribunal Act. They argued the eight (8) month delay was excessive and unjustified, and emphasized that statutory deadlines are mandatory, citing URA v Consolidated Properties Ltd. They also contended that the Applicant voluntarily pursued ADR instead of promptly appealing and failed to show sufficient cause for the delay. Furthermore, they argued that the acceptance of a late objection under the Tax Procedures Code Act did not extend to Tribunal reviews. Citing Eco Bus Co. Ltd v URA, they maintained the Tribunal lacks jurisdiction to extend time beyond six months and prayed for dismissal of the application with costs.

The Tribunal examined the legal framework under the Tax Procedures Code Act and the Tax Appeals Tribunal Act, both of which require applications for review of a taxation decision to be filed within 30 days of service and not later than six months after the date of the decision. The key issue was whether the relevant date for computing the statutory timeline was the objection decision of 13 June 2024 or the ADR decision of 11 November 2024. While the Respondent argued for the former, the Tribunal found that the ADR decision constituted the actual “taxation decision” under Section 1(1)(k) of the TAT Act, as it was the final and substantive resolution of the dispute following further engagement and documentation.

Based on this interpretation, the Tribunal held that the six (6) month period should run from 11 November 2024, not 13 June 2024. Nevertheless, since the Applicant did not file her application for review within 30 days of the ADR decision, the Tribunal had to determine whether to exercise its discretion to extend time. Citing Boney Katatumba v Waheed Karim, the Tribunal emphasized that sufficient reason for delay can justify an extension even if filed late, particularly to avoid injustice. Given the Applicant’s financial hardship, lack of access to timely communication, and genuine efforts to resolve the matter through ADR, the Tribunal found the reasons for delay sufficient and granted the extension. Each party was ordered to bear its own costs.

Conclusion

Although it is generally understood that election Alternative Dispute Resolution does not stay or suspend the statutory time limits for filing an application for review before the Tax Appeals Tribunal, this case establishes an important clarification in that regard. The Tribunal held that where an ADR process culminates in a substantive decision addressing the taxpayer’s liability, such a decision constitutes the relevant “taxation decision” under Section 1(1)(k) of the Tax Appeals Tribunal Act. Consequently, the limitation period for filing an application for review begins to run from the date of the ADR decision, not from the earlier objection decision.

This sets a clear precedent that in appropriate cases, a final ADR outcome may reset the statutory timeline, ensuring that the taxpayer is not prejudiced by procedural ambiguity or parallel processes aimed at resolving the dispute amicably.

Brief facts

In 2022, the appellant made and paid self-assessments for Local Excise Duty and Value Added Tax. Following an audit, the 1st respondent issued additional administrative assessments for both taxes, which the appellant disputed. While the appellant paid the amounts it had self-assessed, it applied to the Tax Appeals Tribunal for review of the additional assessments and sought a temporary injunction restraining their collection. On 7 March 2022, the Tribunal granted the injunction on condition that the appellant pay 30% of the tax in dispute or the tax not in dispute, whichever was greater. A dispute arose when the 1st respondent demanded payment of 30% of the disputed tax, while the appellant maintained that the amount already paid as tax not in dispute exceeded that threshold. In an attempt to recover the amount, the 1st respondent issued third-party agency notices to the 2nd and 3rd respondents on 19 April 2022, which they declined to honour. Consequently, on 29 April 2022, the 1st respondent filed an application seeking to have the appellant and the 2nd and 3rd respondents sanctioned for contempt of the Tribunal’s conditional injunction order.

Question for determination

Whether the condition imposed by the Tax Appeals Tribunal requiring payment of “30% of the tax in dispute or the tax not in dispute, whichever is greater” was satisfied by the taxpayer’s prior payment of the self-assessed tax, or whether the 30% deposit applied strictly to the disputed additional assessment raised by URA.

Court’s Reasoning and Final Determination

The Court reasoned that section 15(1) of the Tax Appeals Tribunals Act is a clear and self contained provision whose interpretation must be confined to its express wording. In applying settled principles of statutory interpretation particularly the strict and literal approach applicable to taxing statutes the Court held that the phrase “tax assessed” refers solely to the disputed additional assessment raised by the Uganda Revenue Authority, and not to tax previously self-assessed and paid by the taxpayer. The Court rejected any attempt to import concepts from the Tax Procedures Code Act or to rely on equitable considerations, emphasizing that tax obligations can only arise from clear statutory language and cannot be extended by implication.

On jurisdiction and procedure, the Court found that the Tax Appeals Tribunal exceeded its mandate by invoking contempt proceedings to enforce compliance with a conditional injunction. It reasoned that the Tribunal’s order was self-executing, such that failure to comply with the 30% payment condition automatically resulted in the lapse of the injunction without the need for punitive enforcement. Consequently, the Tribunal lacked jurisdiction to punish the appellant for contempt. The Court further dismissed URA’s objection to the appeal, holding that appellate rights extend to ancillary and interlocutory matters, including contempt findings, to prevent denial of access to justice.

Final Determination

Accordingly, the High Court allowed the appeal, set aside the Tribunal’s finding of contempt and the fines imposed, and affirmed that the only legal consequence of non-compliance with the 30% deposit condition is the automatic lapse of the injunction. In doing so, the Court reinforced certainty in the application of the 30% deposit rule, delineated the limits of the Tribunal’s jurisdiction, and upheld the rule of law in the resolution of tax disputes.

Conclusion

 In Nile Breweries Limited v Uganda Revenue Authority & Others (Civil Appeal No. 14 of 2022), the Court clarified that the 30% deposit rule applies only to the disputed additional tax assessment, not to prior self assessed payments. It held that the Tax Appeals Tribunal acted beyond its jurisdictionby treating non-compliance with the 30% condition as contempt. The proper consequence of non-payment is the automatic lapse of the injunction, not sanctions. The Court also affirmed that appeals against ancillary matters, including contempt, are competent, thereby protecting taxpayers’ rights and ensuring certainty and legality in tax dispute resolution.

Introduction

The application of withholding tax on the sale of mortgaged properties in Uganda has sparked significant judicial debate, as evidenced by two contrasting High Court decisions: Luwaluwa Investments Limited v. Uganda Revenue Authority ([2023] UGCommC 160), decided by Hon. Justice Thomas Ocaya, and Bernard Byamukama v. Paul Muwanga t/a Polo Boutique ([2025] UGCommC 261), decided by Hon. Justice Stephen Mubiru. Both cases grapple with the interpretation of Section 118B(2) (now Section 130(2)) of the Income Tax Act (ITA), Cap 340, which mandates a 6% withholding tax on the purchase of business assets, and its interaction with Section 117(2)(b) (or Section 127(2)), which exempts interest paid to financial institutions from withholding tax. While Justice Ocaya’s ruling in Luwaluwa prioritizes taxpayer fairness by limiting tax liability to surplus proceeds after loan repayments, Justice Mubiru’s decision in Byamukama emphasizes robust revenue collection by requiring tax withholding on the gross purchase price, with exemptions adjusted later. This Article examines the legal provisions, the judges’ divergent positions, the reasons for Justice Mubiru’s departure from Luwaluwa, and the implications for Uganda’s financial and real estate sectors, arguing that the split necessitates higher court clarification to balance revenue protection with equitable taxation.

Justice Ocaya’s Position in Luwaluwa Investments v. URA

In Luwaluwa Investments Limited v. Uganda Revenue Authority (High Court Civil Appeal No. 43 of 2022), decided on May 22, 2023, Justice Ocaya addressed a URA assessment of UGX 965,700,000 against Luwaluwa Investments for purchasing Afrique Suites, properties sold by Equity Bank Uganda Limited to recover a defaulted USD 10 million loan. The Tax Appeals Tribunal upheld the assessment, arguing the properties were business assets under Section 118B(2) and no conflict existed with Section 117(2)(b). Luwaluwa appealed, challenging the asset classification, the provision’s clarity, and its compatibility with the interest exemption.

Justice Ocaya ruled that mortgaged properties become business assets upon foreclosure, as ownership is irrelevant under Section 118B(2): “It reasoned that there is no requirement that the asset must be owned or put into use by the entity selling under section 118B(2)… for it to qualify as a business asset”. He found the provision unambiguous, clearly imposing tax on business asset purchases. However, he identified a critical conflict between Section 118B(2) and Section 117(2)(b), reasoning that withholding tax is a collection mechanism for income tax, and no tax applies if no chargeable income exists.

Analyzing the proceeds under Section 36 of the Mortgage Act, Ocaya J held:

• Principal is a return of capital, not chargeable under Sections 15 and 17 noting that “The principal recovered does not form part of the chargeable income of the bank”.
• Interest is business income under Section 18(1) but exempt under Section 117(2)(b) as he pointed out that “The interest recovered by disposal of a foreclosed mortgage is business income of the bank. However, the same interest income is exempt from withholding tax under section 117(2)”.
• Surplus “Only the surplus of the consideration for the sale of mortgaged property after deduction of the principal sum and interest is properly amenable to withholding tax”.

Since the sale proceeds (USD 4.35 million) covered only part of the principal, with no interest or surplus, no tax was due, “The amount paid by the appellant only partly covered the principal which does not form part of the chargeable income of the bank thus not amenable to withholding tax”. Ocaya J set aside the TAT’s decision, emphasizing equitable taxation that “Tax is the life blood of government… There should be a balancing act. In each case, the court should consider all the circumstances together and give a decision that best achieves the justice of the case”. His ruling limits tax liability to surplus proceeds, protecting taxpayers in foreclosure sales where no profit is realized.

Justice Mubiru’s Position in Bernard Byamukama v. Paul Muwanga

In Bernard Byamukama v. Paul Muwanga t/a Polo Boutique (High Court Civil Suit No. 134 of 2022), decided in August 2025, Justice Mubiru addressed a dispute where the defendant (buyer) sought to offset Shs. 120,000,000 (6% withholding tax) from an outstanding Shs. 200,000,000 owed for a land sale with a commercial building, the proceeds of which (Shs. 1,800,000,000) cleared a loan with Equity Bank. The plaintiff (seller) argued no tax applied, citing Luwaluwa, as the proceeds covered principal/interest. Mubiru J rejected this, affirming the tax obligation.

Mubiru J agreed that the property, with a commercial building used for rental income and a restaurant (“Afrika Hotpot Restaurant”), was a business asset under Section 2(h): “In the instant case, there is a commercial building on the land… He himself used part of the building to run his own restaurant business… It fits the description of an asset ‘used for the purposes of the business’”. He clarified that withholding tax under Section 118B(2) is a capital gains tax collection mechanism, applied to the gross payment at realization thus “Withholding tax upon the purchase of a business or business asset is essentially a mechanism for the collection of capital gains tax at source… It is computed on the gross amount paid without deduction of expenses, losses or allowances”.

Crucially, Mubiru J found no conflict between Sections 118B(2) and 127(2), rejecting Luwaluwa’s expansive exemption: “It is possible to give effect to the purpose and language of both provisions while maintaining their unity; hence they are not in conflict”. He argued that tax is withheld on the gross price, with exemptions (e.g., interest) adjusted later under Section 146. The defendant was obligated to withhold Shs. 120,000,000, which could be offset.  Mubiru J prioritized revenue protection, noting that capital gains tax targets “unearned increments” from societal development.

Implications

The judicial split creates uncertainty. Luwaluwa offers relief to buyers and financial institutions by limiting tax to surplus proceeds, aligning with fairness where no profit is made. Byamukama imposes a stricter burden, requiring upfront withholding to safeguard revenue, with adjustments later. Mubiru’s approach aligns with the ITA’s intent to tax business asset disposals broadly but risks overtaxing non-income proceeds, while Ocaya’s ruling protects taxpayers but may enable evasion if surplus calculations are unclear.

For financial institutions, Byamukama necessitates clear sale agreements delineating principal, interest, and surplus to facilitate URA adjustments. Buyers must comply with filing deadlines and issue tax credit certificates to avoid penalties under Section 142. The conflict warrants Court of Appeal or Supreme Court clarification to harmonize the provisions and balance revenue goals with equitable taxation.

Conclusion

Justice Ocaya’s Luwaluwa ruling exempts principal and interest in mortgaged property sales from withholding tax, taxing only surpluses to ensure fairness. Justice Mubiru’s Byamukama ruling mandates withholding on the gross price, with exemptions adjusted post-collection, prioritizing revenue protection. Mubiru’s departure from Luwaluwa stems from its overly broad exemption, which he believes undermines the tax’s purpose, and his preference for harmonizing Sections 118B(2) and 127(2). Until resolved by a higher court, stakeholders must navigate Byamukama’s stricter compliance demands, underscoring the need for clear statutory guidance in Uganda’s tax regime.