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Intertek Testing Services International Ltd v Uganda Revenue Authority (Civil Appeal No.55 of 2007)

Court of Appeal · [2009] UGCA 85 · 2009 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Second appeal from the High Court (Commercial Division) sitting in its appellate jurisdiction over a decision of the Tax Appeals Tribunal
Decision
Appeal dismissed; concurrent findings of the High Court and Tax Appeals Tribunal upheld

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Holding

The Court of Appeal held that income earned by non-resident foreign inspection entities for pre-shipment inspection services performed under a contract connected to Uganda was sourced in Uganda and taxable. Section 85(1) of the Income Tax Act does not require the non-resident service provider to be a party to the services contract; privity of contract is not a precondition for tax. The foreign entities were beneficial owners of the income, with the appellant and ITSI UK acting as mere conduits. The Double Taxation Convention did not apply because it covered only residents. The appellant, as withholding agent, was liable to withhold 15% tax. The appeal was dismissed with costs.

Facts

The appellant, an inspection company incorporated in the United Kingdom and registered in Uganda as a foreign company under section 370 of the Companies Act, entered into a pre-shipment services contract with the Government of Uganda in 1998. To perform its functions, the appellant engaged foreign inspection companies worldwide to carry out inspections on its behalf. In April 2000, the respondent assessed and collected withholding tax of Shs 273,884,184 from the appellant on payments made on account of pre-shipment inspection services provided by foreign inspection companies not domiciled in the UK. The appellant challenged the assessment before the Tax Appeals Tribunal, which dismissed the application with costs. The appellant's subsequent appeal to the High Court (Commercial Division) failed. The appellant then appealed to the Court of Appeal, contending that the foreign entities sourced their income from the United Kingdom and were not covered by Ugandan tax law, and that the Double Taxation Convention exempted it from withholding tax.

Issues

  1. Whether the foreign inspecting contractors sourced their income from Uganda.
  2. Whether the principle of privity of contract between the appellant, the foreign inspecting contractors, the appellant's branch in Uganda and the Government of Uganda was irrelevant.
  3. Whether the Double Taxation Relief (Taxes on Income) (Uganda) Order 1993 should have applied to the transaction.
  4. Whether the appellant acted as a conduit for the foreign inspecting contractors and whether the payments were a sham scheme designed for tax avoidance.

Orders

  • Appeal dismissed.
  • Costs awarded to the respondent in the Court of Appeal, the High Court and the Tax Appeals Tribunal.

Key headnotes

Income Tax — Source of Income — Services Rendered Under Government Contract
Income derived in respect of services rendered under a contract with the Government of Uganda is sourced in Uganda regardless of where the services are physically rendered, and covers entities who are beneficiaries of the contract so long as they render services in fulfilment of that contract.
Income Tax — Uganda-Source Services Contract — Privity Not Required
Under section 85(1) of the Income Tax Act, a non-resident service provider need not be a party to the services contract; privity of contract is not a precondition for the imposition or collection of tax, provided the income is derived under a services contract whose principal purpose is the performance of services giving rise to income sourced in Uganda.
Double Taxation Convention — Application Limited to Residents
A double taxation convention limited in application to residents of one or both contracting states does not apply to non-resident entities, and cannot exempt a withholding agent from collecting tax on income sourced in Uganda by such non-residents.
Withholding Tax — Conduit Entities — Beneficial Ownership
Where separate legal entities are the beneficial owners of income sourced from Uganda and another party merely channels payments to them, that party acts as a conduit and bears the duty to withhold tax in accordance with the Income Tax Act.

Legislation cited (7)

  • Income Tax Act s.79(d)
  • Income Tax Act s.85(1)
  • Income Tax Act s.85(4)
  • Income Tax Act s.88(1)(2)
  • Income Tax Act s.120
  • Companies Act s.370
  • Double Taxation Relief (Taxes on Income) (Uganda) Order 1993

Cases cited (1)

  • Grainger & Son v Gough [1896] AC 325
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.