Wakilii

Allied Beverages Company Limited v Commissioner Uganda Revenue Authority (Civil Appeal 39 of 2022)

High Court · [2024] UGCOMMC 301 · 2024 Appeal Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from the Tax Appeals Tribunal decision dismissing Appellant's application against VAT assessment
Decision
Appeal allowed; services rendered by Appellant are zero-rated exported services

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court allowed the appeal, holding that services provided by the Appellant to a US-based client qualify as exported services taxed at zero VAT rate. The determining factor is where services are consumed or used, not where they are physically performed. The court held that consumption occurred in the USA where TCCEC used the marketing research to implement brand strategy and determine concentrate formulas. The Service Agreement sufficiently identified the place of consumption. The OECD destination principle, though not binding, provides persuasive guidance consistent with Ugandan law.

Outcome

Appeal allowed; services rendered by Appellant are zero-rated exported services

Facts

Allied Beverages Company Limited entered into a Service Agreement with The Coca-Cola Export Corporation (TCCEC), a US company, to provide brand marketing, market research and promotional services. The services were physically performed in Uganda, including radio advertisements on Capital FM. The Uganda Revenue Authority assessed VAT of UGX 17,400,459,133 for 2016-2020 on the basis that services were consumed locally and attracted 18% VAT. The Appellant objected, arguing the services were exported to TCCEC in the USA. The Tax Appeals Tribunal dismissed the Appellant's application, holding that services physically performed in Uganda are consumed locally. The Tribunal found the contract did not clearly specify place of consumption outside Uganda and rejected application of OECD Guidelines.

Issues

  1. Whether the services rendered by the Appellant to The Coca Cola Export Company were exported services qualifying for zero VAT rating under the VAT Act and Regulations.
  2. Whether for a service to qualify as an export it must not have been physically performed in Uganda.
  3. Whether the Service Agreement between the Appellant and TCCEC sufficiently specified the place of use or consumption of services to be outside Uganda as required by Regulation 12 of the VAT Regulations.
  4. Whether the OECD Guidelines and the destination principle are applicable in Uganda for determining VAT treatment of cross-border services.

Orders

  • Appeal allowed save for ground 7.
  • Grounds 1 to 6 of the appeal succeed.
  • Costs of the appeal awarded to the Appellant.

Rules and key headnotes

Value Added Tax — Export of Services — Place of Consumption versus Place of Performance
For purposes of determining whether a supply of services qualifies as an exported service under the VAT Act, the determining factor is the location where the services are finally consumed or used, not where they are physically performed.
Value Added Tax — Export of Services — Definition of Consumption and Use
Under the VAT Act and Regulations, 'to consume' means 'to use up' and 'use' means 'to put to a particular purpose'. Services are consumed at the location where the recipient puts them to their intended purpose, not where the ultimate market or audience for resulting products is located.
Tax Statutes — Harmonious Construction of Provisions
Where there are conflicting provisions within a statute or between statutes, they should be interpreted in harmony to meet their intended purpose. Section 16(2) of the VAT Act on place of performance must be read together with Section 24(4), the Third Schedule, and Regulation 12 to give effect to the zero-rating of exported services.
Value Added Tax — Evidence of Export — Contract Requirements under Regulation 12
Regulation 12 of the VAT Regulations requires that a contract clearly specify the place of use or consumption to be outside Uganda. The requirement to 'specify' does not mandate express wording such as 'services shall be consumed in [country]'. It is sufficient if the place of consumption can be ascertained from the contract by identifying the location of the service recipient and the purpose to which services will be put.
OECD Guidelines — Persuasive Authority in Uganda — Destination Principle
Although Uganda is not a member of the OECD and has not formally adhered to the OECD VAT/GST Guidelines, the Guidelines provide persuasive guidance in interpreting and applying Ugandan tax law, particularly the destination principle which holds that services should be taxed in the jurisdiction where they are consumed. Courts should apply such internationally accepted principles where they do not conflict with domestic law and assist in developing jurisprudence for cross-border transactions.
Value Added Tax — Cross-Border Business-to-Business Services
In business-to-business cross-border service transactions, services should be taxed at the destination of consumption (the country of the customer/recipient) rather than at the place of performance (the country of the supplier), in order to maintain neutrality within the VAT system as it applies to international trade.

Legislation cited (7)

Cases cited (14)

  • Uganda Revenue Authority v COWI A/S (High Court Civil Appeal No. 34 of 2020)
  • Coca Cola Central East and West Africa Ltd versus Commissioner of Domestic Taxes Appeal No. 11 of 2013
  • Charles Onyango Obbo and another v Attorney General (Supreme Court Civil Appeal No. 2 of 2002)
  • Elma Philanthropies v Uganda Revenue Authority (Tax Appeals Tribunal Application No. 46 of 2019)
  • Aviation Hanger Services Ltd v Uganda Revenue Authority (Tax Appeals Tribunal Application No. 21 of 2019)
  • F.H Services Kenya Ltd Versus Commissioner of Domestic Taxes Appeal No. 6 of 2012
  • LG Electronics Africa Logistics FZE Kenya Branch Versus The Commissioner Domestic Taxes Tax Appeal No. 359 of 2018
  • Coca Cola Central East and West Africa Ltd Versus Commissioner Domestic Taxes Tax Appeal No. 5 of 2018
  • Kampala Nissan (U) Ltd v Uganda Revenue Authority (High Court Civil Appeal No. 7 of 2009)
  • Sitenda Sebalu v Electoral Commission and another (Election Petition Appeal No. 26 of 2007)
  • Golden Leaves Hotels and Resorts Ltd and Apollo Hotel Corporation v Uganda Revenue Authority (Civil Appeal No. 64 of 2008)
  • Uniliver Kenya Ltd Versus The Commissioner of Income Tax Income Tax Appeal No. 753 of 2003
  • Apollo Hotel Corporation Ltd Versus URA
  • Impressa Ing. Fortunato Federice v Irene Nabwire (Supreme Court Civil Appeal No. 3 of 2000)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Allied Beverages Company Limited v Commissioner Uganda Revenue Authority (Civil Appeal 39 of 2022) [2024] UGCommC 301 (27 September 2024)
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.