Wakilii

Apollo Hotel Corporation v Uganda Revenue Authority (Application No TAT 68 of 2018)

Tribunal · [2021] UGTAT 4 · 2021 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application to Tax Appeals Tribunal challenging VAT assessment on franchisee fees
Decision
Application dismissed with costs to the respondent

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the right to use the Sheraton brand and centralized reservation system under an international license agreement constituted an imported service for VAT purposes. The services were supplied from a foreign jurisdiction and consumed in Uganda, satisfying the destination principle. However, applying the principle of composite supply, only the principal service — the right to operate the hotel under the Sheraton brand using the system — attracted VAT. The centralized reservation system was merely an ancillary service sharing the tax treatment of the principal service. The application was dismissed with costs.

Outcome

Application dismissed with costs to the respondent

Facts

Apollo Hotel Corporation Limited, a Ugandan company engaged in the hotel and hospitality industry, entered into an international license agreement in January 2008 with Sheraton International Inc., a Delaware corporation with principal offices in the United States. The agreement granted Apollo the non-exclusive right to operate its Kampala hotel under the Sheraton brand and to use Sheraton's centralized reservation system. Apollo paid consideration for these benefits. Between October 2013 and June 2014, Uganda Revenue Authority raised corporate income tax assessments for 2010 to 2012. Apollo objected and the parties entered a partial consent, leaving the issue of VAT of UGX 398,418,285 on franchisee fees for determination by the Tribunal. The dispute was agreed to be a question of law with no evidence led by either party.

Issues

  1. Whether there was an imported service to attract VAT?
  2. Whether the use of the 'Sheraton' brand and the provision of the centralized reservation system amounted to a supply of a service?
  3. Whether the supply was of an imported service?
  4. Whether the use of the 'Sheraton' brand and the provision of the centralized reservation system amounted to supplies of imported services which attract VAT?

Orders

  • The use of the 'Sheraton' brand and the provision of the centralized reservation system amounted to a supply of an imported service.
  • VAT is only due on the principal service namely the right to operate the hotel under the Sheraton brand using the 'System'.
  • The supply of the centralized reservations system was merely an ancillary service to the principal service.
  • This application is accordingly dismissed with costs.

Rules and key headnotes

Tax Law — Value Added Tax — Imported Services — Definition and Application
Under the destination principle applicable to VAT in international trade, services supplied from a foreign jurisdiction and consumed in Uganda constitute imported services chargeable to VAT under section 4(c) of the VAT Act.
Tax Law — Value Added Tax — Franchise Agreements — Classification as Services
A franchise agreement granting the non-exclusive right to use a brand name together with a bundle of composite rights including business methods, systems, and reservation systems constitutes a supply of services and not goods for VAT purposes.
Tax Law — Value Added Tax — Composite Supply — Principal and Ancillary Services
Where a supply comprises a single service from an economic point of view, it should not be artificially split. A service is ancillary to a principal service if it does not constitute an aim in itself but a means of better enjoying the principal service, and the ancillary service shares the tax treatment of the principal service.
Tax Law — Value Added Tax — Imported Services — Destination Principle
The destination principle requires that VAT paid is determined by the rules applicable in the jurisdiction of consumption and revenue accrues to the jurisdiction where consumption takes place. Services consumed in foreign jurisdictions are exported services while services supplied from a foreign jurisdiction and consumed domestically are imported services.
Statutory Interpretation — Tax Statutes — Strict Construction
Words used in tax statutes must be interpreted strictly and given their literal meanings.

Legislation cited (11)

  • VAT Act s.1
  • VAT Act s.4(c)
  • VAT Act s.4(a)
  • VAT Act s.5
  • VAT Act s.5(c)
  • VAT Act s.11(1)(b)
  • VAT Act s.16
  • VAT Act s.18
  • VAT Act s.18(8)
  • VAT Act Third Schedule s.1(a)
  • VAT Regulations Regulation 13

Cases cited (10)

  • Africa Broadcasting (U) Ltd v Uganda Revenue Authority (TAT Application No. 44 of 2018)
  • Cape Brandy Syndicate v Inland Revenue Commissioner (1921) 1 KB 64
  • Warid Telecom Uganda Ltd v Uganda Revenue Authority (Civil Appeal No. 24 of 2011)
  • Mix Telematics East Africa Ltd v Uganda Revenue Authority (TAT Application No. 4 of 2018)
  • Elma Philanthropies East Africa Limited v Uganda Revenue Authority (TAT No. 46 of 2019)
  • Vikas Sales Corporation v CCT (1996) 102 STC 106
  • Metropolitan Life Limited v Commissioner for the South African Revenue Service (A 232/2007)
  • Sagar Ratna Restaurants Pvt Ltd & Ors v The Value Added Tax Officer & Ors (WP No. 4453/2013 and 3404/2015)
  • Mars Logistics v Commissioner of Domestic Taxes (Tax Appeal No. 6 of 2018)
  • Card Protection Plan v Commissioners of Customs & Excise (Case C-349/96)

Full judgment

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

Apollo Hotel Corporation v Uganda Revenue Authority (Application No TAT 68 of 2018) 2021 UGTAT 4 (27 August 2021)
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.