Wakilii

Bata Shoe Co Ltd v Uganda Revenue Authority (Taxation Application No 6 of 2010)

Tribunal · [2017] UGTAT 121 · 2017 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging VAT and customs duty assessment following post-clearance audit
Decision
Additional tax assessments of UGX 350,765,156 vacated; applicant's challenge to customs duty assessment on royalty payments upheld

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that royalty payments made by the applicant to Bata Brands under a Trademark Licensing Agreement were not a condition of sale of imported footwear and therefore should not be included in the customs value under paragraph 9(1)(c) of the Fourth Schedule to the East African Community Customs Management Act. The Tribunal applied World Customs Organization Commentary 25.1 and found that while the royalties related to the imported goods, they were not paid as a condition of sale because the sales documentation contained no explicit statement requiring royalty payment as a condition of sale, and none of the five indicative factors for determining condition of sale were satisfied.

Outcome

Additional tax assessments of UGX 350,765,156 vacated; applicant's challenge to customs duty assessment on royalty payments upheld

Facts

Bata Shoe Co (U) Ltd imports and sells footwear from Kenya, Singapore, and China under the Bata brand. Following a post-clearance audit for 2011-2013, Uganda Revenue Authority assessed additional taxes of UGX 350,765,156 comprising VAT, import duty, excise duty, and withholding tax. The assessment was based on the respondent's position that royalty fees paid by the applicant to Bata Brands S.a.r.l of Luxembourg under a Trademark Licensing Agreement should have formed part of the customs value. The applicant pays Bata Brands royalties of 2% of total annual sales for the right to use the Bata name and trademark. The Trademark Licensing Agreement requires the applicant to procure products only from suppliers pre-approved by Bata Brands and grants Bata Brands quality control powers. The applicant objected to the assessment, arguing that the royalties were not a condition of sale and that VAT had already been paid on the royalties as imported services.

Issues

  1. Whether the royalty payments by the Applicant to Bata Brands S.a.r.l Luxembourg should be included in the dutiable value of the imported goods?
  2. What remedies are available to the parties?

Orders

  • Declaration that the royalty payments made by the Applicant to Bata Brands are not subject to Customs duty under the provisions of paragraph 9(1)(c) of the Fourth Schedule of the East African Community Customs Management Act.
  • Additional assessments of tax imposed by the Respondent vacated.
  • Costs of the Application awarded to the Applicant.

Rules and key headnotes

Customs Valuation — Royalties and Licence Fees — Condition of Sale Test
For royalties and licence fees to be includible in the customs value of imported goods under paragraph 9(1)(c) of the Fourth Schedule to the East African Community Customs Management Act 2004, all constituent elements must be present: the royalty must be related to the goods being valued, and the royalty must be paid as a condition of sale of the goods being valued.
Customs Valuation — Royalties Related to Goods — Incorporation of Intellectual Property
A royalty or licence fee is considered related to imported goods when the imported goods incorporate the intellectual property for which the royalty is paid, such as where imported goods bear the trademark for which the royalty fee is paid.
Customs Valuation — Condition of Sale — Explicit Statement in Sales Documentation
The clearest indication that a buyer could not purchase imported goods without paying a royalty or licence fee is where the sales documentation for the imported goods includes an explicit statement that the buyer must pay the royalty or licence fee as a condition of sale; such a reference would be determinative in deciding whether a royalty or licence fee was paid as a condition of sale.
International Trade Agreements — World Customs Organization Guidelines
In applying or interpreting section 122 and the Fourth Schedule of the East African Community Customs Management Act 2004, due regard shall be taken of the rulings, opinions, guidelines and interpretations given by the World Trade Organisation or the Customs Cooperation Council, including World Customs Organization Commentary 25.1 on Third Party Royalties and Licence Fees.
Customs Valuation — Condition of Sale — Indicative Factors
Where sales documentation does not include an explicit statement that royalty payment is a condition of sale, other factors may be considered including: reference to royalty in sales agreement; reference to sale of goods in licence agreement; whether sales agreement can be terminated for breach of licence agreement; whether manufacturer is forbidden to sell if royalties unpaid; and whether licence agreement permits licensor to manage production or sale beyond quality control.
Customs Valuation — Quality Control Provisions Distinguished from Condition of Sale
Quality control provisions in a trademark licensing agreement that permit the licensor to inspect premises, request samples, require removal of trademarks from substandard products, and require changes to design or production methods do not constitute terms permitting the licensor to manage production or sale between manufacturer and importer, and therefore do not establish that royalty payment is a condition of sale.

Legislation cited (8)

  • East African Community Customs Management Act 2004 s.122
  • East African Community Customs Management Act 2004 Fourth Schedule para.2(1)
  • East African Community Customs Management Act 2004 Fourth Schedule para.9(1)(c)
  • Value Added Tax Act
  • Excise Duty Act
  • Income Tax Act
  • Protocol on the Establishment of the East African Customs Union Article 1
  • Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 Article 8.1(c)

Cases cited (2)

  • Republic v Kenya Revenue Authority Ex parte Bata Shoe Company (Kenya) Ltd (Judicial Review Case No. 36 of 2011)
  • Commissioner for the South Africa Revenue Service v Delta Motor Corporation (Pty) Ltd (Case No. 279 of 2001)

Full judgment

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Bata Shoe Co Ltd v Uganda Revenue Authority (Taxation Application No 6 of 2010) 2017 UGTAT 121 (4 August 2017)
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.