Wakilii

Britam Insurance Company Uganda Limited v Uganda Revenue Authority (TAT Application No 68 of 2018)

Tribunal · [2020] UGTAT 14 · 2020 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging VAT assessments on fronting and facultative fees received from reinsurance transactions
Decision
Application allowed with costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that fronting and facultative fees earned by an insurance company in respect of reinsurance services are VAT exempt under the Value Added Tax Act. These fees are incidental to the provision of reinsurance services, which are specified as exempt supplies under the Second Schedule to the VAT Act. The insurance company acts as an intermediary performing ancillary services that are consumed or merged with the primary reinsurance service.

Outcome

Application allowed with costs

Facts

Britam Insurance Company Uganda Limited, an insurance company regulated by the Insurance Regulatory Authority, received fronting and facultative fees from other insurance companies for reinsurance services. Uganda Revenue Authority assessed VAT of Shs. 250,023,977 on these fees, comprising Shs. 206,727,735 for fronting fees and Shs. 43,301,242 for facultative fees. The applicant objected, arguing that these fees were exempt from VAT as they were incidental to reinsurance services. Fronting reinsurance involves ceding 100% of the risk to a reinsurer, while facultative reinsurance involves ceding a portion of the risk. In both cases, the applicant retained a small portion of the premium as a fee to cover administrative costs and business acquisition expenses before remitting the balance to the reinsurer.

Issues

  1. Whether fronting and facultative fees are VAT exempt?
  2. What remedies are available to the parties?

Orders

  • Application in respect of Shs. 250,023,977 allowed.
  • Costs awarded to the applicant.

Rules and key headnotes

Value Added Tax — Exempt Supplies — Reinsurance Services
A supply of reinsurance services is an exempt supply under the Value Added Tax Act Second Schedule Paragraph 2(vi), and services that are incidental to the provision of reinsurance services are also exempt from VAT.
Value Added Tax — Incidental Services — Test for Determining Incidental Character
A service is incidental to a principal service if it does not constitute an aim in itself for customers but is a means of better enjoying the principal service supplied, and if it cannot operate independently of the principal service.
Reinsurance — Fronting and Facultative Fees — Nature and Purpose
Fronting fees and facultative commissions are fees retained by an insurance company when it cedes all or part of an insurance risk to a reinsurer, and are used to cover administrative costs and business acquisition expenses incurred in arranging the reinsurance transaction.
Value Added Tax — Single Supply vs Multiple Supplies — Economic Reality Test
Where a transaction comprises a single service from an economic point of view, it should not be artificially split so as not to distort the functioning of the VAT system; the essential features of the transaction must be ascertained to determine whether the taxable person is supplying several distinct principal services or a single service.
Reinsurance — Relationship Between Insurance and Reinsurance Services
Reinsurance services cannot exist without fronting and facultative arrangements by insurance companies; an insurance company must cede a portion or all of the risk for reinsurance to take place, and the services performed by the insurance company are ancillary services that ultimately get consumed or merged with the primary reinsurance service.
Pleadings — Scope of Determination — Matters Not Pleaded
A tribunal can only make a determination in respect of matters properly pleaded and placed before it for determination; a party cannot succeed on a case not set up in its pleadings or raise new issues in submissions without formally amending the pleadings.

Legislation cited (15)

Cases cited (16)

  • British Dominions General Insurance Co Ltd v Duder [1915] 2 KB 400
  • AON Uganda Limited v Uganda Revenue Authority (Originating Summons No. 4 of 2008)
  • Card Protection Plan Ltd v Commissioners of Customs and Excise [2001] UKHL 4
  • William Diamonds Shipping Company v Commissioner General (TAT No. 28 of 2008)
  • Uganda Revenue Authority v Total Uganda Limited (Civil Appeal No. 11 of 2012)
  • Uganda Revenue Authority v Uganda Taxi Operators & Drivers Association (Civil Appeal No. 13 of 2015)
  • William Diamonds Shipping Company v Commissioner General [2008] 4 TLR 167
  • Cable Corporation (U) Limited v Uganda Revenue Authority (TAT No. 6 of 2010)
  • Commissioner of Customs and Excise v Madgett and Baldwin [1998] STC 1189
  • UTODA Entebbe Branch Limited v Uganda Revenue Authority (TAT No. 8 of 2009)
  • Suprasesh General Insurance Services & Brokers Pvt. Ltd v The Commissioner of Service Tax (C.M.A. Nos. 1058 and 1459 of 2009)
  • Lexington Insurance Company v AGF Insurance Limited [2009] UKHL 40
  • Interfreight Forwarders (U) Limited v East African Development Bank (Civil Appeal No. 33 of 1992)
  • Attorney General v Paul K. Ssemogerere and Others (Constitutional Application No. 2 of 2004)
  • Fang Min v Belex Tours & Travel Limited (Civil Appeal No. 06 of 2013 & Civil Appeal No. 01 of 2014)
  • Tororo Cement Co. Ltd v Frokina International Ltd (Civil Appeal No. 2 of 2001)

Full judgment

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

Britam Insurance Company Uganda Limited v Uganda Revenue Authority (TAT Application No 68 of 2018) 2020 UGTAT 14 (26 March 2020)
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.