Wakilii

Jacobsen Uganda v Uganda Revenue Authority (Taxation Application No 11 of 2016)

Tribunal · [2018] UGTAT 5 · 2018 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging withholding tax and VAT assessments by Uganda Revenue Authority
Decision
Application allowed with costs to the applicant

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held by majority that reimbursable expenses for air tickets, hotel accommodation, per diem and travel costs paid by the applicant to JELCO, a non-resident company, do not constitute a management charge under section 83 of the Income Tax Act and are therefore not subject to withholding tax. The Tribunal further held that VAT should not be charged on these reimbursable expenses as the services were provided by third parties who had already paid or were liable to pay VAT. Application allowed with costs. One member dissented, holding that section 87(1)(b) prohibits deductions for expenses incurred by non-residents in deriving income, and therefore the gross amount subject to withholding tax includes both the management fee and reimbursable expenses.

Outcome

Application allowed with costs to the applicant

Facts

The applicant, a Ugandan company generating electricity, entered into a three-year management and services agreement with JELCO, a Norwegian company and majority shareholder. Under the agreement, JELCO provided technical and support services for a monthly fee of Euros 35,000, plus Euros 15,000 per month for travel, accommodation and per diem expenses for JELCO staff travelling to Uganda. JELCO invoiced the applicant for these services and expenses. In 2016, Uganda Revenue Authority audited the applicant and assessed withholding tax of Shs. 187,500,240 and VAT of Shs. 275,520,042 on the total payments including the reimbursable expenses. The applicant objected, arguing that the reimbursable expenses of Euros 437,206.61 paid over three years were not income to JELCO but refunds of costs incurred, and should not attract withholding tax or VAT. The respondent contended that the entire payment constituted income sourced in Uganda and was subject to 15% withholding tax on the gross amount under section 83 of the Income Tax Act, with no deductions permitted under section 87(1)(b).

Issues

  1. Whether the applicant is liable to pay Withholding Tax and Value Added Tax on the Euros 479,615 purported expenses.
  2. What are the remedies available?

Orders

  • Application allowed with costs.
  • Respondent not justified in charging withholding tax on reimbursement payments to JELCO.
  • Respondent not justified in charging VAT on the applicant.

Rules and key headnotes

Withholding Tax — Management Charges — Reimbursable Expenses — Distinction from Income
Reimbursable expenses paid to a non-resident company for air tickets, hotel accommodation, per diem and travel costs incurred in providing management services do not constitute a management charge under section 83(1) of the Income Tax Act and are therefore not subject to withholding tax, as they are expenditures paid to third parties and not income derived by the service provider.
Taxing Statutes — Literal Rule — Strict Construction
In interpreting taxing statutes, one must look at what is clearly said with no room for intendment or implication; nothing is to be read in and nothing is to be implied, and one can only look fairly at the language used.
Income Tax — Management Charges — Definition and Scope
A management charge under section 83 of the Income Tax Act is a claim or fee for management services; expenditure incurred in the provision of management services and paid to third parties does not constitute a management charge even if reimbursed by the client.
Value Added Tax — Reimbursable Expenses — Double Taxation
Where third parties such as airlines and hotels have already charged VAT on services provided, requiring the recipient of reimbursement for those expenses to pay VAT again would constitute double taxation and is not justified under the Value Added Tax Act.
Ambiguity in Tax Legislation — Construction in Favour of Taxpayer
Where there is doubt or ambiguity in the interpretation of conflicting sections of the Income Tax Act, the taxpayer takes the benefit of the doubt, as for a tax to be imposed it must be clear.
Tax Planning — Substance over Form — Legitimate Arrangement of Affairs
A taxpayer is entitled to arrange his affairs so as not to attract taxes imposed by law, and may legitimately claim the advantage of any expressed terms or omissions in taxing Acts; the substance of a transaction rather than its form must be regarded in determining tax implications.
Withholding Tax — Non-Resident Income — Deductions — Section 87(1)(b) Income Tax Act (Dissenting Opinion)
Section 87(1)(b) of the Income Tax Act expressly prohibits any deduction for expenditure or losses incurred by a non-resident person in deriving income under section 83; therefore the gross amount to which the 15% withholding tax rate applies includes both the management fee and all expenses incurred in deriving that fee, including travel, accommodation and per diem costs.

Legislation cited (20)

Cases cited (9)

  • Swissgarde (U) Ltd v Uganda Revenue Authority (Tax Application No. 2 of 2009)
  • Bank of Baroda v Uganda Revenue Authority (Civil Appeal No. 71 of 2013)
  • Cape Brandy Syndicate v I.R. Comrs
  • Registered Trustees of Kampala Institute v Departed Asians Property Custodian Board (SCCA No. 21 of 1993)
  • IRC V Fisher's Executors (1926) AC 395
  • Dominion Taxi Cab Association V MNR [1954] SCR 82
  • Placer Dome Inc. V Canada [1992] 2 CTC 98 at 109
  • Stanbic Bank Uganda Ltd and Others v Uganda Revenue Authority (HCCA No. 170 of 2007)
  • Farrar's Estate v CIR

Full judgment

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

Jacobsen Uganda v Uganda Revenue Authority (Taxation Application No 11 of 2016) 2018 UGTAT 5 (23 July 2018)
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.