Wakilii

Kuku Foods Uganda Limited v Uganda Revenue Authority [2026] UGTAT 31

Tribunal · 2026 Matter Remitted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging capital gains tax assessment arising from share transfer transaction
Decision
Assessment set aside and matter remitted to Respondent for recomputation of tax liability using correct statutory formula and valuation as at 26 February 2020

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the transaction fell within section 78(h) read with section 74(2) of the Income Tax Act, not section 78(g), as the company was not immovable property-rich. The Applicant was the proper taxable person under the statutory deeming fiction. The effective ownership change occurred on 26 February 2020 when shares were registered, not on the agreement date. The assessment was set aside and remitted for recomputation using the correct formula under section 74(2), requiring joint appointment of a valuer to determine market value of assets and liabilities.

Outcome

Assessment set aside and matter remitted to Respondent for recomputation of tax liability using correct statutory formula and valuation as at 26 February 2020

Facts

Kuku Foods Uganda Limited operated a KFC franchise. In 2019, its parent company KFEAH entered into a share purchase agreement with Vivo Energy involving restructuring transactions. KFEAH's 100% shareholding was restructured such that 50% was transferred to a new franchise company KEUL and 50% to Vivo Energy. The transfers were registered with URSB on 26 February 2020 and 20 January 2021 respectively. URA assessed capital gains tax of Shs. 4,235,796,666 under sections 74(2) and 78(h) of the Income Tax Act, treating the ownership change as triggering deemed disposal of all assets. The Applicant challenged the assessment, arguing the transaction fell under section 78(g) and tax liability should fall on the selling shareholders, not the company.

Issues

  1. Whether the Applicant is liable to pay the capital gains tax assessed.
  2. Whether section 78(g) or section 78(h) of the Income Tax Act applies to the transaction.
  3. Whether there is a conflict between section 78(g) and section 78(h) of the Income Tax Act.
  4. What is the effective date of the ownership change for tax purposes.
  5. What is the correct purchase price for computing capital gains tax.
  6. Whether the Applicant or the selling shareholders are the proper taxable persons.

Orders

  • The assessment of Shs. 4,235,796,666 is hereby set aside.
  • The matter is hereby remitted to the Respondent to determine the gain and resultant tax arising from a correct application of sections 78(h) and 74(2) of the Income Tax Act.
  • Both parties are hereby directed to jointly appoint a valuer, who may be the Chief Government Valuer or an independent third-party valuer, to determine the market value of the assets and liabilities of the Applicant as at 26 February 2020.
  • The above exercise should be completed by 30 September 2026.
  • Each party shall bear its own costs.

Rules and key headnotes

Income Tax — Capital Gains Tax — Scope of Section 78(g) — Disposal of Shares in Immovable Property-Rich Companies
Section 78(g) of the Income Tax Act applies to disposals of interests in immovable property or shares in companies whose property consists directly or indirectly principally of interests in immovable property. A company is not 'immovable property-rich' merely because it holds right-of-use assets under IFRS 16 lease accounting standards. The provision targets real-estate-rich companies, not operating franchise businesses whose assets comprise predominantly of leasehold rights.
Income Tax — Capital Gains Tax — Section 78(h) and Section 74(2) — Change of Ownership
Section 78(h) read with section 74(2) of the Income Tax Act creates a statutory deeming fiction whereby a resident entity whose ownership changes by 50% or more is treated as having realised all its assets and liabilities at market value immediately before the change. The tax liability falls on the resident entity itself, not on the disposing shareholders. This provision is residual and captures all direct ownership changes not covered by section 78(g).
Tax Legislation — Deeming Provisions — Effect and Application
A deeming provision in tax legislation creates an artificial tax consequence which Parliament directs must be treated as real for purposes of taxation, irrespective of ordinary commercial form. Where a statute deems a company to have realised assets upon ownership change, the fact that consideration was received by shareholders rather than the company does not displace the operation of the deeming provision.
Income Tax — Capital Gains Tax — Valuation Methodology under Section 74(2)
Section 74(2) of the Income Tax Act prescribes a specific formula for computing gains on deemed disposal: market value of assets minus net assets (total assets minus total liabilities). The provision requires valuation of the entity's assets and liabilities, not enterprise value or future cash flows. Any valuation must focus on determining the market value of assets and liabilities as at the effective date of ownership change, not the purchase price of shares.
Share Transfers — Effective Date of Transfer
Legal title to shares passes upon execution and registration of the relevant transfer instruments in accordance with company law requirements, not upon execution of a share purchase agreement. Where a share purchase agreement contemplates conditions precedent, the effective ownership change occurs when those conditions are fulfilled and the transfer is registered with the Registrar of Companies, not on the date of the agreement.
Tax Legislation — Interpretation of 'Immovable Property' — Ejusdem Generis Rule
Where a statutory definition lists specific items followed by general words, the ejusdem generis rule requires that the general words be restricted to items of the same class or nature as those specifically listed. In section 77 of the Income Tax Act, the words 'any intangible asset' following 'mining right, petroleum right, mining information, or petroleum information' must be interpreted to include only intangible assets of the same class, not all intangible assets including shares.
Income Tax — Legislative History — Purpose of 2018 Amendment
The Income Tax (Amendment) Act 2018 introduced section 78(h) to widen the tax net and capture changes in ownership of service-based businesses that do not rely on heavy immovable asset bases. The amendment sealed avoidance gaps by providing for taxation of income arising from direct ownership changes in companies not covered by section 78(g), reflecting Parliament's intention to keep pace with the evolution of industry, trade and commerce.

Legislation cited (12)

Cases cited (2)

  • AAR Hearth Services Uganda Limited v Uganda Revenue Authority (Civil Suit No. 270 of 2011)
  • Enviroserv (U) Ltd v Uganda Revenue Authority (TAT Application No. 378 of 2021)

Full judgment

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Kuku Foods Uganda Limited v Uganda Revenue Authority 2026 UGTAT 31 (11 May 2026)
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.