Wakilii

Professor Mutebile and 7 Others v Uganda Revenue Authority (Application No TAT 32 of 2018)

Tribunal · [2020] UGTAT 19 · 2020 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging income tax assessment on trustees of a retirement benefits scheme
Decision
Tax assessment against the trustees set aside; tax liability shifted to Bank of Uganda as settlor

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the Bank of Uganda Defined Benefits Scheme qualifies as a settlor trust under section 70(f)(ii) of the Income Tax Act because Bank of Uganda has a reversionary interest in the corpus and income of the trust. Under section 71(5), income of a settlor trust is taxed to the settlor, not the trustees. Since Bank of Uganda is an exempt institution under section 21(1)(s), the tax liability shifts from the trustees to the settlor. The assessment against the trustees was therefore set aside.

Outcome

Tax assessment against the trustees set aside; tax liability shifted to Bank of Uganda as settlor

Facts

The applicants are trustees of the Bank of Uganda Defined Benefits Scheme, a retirement fund established by trust deed in 1968 and licensed under the Uganda Retirement Benefit Regulatory Authority Act 2011. Bank of Uganda contributes 17.1% of employees' salaries monthly while employees contribute 4%. The scheme invests contributions in treasury bills, bonds, and fixed deposits. Bank of Uganda bears the obligation to fund any deficit and is entitled to any surplus upon winding up. Uganda Revenue Authority assessed the scheme for income tax of UGX 106,162,667 for 2010–2016, ruling that the scheme was not a settlor trust and therefore not tax exempt. The applicants sought a private ruling and objected to the assessment, contending that the scheme is a settlor trust whose income should be taxed to Bank of Uganda, an exempt institution under section 21(1)(s) of the Income Tax Act.

Issues

  1. Whether the Bank of Uganda Defined Benefits Scheme is a settlor trust exempt from income tax under the Income Tax Act.
  2. Whether the income of the scheme is taxable to the trustees or to Bank of Uganda as settlor.
  3. Whether the tax exemption applicable to Bank of Uganda extends to income derived by the retirement benefits scheme it established.

Orders

  • Application allowed.
  • Costs awarded to the applicants.

Rules and key headnotes

Settlor Trusts — Definition and Requirements under Income Tax Act
A settlor trust under section 70(f) of the Income Tax Act is established where the settlor has either (i) the power to revoke or alter the trust to acquire a beneficial entitlement in the corpus or income, or (ii) a reversionary interest in the corpus or income. The use of 'or' denotes a disjunctive relationship; satisfaction of either condition is sufficient.
Settlor Trusts — Reversionary Interest
A reversionary interest means a future interest left in the transferor or successor in interest. Where a trust deed provides that surplus funds remaining after payment of all beneficiaries revert to the sponsor upon winding up, the sponsor has a reversionary interest in the corpus and income of the trust, satisfying the requirements of a settlor trust under section 70(f)(ii).
Settlor Trusts — Tax Liability
Under section 71(5) of the Income Tax Act, a settlor trust is not treated as an entity separate from the settlor, and the income of such a trust is taxed to the settlor, not to the trustees or beneficiaries. This provision overrides the general rule in section 8 that trustees are liable for tax on trust income.
Retirement Funds — Taxation as Settlor Trusts
A retirement benefits scheme established by an exempt institution may qualify as a settlor trust where the sponsor has a reversionary interest in the scheme's income and corpus. In such cases, tax liability shifts from the trustees to the settlor under section 71(5), and if the settlor is exempt under section 21(1), the income is not taxable to the trustees.
Anti-Avoidance Provisions — Purpose and Application
Sections 70 and 71 of the Income Tax Act are anti-tax avoidance mechanisms targeting persons who create trusts but remain beneficial owners of the settlements. The provisions are designed to prevent settlors from avoiding tax by vesting property in trusts over which they retain control or reversionary interests.
Disjunctive Statutory Language — Use of 'Or'
The use of the word 'or' in a statute denotes a disjunctive rather than conjunctive relationship and refers to a choice or alternative between two or more things. Where a statute provides alternative conditions using 'or', satisfaction of any one condition is sufficient.

Legislation cited (27)

Cases cited (6)

  • Intertake Testing Services International Ltd v Uganda Revenue Authority (Appeal No. 5 of 2002)
  • Dominion Taxi Cab Association v MNR [1954] SCR 82
  • Placer Dome Inc. v Canada [1992] 2 CTC 98
  • Auto Owners Insurance Company v Stenberg Brothers Inc. 227 Mich App 45 (1997)
  • Rogge and others [2012] TC 01747
  • Dunsby [2020] TC 07755

Full judgment

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

Professor Mutebile and 7 Others v Uganda Revenue Authority (Application No TAT 32 of 2018) 2020 UGTAT 19 (30 October 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.