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Rwenzori Bottling Company Limited v Uganda Revenue Authority (Application 21 of 2021)

Tribunal · [2022] UGTAT 26 · 2022 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application to the Tax Appeals Tribunal challenging an additional income tax assessment arising from disallowed interest expense deductions
Decision
Application allowed; additional tax assessment of Shs. 76,159,455 set aside

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that when computing the 30% limit on deductible interest under Section 25(3) of the Income Tax Act, depreciation and amortization must be added back to chargeable income as expressly required by Section 25(5). The plain language of the statute requires that TEBITDA be the sum of gross income less allowable deductions (except interest), plus depreciation, plus amortization. The respondent's interpretation that depreciation and amortization should not be added back because they are already reflected in chargeable income was rejected as contrary to the clear statutory language. The additional assessment was set aside.

Outcome

Application allowed; additional tax assessment of Shs. 76,159,455 set aside

Facts

Rwenzori Bottling Company Limited, a member of the Coca Cola Beverages African group, produces bottled water. For the fiscal year ending 31 December 2019, it incurred interest expenses of Shs. 7,922,420,000 and claimed a deduction on the basis that this was less than 30% of its Tax Earnings Before Interest, Tax, Depreciation and Amortization (TEBITDA) of Shs. 42,034,830,379. The applicant computed TEBITDA by taking chargeable income of Shs. 17,639,429,990, adding back interest expense of Shs. 7,922,420,000, and adding back depreciation and amortization of Shs. 16,472,980,389. On 4 December 2020, Uganda Revenue Authority rejected the deduction, alleging the applicant overstated its interest expense by Shs. 253,864,847 by incorrectly computing TEBITDA. URA computed TEBITDA as Shs. 25,561,850,509 by excluding depreciation and amortization from the calculation, and issued an additional assessment of Shs. 76,159,455. The applicant objected, arguing that Section 25(5) of the Income Tax Act expressly requires depreciation and amortization to be added back. URA maintained that adding back depreciation and amortization constitutes double counting because these items are already reflected in chargeable income.

Issues

  1. Whether the applicant is liable to pay the additional tax assessed of Shs. 76,159,455.
  2. Whether depreciation and amortization should be added back when computing Tax Earnings Before Interest, Tax, Depreciation and Amortization (TEBITDA) under Section 25(5) of the Income Tax Act.
  3. What remedies are available to the parties.

Orders

  • Application allowed.
  • Additional assessment of Shs. 76,159,455 set aside.
  • Costs awarded to the applicant.

Rules and key headnotes

Income Tax — Interest Deduction Limitation — Computation of TEBITDA — Statutory Interpretation
When computing Tax Earnings Before Interest, Tax, Depreciation and Amortization (TEBITDA) under Section 25(5) of the Income Tax Act for purposes of the 30% interest deduction limitation, depreciation and amortization must be added back to chargeable income as expressly required by the statute, notwithstanding that these items are already reflected in the computation of chargeable income.
Taxation Statutes — Plain Meaning Rule — Literal Interpretation
In interpreting taxation statutes, words must be given their ordinary meaning and one must look merely at what is clearly said. There is no room for intendment, nothing is to be read in, and nothing is to be implied. The court cannot subtract or read out from the Act what is already in.
Income Tax — Fixed Ratio Rule — Interest Deduction — OECD BEPS Action 4
The 2018 amendment to Section 25 of the Income Tax Act introduced a fixed ratio rule limiting interest deductions to 30% of TEBITDA, replacing the previous thin capitalization rule based on debt-to-equity ratios. The fixed ratio rule is derived from OECD Base Erosion and Profit Shifting (BEPS) Action 4 recommendations and is designed to prevent multinational enterprises from using interest deductions as a tool to erode tax bases.
Income Tax — Interest Deduction — Carry Forward of Excess Interest
Under Section 25(4) of the Income Tax Act, a taxpayer whose interest expense exceeds 30% of TEBITDA may carry forward the excess interest for not more than three years, and the excess interest shall be treated as incurred during the next year of income.

Legislation cited (12)

Cases cited (3)

  • Mangin v Inland Revenue Commissioner [1971] AC 738
  • Cape Brandy Syndicate v IRC [1921] 1 KB 64
  • Uganda Revenue Authority v Siraie Hassan Kajura (Supreme Court Civil Appeal No. 9 of 2015)

Full judgment

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

Rwenzori Bottling Company Limited v Uganda Revenue Authority (Application 21 of 2021) 2022 UGTAT 26 (25 October 2022)
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.