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Techno Three Limited v Uganda Revenue Authority [2026] UGTAT 3

Tribunal · 2026 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging tax assessment for overclaimed interest expenses
Decision
Application allowed; assessment set aside; costs awarded to Applicant.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that Section 25(3) of the Income Tax Act, which restricts interest deductions to 30% of EBITDA for members of a group, does not apply where the other group members are non-trading or dormant entities existing only on paper. Applying the purposive rule of statutory interpretation, the Tribunal found that a literal application would lead to an absurd result never contemplated by the Legislature, as the provision was intended to prevent base erosion and profit shifting by multinational companies lending amongst themselves, not to penalise local businesses with dormant related entities. The assessment of Shs. 312,539,675 was set aside.

Outcome

Application allowed; assessment set aside; costs awarded to Applicant.

Facts

Techno Three Uganda Limited, a construction and civil engineering company, was assessed Shs. 312,539,675 by Uganda Revenue Authority for overclaimed interest expenses for the years 2018-2020. URA contended that the Applicant was part of a group of companies with common underlying ownership (Satech Industries Limited, Roma Granite and Marbles Limited, and Naguru Hill Holdings Limited) and thus subject to the 30% interest deduction cap under Section 25(3) of the Income Tax Act. The Applicant argued that the other companies were non-operational, filing nil returns since incorporation, and that there was no economic relationship between them. The interest in question arose from third-party loans from Bank of Baroda and Bank of Africa. Satech Industries was incorporated in 2021 (outside the assessed period) and later struck off the register. Roma Granite and Naguru Holdings were incorporated but never commenced business operations.

Issues

  1. Whether the Applicant is liable to pay the tax assessed arising from the Respondent's restriction of the Applicant's interest deduction.
  2. Whether the Applicant is part of a group of companies within the meaning of Section 25(5)(b) of the Income Tax Act.
  3. Whether Section 25(3) of the Income Tax Act applies to restrict interest deductions where the other members of the group are non-trading or dormant entities.

Orders

  • The assessment of Shs. 312,539,675 is untenable and is hereby set aside.
  • Costs of this application are awarded to the Applicant.

Rules and key headnotes

Income Tax — Interest Deduction Restrictions — Section 25(3) Income Tax Act — Group of Companies — Non-Trading Entities
Section 25(3) of the Income Tax Act, which restricts interest deductions to 30% of EBITDA for taxpayers who are members of a group, does not apply where the other members of the group are non-trading or dormant entities that exist only on paper with no active business operations, significant assets, or employees.
Tax Statutes — Purposive Interpretation — Substance Over Form — Legislative Intent
Where a literal interpretation of a tax statute would lead to an absurd result or unjust tax burden not contemplated by the Legislature, courts should apply the purposive rule of interpretation, examining the statute's overall scheme, objects, and the mischief it was meant to cure, and giving effect to economic substance over legal form.
Income Tax — Interest Deduction Restrictions — Legislative History — OECD BEPS Recommendations
Section 25(3) of the Income Tax Act was enacted in 2018 to replace thin capitalisation rules with a fixed ratio rule capping interest deductions at 30% of EBITDA, following OECD Base Erosion and Profit Shifting (BEPS) recommendations. The provision was intended to prevent multinational companies from abusing interest deductions by lending amongst themselves to reduce chargeable income, though in its current form it also captures local businesses.
Income Tax — Interest Deduction Restrictions — Tax Cohesion — Domestic Lending
Where a local business borrows from a resident lender, whether related or not, there is tax cohesion because the interest deduction claimed by the borrower corresponds directly to interest income that is taxable in the hands of the lender, presenting limited risk of base erosion compared to cross-border lending.
Group of Companies — Common Underlying Ownership — Definition
Under Section 25(5)(b) of the Income Tax Act, a 'group' means persons other than individuals with common underlying ownership. Companies are said to have common underlying ownership when they have common shareholding, regardless of whether all members of the group are actively trading.

Legislation cited (8)

Cases cited (10)

  • Aponye Uganda Limited v Uganda Revenue Authority (TAT Application No. 80 of 2021)
  • Moil Uganda Limited v Uganda Revenue Authority (TAT Application No. 149 of 2023)
  • Mangin v Inland Revenue Commissioner, All ER 179
  • Carver v Duncan, All ER 645
  • Uganda Revenue Authority v Siraje Hassan Kajura (Supreme Court Civil Appeal No. 009 of 2015)
  • Rwenzori Bottling Company Limited v Uganda Revenue Authority (TAT Application No. 21 of 2021)
  • Pepper v Hart 3 WLR 1032
  • Bank of England v Vagliano Brothers, 1891 AC, 107
  • W.T. Ramsay Ltd. v IRC, [1982] AC, 300
  • IRC v McGukian, [1997] 1 WLR 991

Full judgment

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Techno Three Limited v Uganda Revenue Authority 2026 UGTAT 3 (4 February 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.