Court Rules in Favor of URA Against ATC Uganda

URA's Commissioner for Legal Services and Board Affairs, Mrs. Catherine Donovan Kyokunda

The Court of Appeal has upheld URA’s withholding tax assessment of UGX 24,232,558,369 against ATC Uganda Limited in Court of Appeal, Civil Appeal No. 220 of 2022.

ATC Uganda Limited obtained a seven-year loan of USD 124,536,227 carrying interest of 6.56% per annum from its parent company UTI incorporated in the Netherlands in June 2012, to fund the purchase of communication towers business from MTN Uganda. The shareholder loan agreement between ATC and UTI B.V provided that during the initial period interest would accrue and such accrued interest would be added to the principal amount outstanding.

ATC did not pay withholding tax on the accrued interest that was added to the principal. Following an audit, URA issued an assessment for withholding tax for the period 2012 to 2017 on the accrued interest amounting to UGX 24,232,558,369.

On 20th December 2018, ATC objected to the assessment on the basis that withholding tax ought to have been paid at the point when the interest was paid, not when it accrued. Since interest had not been paid, the company argued that the assessment was improper.

ATC then lodged a Tax Appeals Tribunal (TAT) Application No. 17 of 2019. The Tribunal dismissed the application on grounds that the interest was effectively paid at the end of each interest period when it was converted into a loan. ATC later appealed to the High Court, which also dismissed the case, leading to the appeal before the Court of Appeal.

The main issue in contention was whether a taxpayer who capitalizes accrued deferred interest is required to withhold tax at the time of capitalization, or only when actual cash payment is made. Another issue was the interpretation of the term “when paid” under Section 47(2) of the Income Tax Act.

In her lead judgment, Lady Justice Stella Alibateese held that ATC conferred value to the lender each time it capitalized accrued interest into the principal loan. She ruled that even without actual cash flow, a taxpayer is deemed to have paid interest for tax purposes at the point of capitalization, thereby triggering withholding tax.

On the interpretation of “when paid,” the Court found no misinterpretation or misapplication of Sections 47(1) and 47(2) of the Income Tax Act (Cap 340).

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The Court further held that converting accumulated interest into a principal loan increases the lender’s benefit and amounts to payment of interest, thus attracting withholding tax under the law.

ATC also argued that it was erroneous to rely on financial statements of a foreign entity prepared under foreign law to justify tax imposition in Uganda.

However, the Court ruled that under Articles 3(1) and 11(1) of the Netherlands–Uganda Double Taxation Agreement (DTA), Uganda has the authority to tax interest using its domestic laws. It also found that accessing and using the lender’s books of account was appropriate for verification purposes.

The Court concluded that there is no law preventing URA from relying on the lender’s records in the Netherlands to assess withholding tax under Uganda’s Income Tax Act.

Justices of Appeal Eva K. Luswata and Byaruhanga Jesse Rugyema concurred with the lead judgment.

The appeal was dismissed with costs awarded to URA.

The Commissioner for Legal Services and Board Affairs, Mrs. Catherine Donovan Kyokunda, welcomed the ruling, describing it as a testament to the quality of URA’s assessments. She noted that in the 2025/2026 financial year, URA has concluded 386 cases, with 361 resolved in its favor, reflecting a 93% success rate.

Commenting on the ruling, URA Commissioner General John Musinguzi Rujoki said that the judgment highlights URA’s commitment to ensuring all due taxes are identified, assessed, and collected. He emphasized that exchange of information played a key role in accessing the parent company’s financial records in the Netherlands.

URA reaffirmed its commitment to leveraging cooperation and information-sharing mechanisms to ensure taxes are paid where they are due, regardless of where transactions occur.