The Tax Appeals Tribunal of Uganda in its recent ruling in Aponye Uganda Limited v Uganda Revenue Authority (Application TAT 80, 2021) [2023] UGTAT 6 (13 October 2023) has held that individuals can be part of a group of companies and therefore obliged to claim interest expenses up to only 30% of the tax earnings before interest, tax, depreciation and amortization. (EBITDA)
Aponye (U) Ltd (the Applicant), as an individual company, in its tax returns claimed interest expenses of 3,927,919,280UGX in respect of a debt obligation incurred in the production of income included in gross income which exceeded 30% of the tax earnings before interest, tax, depreciation and amortization (EBITDA). The Respondent conducted an examination of the applicant’s income tax returns for 2019 and issued an additional assessment of 641,012,201UGX in 2021, in which only 30% of the interest claimed by the applicant was allowed as a deduction.
The basis of the assessment and issue in dispute was that Aponye (U) Ltd, Quality Bags (U) Ltd, Aponye Transporters Ltd and Aponye House Ltd have a common underlying ownership as part of a group of companies under Section 25(5)(b) of the ITA, therefore Aponye (U) Ltd could only claim 30% of the interest claimed.
The ruling of the Tribunal:
The Tribunal dismissed the Application with costs and held that an individual can be part of a group of companies within the meaning of S.25(3) of the ITA. Individual shareholders may hold interest in a company directly / indirectly through three different entities; interposed companies, partnerships, or trusts.
By Isabella Pedun