Court of Appeal Upholds URA’s Assessment Against ATC Uganda

The Court of Appeal has ruled in favor of the Uganda Revenue Authority (URA), upholding a withholding tax assessment of UGX 24.2 billion against ATC Uganda Limited in Civil Appeal No. 220 of 2022.

The dispute stems from a 2012 shareholder loan in which ATC Uganda borrowed USD 124.5 million from its Netherlands-based parent company, UTI B.V, to finance the acquisition of MTN Uganda’s communications towers business. The loan, issued at an annual interest rate of 6.56 percent, allowed interest to accrue and be capitalized into the principal during the initial period.

However, ATC did not remit withholding tax on the accrued interest. Following an audit, URA assessed withholding tax liabilities for the period between 2012 and 2017, amounting to UGX 24,232,558,369.

ATC contested the assessment in December 2018, arguing that withholding tax should only be payable upon actual payment of interest, not when it accrues. The company maintained that since no cash payment had been made, the tax obligation had not arisen.

The case was first dismissed by the Tax Appeals Tribunal (TAT), which ruled that the capitalization of interest effectively constituted payment. Subsequent appeals to the High Court also failed, prompting ATC to take the matter to the Court of Appeal.

At the center of the dispute was whether capitalized interest qualifies as “paid” under Section 47(2) of the Income Tax Act, thereby triggering withholding tax.

In the lead judgment, Lady Justice Stella Alibateese held that the act of capitalizing accrued interest into the loan principal conferred value to the lender and amounted to payment for tax purposes. She ruled that withholding tax becomes due at the point of capitalization, regardless of whether cash has physically changed hands.

The court further found no misinterpretation of Sections 47(1) and 47(2) of the Income Tax Act, affirming that converting accrued interest into principal increases the lender’s benefit and therefore attracts withholding tax.

On the question of jurisdiction, the court dismissed ATC’s argument against reliance on foreign financial records. It held that under the Netherlands–Uganda Double Taxation Agreement, Uganda has the authority to tax such interest using its domestic laws. The use of the lender’s financial records in the Netherlands was deemed both lawful and necessary for verification.

Justices Eva K. Luswata and Byaruhanga Jesse Rugyema concurred with the ruling, and the appeal was dismissed with costs awarded to URA.

URA officials welcomed the decision, describing it as a significant affirmation of the authority’s tax assessment processes.

Commissioner for Legal Services and Board Affairs, Catherine Donovan Kyokunda, said the ruling reflects the strength and consistency of URA’s legal position. She revealed that in the 2025/2026 financial year, the authority has handled 386 cases, winning 361 of them—a 93 percent success rate.

URA Commissioner General John Musinguzi Rujoki noted that the case highlights the importance of international cooperation in tax enforcement, particularly through exchange of financial information.

The tax body reiterated its commitment to ensuring compliance by leveraging global partnerships and information-sharing mechanisms to track and assess tax obligations, regardless of where transactions originate.