Landmark Enforcement Victory: URA Wins UGX 2 Billion Tax Dispute Against Supa Loaf Maker

KAMPALA — In a major enforcement triumph for revenue protection and transfer pricing oversight, the Uganda Revenue Authority (URA) has secured a significant victory before the Tax Appeals Tribunal, which upheld a UGX 2,002,240,302 tax assessment against Mini Bakeries Uganda Limited, the manufacturer of the widely known Supa Loaf products.

The high-stakes ruling validates an extensive transfer pricing audit conducted by URA’s specialized audit team covering the period from July 2015 to June 2023. The outcome marks a critical legal precedent for the revenue collector in curbing aggressive profit-shifting strategies by multinational entities operating in the region.

The core of URA’s defense centered on disallowing a 2% trademark royalty payment remitted by Mini Bakeries to Northgate Holdings Limited (NGHL), a related offshore company based in Mauritius. While Mini Bakeries argued that these payments aligned with international market standards under a Comparable Uncontrolled Price benchmarking study, URA’s investigative audit revealed that NGHL was a mere legal holder of the title that performed no operational functions.

Demonstrating sharp enforcement precision, URA established that the economic value of the Supa Loaf brand in Uganda was entirely driven, sustained, and funded by Mini Bakeries itself through localized product development, quality management, marketing, and distribution.

The Tribunal fully endorsed URA’s stance under the OECD’s Development, Enhancement, Maintenance, Protection, and Exploitation (DEMPE) framework, ruling that legal ownership of an asset alone does not entitle an entity to syphon out taxable profits without executing corresponding substance and risk control.

Beyond trademark royalties, URA successfully defended its upward interest rate adjustments on unsecured cross-border loans advanced by Mini Bakeries to sister companies in Kenya and Tanzania between 2018 and 2022. URA challenged the taxpayer’s understated rates, demonstrating that Mini Bakeries failed to evaluate realistic market options or account for the actual risk exposure of non-collateralized intra-group funding. The Tribunal affirmed URA’s adjustment after finding the taxpayer’s supporting documentation inadequate.

Additionally, URA effectively blocked an attempt by Mini Bakeries to reclaim Withholding Tax (WHT) and Value Added Tax (VAT) previously paid on the disallowed royalties. URA successfully argued that adjusting corporate income tax deductibility under Section 116 of the Income Tax Act does not erase the underlying commercial transaction or extinguish Uganda’s statutory right to tax non-resident royalty income under domestic tax laws and the Uganda-Mauritius Double Taxation Agreement.

The Tribunal dismissed Mini Bakeries’ application in its entirety, confirming the UGX 2.02 billion assessment and awarding costs to URA.

This victory stands as a significant milestone for URA’s audit capacity. It sends a decisive message across corporate sectors that URA possesses the regulatory tools, analytical expertise, and legal backing necessary to scrutinize complex intra-group arrangements, close tax-avoidance loopholes, and safeguard Uganda’s tax basey.

CG speaks out

URA Commissioner General John Musinguzi has appealed for compliance instead of resorting to court, saying litigation wastes resources.

He said non-compliance remains a concern, even as URA continues to sensitise the public on the benefits of paying taxes.

He urged taxpayers to meet their fair share so the burden does not fall on a few.