URA Wins UGX 2.9 Billion Tax Dispute Against Supa Loaf Maker

The Uganda Revenue Authority (URA) has secured a major victory against Mini Bakeries Uganda Limited, the company behind the Supa Loaf brand, after the Tax Appeals Tribunal upheld a tax assessment amounting to UGX 2.9 billion against the bakery company.

The ruling followed a transfer pricing audit covering transactions between Mini Bakeries and its related companies outside Uganda from July 2015 to June 2023. URA challenged several arrangements involving cross-border payments, arguing that some of the transactions did not accurately reflect the economic value created and the risks undertaken by the parties involved.

A major point of contention was a 2% trademark royalty paid by Mini Bakeries to Northgate Holdings Limited (NGHL), a related company based in Mauritius. While Mini Bakeries maintained that the royalty was consistent with international market practices and supported by a Comparable Uncontrolled Price benchmarking study, URA disputed whether the payment was commercially justified.

URA argued that NGHL, despite being the legal owner of the Supa Loaf trademark, did not perform the key activities responsible for creating and maintaining the brand’s value in Uganda. According to the tax authority, Mini Bakeries itself undertook activities including product development, quality control, marketing and distribution, which significantly contributed to the economic value of the brand.

The Tribunal agreed with URA after applying the OECD’s DEMPE principles, which assess the functions, assets and risks associated with the development, enhancement, maintenance, protection and exploitation of intellectual property. The decision reinforces the position that legal ownership of a trademark alone does not necessarily justify receiving income from it when another entity performs the activities that generate its economic value.

URA also successfully defended adjustments to interest rates on unsecured loans extended by Mini Bakeries to related companies in Kenya and Tanzania between 2018 and 2022. The authority argued that the rates failed to adequately account for the risks associated with unsecured cross-border lending, while the Tribunal found that Mini Bakeries had not provided sufficient documentation to support the rates it applied.
The dispute also involved Withholding Tax and Value Added Tax linked to the royalty payments. URA maintained that disallowing the royalty expense for corporate income tax purposes did not extinguish the underlying transaction or Uganda’s right to tax royalty income paid to a non-resident under Ugandan law and the Uganda-Mauritius Double Taxation Agreement. The Tribunal dismissed Mini Bakeries’ application and awarded costs to URA.

URA Commissioner General John R. Musinguzi welcomed the outcome, describing it as evidence of the authority’s growing capacity to scrutinise complex transactions involving related companies. The UGX 2.9 billion victory could have wider implications for multinational and locally based businesses involved in cross-border royalties, intellectual property and intra-group financing, as URA continues tightening scrutiny of arrangements that may reduce taxes payable in Uganda.