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How Total Energies Uganda Tried to Evade Shs 14.4bn Fuel Tax
Kampala, Uganda | The Tax Appeals Tribunal has dismissed a challenge by TotalEnergies Marketing Uganda Ltd against a Value Added Tax (VAT) and Withholding Tax (WHT) assessment of Shs 14.4 billion, ruling that the disputed payments made to its Kenyan affiliate constitute taxable services and not exempt disbursements or reimbursements.
The Tribunal found that fees paid by the Ugandan fuel importer to TotalEnergies Marketing Kenya for facilitating the importation and transport of fuel into Uganda were not incidental to the importation of goods, as claimed by the applicant.
Rather, it held that the fees were for distinct services that must be taxed under the VAT and Income Tax Acts.
“The Tribunal determines that these payments are not reimbursements but rather consideration for services rendered by Total Kenya to the applicant, functioning as a principal,” the ruling read in part.
TotalEnergies Uganda had argued that the fees—USD 5.54 per cubic meter of fuel—were not taxable because they either constituted disbursements to third parties such as the Kenya Pipeline Company and clearing agents, or reimbursements incurred on behalf of the applicant.
The company insisted that only a small margin portion of the fee constituted income to Total Kenya.
However, the Tribunal rejected that breakdown, stating that the Service Level Agreement (SLA) between the two companies clearly treated the entire USD 5.54 as a “handling fee” and not as a blend of independent cost components.
Quoting from the contract, the Tribunal said: “The SLA anchors these concepts in a broader fee structure… Clause 20(B) distinguishes handling fees from other charges, reinforcing that the handling fee is a service charge by Total Kenya for the operational, logistical, and administrative work it performs.”
It added that the SLA’s annexes “do not recognize a scenario where the USD 5.54/m3 represents anything other than a handling charge.”
The ruling dismissed the applicant’s attempt to reclassify the charges using evidence presented at trial that was inconsistent with the written agreement. “The Applicant’s attempt to retroactively recast the $5.54/m3 into various sub-components… cannot stand,” the Tribunal concluded, citing the Parol Evidence Rule which bars the use of extrinsic evidence to contradict written contracts.
The ruling casts a spotlight on how multinational conglomerates can use complex cross-border arrangements to create layers of transactions that obscure tax liabilities.
By routing logistics and service payments through regional affiliates and breaking down contractual obligations into reimbursable or disbursed cost components, such corporations often reduce or eliminate their tax exposures in jurisdictions where the actual economic activity takes place.
VAT
On VAT, the Tribunal recently found that the services did not qualify for zero-rating or exemption.
It ruled that Section 12(3) of the VAT Act applies only to services incidental to the import of goods—not to other services like logistics coordination.
The Tribunal also found that services such as clearing and forwarding were not part of the current assessment and that the handling services were “separately invoiced, separately accounted for, and not included in the customs value of the fuel.”
On WHT, the Tribunal concluded that the services gave rise to income sourced in Uganda. It found that the SLA constituted a “Ugandan source service contract” under Section 84 of the Income Tax Act and that the applicant had not met its burden of proving otherwise.
“The Applicant has not discharged that burden. It has not provided satisfactory evidence or pointed to any contractual language within the SLA that would support its claim,” the Tribunal said.
The Tribunal further ruled that the argument on disbursements and reimbursements was a legal argument arising from the original objection and was properly before it. However, it found the claim unconvincing, stating: “The VAT Act and its Regulations do not provide an exception for imported services simply because they are billed as a pass-through charge.”
In conclusion, the Tribunal upheld the Uganda Revenue Authority’s assessments for both VAT and WHT and dismissed the application with costs.
The Tribunal’s strict interpretation of the SLA and refusal to accept after-the-fact breakdowns as evidence underscores growing scrutiny around transfer pricing, disguised service contracts, and the use of intercompany agreements to shift profits across borders.
Tax experts say the case reinforces the need for robust enforcement of tax rules governing intra-group services and imported services, particularly in sectors dominated by vertically integrated global players.
Chimp Reports