10 July 2026 Uganda Tax Appeals Tribunal rejects tax authority's treatment of differences between VAT and income tax amounts
The Tax Appeals Tribunal at Kampala delivered a taxpayer-favorable ruling on 29 May 2026 in Ericsson AB v. Uganda Revenue Authority, Application No. 060 of 2020, holding that the tax authority (URA) could not treat differences between Ericsson's VAT and income tax amounts as undeclared taxable sales without properly accounting for timing differences and reconciliations. As a result, parts of additional assessments the URA had imposed were deemed excessive and had to be reduced. The Tribunal also found that the revised tax amount should reflect agreed reconciliations and applicable legal principles. The decision is particularly relevant to businesses undertaking long-term construction and service contracts, in which revenue may be recognized progressively for accounting and income tax purposes but value-added tax (VAT) only becomes due upon invoice issuance, receipt of payment or completion of the service, whichever occurs first. The Tribunal confirmed that differences between income tax revenue and VAT sales arising from these timing rules do not, by themselves, constitute evidence of undeclared taxable supplies.
The Tribunal also considered whether the URA could abandon its own objection decision during mediation. Ruling for Ericsson AB (the Applicant), the Tribunal and fully vacated the income tax assessment, reduced the principal VAT liability from 9,718,600,521 Ugandan shillings (UGX) to UGX 2,580,634,340, capped interest on the liability and waived the same interest. The Tribunal also ruled that the URA was not entitled to collect the full disputed tax by agency notice while the taxpayer was still within its 45-day objection window. The URA was ordered to refund UGX 7,707,506,228 plus a 30% deposit paid on the asserted tax liability, plus interest at 2% per month from collection date until date of refund. The Tribunal also ordered the URA to pay costs of the Application (i.e., filing costs). The Applicant is the Ugandan branch of Ericsson AB incorporated in Sweden. The entity engages in long-term telecommunication services, which include system integration, installation, testing, maintenance, repairs and upgrades, managed services and similar services to mobile and fixed network operators in Uganda. After examining the Applicant's returns for 2013—2017, the URA issued VAT and income tax assessments of UGX 9,718,600,521 and UGX 569,540,049 respectively, totaling UGX 10,288,140,569 in principal tax, interest and penalties. According to the URA, the Applicant's aggregated monthly VAT sales for tax years 2013, 2014, 2015 and 2017 were less than the annual sales reflected on its corresponding income tax returns, and therefore an assessment was necessary. The URA assessed income tax based on the difference between opening net assets and closing net assets of current and preceding years. The Applicant explained that the VAT issue was due to difference in revenue recognition principles for income tax and VAT, providing evidence and citing sections of the law. For income tax purposes, the Applicant explained that although there was difference between the opening and closing net assets shown on their return, the difference does not exist in the company's audited financials, and they should be allowed to amend the return because the return was filed before the audited financials were finalized. The legality of the URA's enforcement action was a central issue in the dispute. Although Ericsson was still within the statutory 45-day period for lodging an objection, the URA issued an agency notice to the taxpayer's bank and recovered the disputed tax before the objection process had been completed. Ericsson had already paid the mandatory 30% deposit on the disputed tax, and the URA subsequently recovered the balance subsequently through the agency notice. The Respondent issued an agency notice on 20 June 2019 on the Applicant's banker several days before the due date for filing an objection, requiring a payment of UGX 10,279,140,569, despite that the Applicant's right to object was pending. The Applicant subsequently paid UGX 3,051,259,424, which was 30% of the tax in dispute. On 25 June 2019, the Applicant's banker complied with the agency notice and remitted UGX 7,227,681,145 to the Respondent, accounting for the balance of 70% of the tax in dispute. The URA disallowed the Applicant's entire objection, and the Applicant filed the matter at the Tax Appeals Tribunal for review. The parties failed to agree at mediation and the matter was scheduled for hearing. During hearing, the Tribunal ordered the parties to carry out further reconciliations and file a report. During further reconciliations, the total VAT unreconciled variance for all the years under review was reduced from UGX 35,529,478,581 to UGX 21,429,037,787, and the VAT principal liability and corresponding interest arising from the UGX 14,100,440,794 variance was vacated. The Respondent increased the Applicant's VAT liability from UGX 9,718,600,520 to UGX 9,881,236,584, which resulted in principal tax of UGX 3,857,226,802, which was reduced from the initial assessment of UGX 5,419,750,970. The Respondent also computed an interest amount of UGX 6,024,009,782 during the reconciliation.
The parties resolved part of Issue one and the entirety of Issue four before the Tribunal issued its ruling. The URA agreed to vacate the assessments relating to these issues. On Issue 1, the Applicant asserted that the variance should be treated as VAT inclusive, yielding a lower liability (UGX 2.58b), and that the Respondent's VAT-exclusive treatment was unlawful and procedurally improper. The variance arose from timing and foreign-exchange differences, not actual taxable sales. Because no invoices supported the alleged sales, the variance should be treated as VAT-inclusive under sections 21(3), 24(2) and Schedule 5 of the VAT Act (the 18/118 tax fraction), not VAT-exclusive, the Applicant contended. The URA's audit and objection teams had used the inclusive formula; switching to exclusive at mediation amounted to a fresh, unappealable assessment. The Applicant argued that the interest should be capped at the principal tax under section 40 of the VAT Act, and any interest outstanding as of 30 June 2020 should have been waived under section 46 of the Tax Procedures Code Act (TPCA). The Applicant stated that had the URA not collected the tax prior to 30 June 2020, the interest and penalties would have been outstanding as of that date and waived. The Applicant argued that that URA illegally collected the tax through an agency notice issued within the 45-day period within which the Applicant had a right to object. The Applicant further argued that the interest on income tax was also waived by Section 46 of the TPCA. The UGX 694,964,719 interest on "unbilled revenue" was a new interest charge, not found in the original assessment. The Applicant also argued that this interest arose because the Applicant recognizes income for income tax purposes based on percentage-of-completion method but does not recognize VAT at the same time because invoices have not been issued, performance is not complete and payment for the services has not been made.
The Applicant argued that the URA issued agency notices on 20 June 2019, within the 45-day objection window, and collected the full tax. This was unlawful, the Applicant contended, relying on Section 26(1) of the Tax Procedure Code Act and relevant case law. Revenue in audited financials and income tax returns is stated net of VAT (per International Accounting Standards 18 and generally accepted accounting principles (GAAP)), so comparing income tax sales against VAT returns was appropriate and confirmed an under-declaration. The variance was therefore correctly treated as VAT-exclusive, with VAT added on top, the Respondent asserted. The Responded contended: it was not estopped from correcting an erroneous approach; the objection decision had been based on incomplete evidence; and the URA reserved the right to make changes at mediation. The URA argued that interest could not be capped while the case was ongoing before the Tribunal, and the principal remained in dispute. The URA also argued that during mediation, they discovered that the Applicant made late declarations that resulted in the interest. The URA further argued that the waiver of interest under Section 46 of the Tax Procedure Code Act would not apply in this case because all the money had been collected through an Agency Notice by 30 June 2020 and there was no tax outstanding as of 30June 2020.
The URA argued that the agency notices were lawful under section 25(7) of the TPCA, because the due date for payment in the assessment notice had already lapsed. The Tribunal recognized an agreement that the parties had entered into revising the variance between VAT and income tax from UGX 3,857,226,802 to UGX 3,045,148,521, which resolved the issue of how the variance between VAT and income tax should be treated. The Tribunal cited section 14 of the Tax Appeals Tribunal (TAT) Act and stated that the Tribunal reviews decisions made under a taxing Act, in this case the "objection decision." The URA's revised position at mediation was not a decision under a taxing Act, as it was not part of the objection decision before the Tribunal. On issuing its objection decision, the URA became functus officio (i.e., once it issued a final decision, it no longer had authority to revisit or alter the decision). If the URA discovers new information, the correct course is to raise a fresh additional assessment under section 26 of the TPCA, which restores the taxpayer's right to object, rather than to adjust figures informally at mediation. The Tribunal stated that because there were no invoices evidencing actual supplies, the Tribunal treated the variance as deemed or notional sales, which section 21(3) of the VAT Act requires to be computed VAT-inclusive (the 18/118 tax fraction). The Tribunal was critical of the URA for assessing on assumption rather than verifying the variance with the taxpayer's known, VAT-registered customers through circularization. The Tribunal agreed with the Applicant that the correct principal VAT was therefore UGX 2,580,634,340, and not the VAT-exclusive figure of UGX 3,045,148,521 that the URA had adopted. The Tribunal capped the interest at the principal tax under section 40 of the VAT Act, observing that capping is a straightforward computation rather than a reason for delay. Interest outstanding as of 30 June 2020 was waived under section 46 of the TPCA. The UGX 694,964,719 in interest charged on unbilled revenue was vacated, because the the had not established that the time of supply for VAT had been triggered.
The Tribunal held that the URA acted unlawfully when it used agency notices to recover tax from Ericsson's bank accounts before Ericsson had finished exercising its right to object to the assessment. Although the URA argued that the tax had already fallen due for payment, the Tribunal emphasized that a taxpayer still has a legal right to challenge an assessment within the statutory 45-day objection period. The URA's decision to recover the disputed tax from Ericsson's bank accounts during that period effectively denied the taxpayer a fair opportunity to complete the objection process, the Tribunal concluded. Because the tax was collected before the dispute-resolution process had run its course, and because a substantial part of the assessment was later found to not be payable, the Tribunal ordered the URA to refund the excess amounts recovered. The Tribunal further stressed that a refund of tax collected through an unlawful enforcement process is not a favor granted by the URA, but a legal right of the taxpayer. The Tribunal held that the URA acted unlawfully by enforcing collection through an agency notice while Ericsson was still within the statutory 45-day objection period. Because a substantial part of the assessment was subsequently found to not be payable, the Tribunal ordered the URA to refund the excess amounts recovered and emphasized that such refunds are a legal entitlement of the taxpayer
The ruling reinforces a functus officio discipline on the revenue authority and signals the Tribunal's growing frustration with prolonged, strategically fought disputes, as evidenced by its remarking that tax disputes used as "a risk management strategy" mean "everyone loses in the long run." * This alert is a summary prepared for general information only and does not constitute legal or tax advice. Specific matters should be assessed on their own facts against the current statutory provisions. EY member firms do not practice law where not permitted by local law or regulation. Ernst & Young LLP (US) does not practice law or offer legal advice.
Document ID: 2026-1467 | ||||||
