Uganda vs Kuku Foods Uganda Limited, May 2026, Tax Appeals Tribunal, Case No TAT 54 of 2025
Table of Contents
Case Information
Court: Tax Appeals Tribunal at Kampala
Case number: TAT Application No. 54 of 2025
Citation: Kuku Foods Uganda Limited v Uganda Revenue Authority, TAT Application No. 54 of 2025
Applicant: Kuku Foods Uganda Limited
Respondent: Uganda Revenue Authority
Jurisdiction: Uganda
Judgment date: 11 May 2026
Judgment Summary
This ruling concerned a capital gains tax assessment of Shs. 4,235,796,666 issued by the Uganda Revenue Authority (URA) against Kuku Foods Uganda Limited (the Applicant) arising from a change in the Applicant's ownership structure [para 1].
The Tribunal was constituted by Hon. Crystal Kabajwara (Chairperson), Hon. Proscovia Rebecca Nambi, and Hon. Stella Nyapendi Chombo [cover page].
The Tribunal found that the transaction fell within section 78(h) read together with section 74(2) of the Income Tax Act (ITA), and not within section 78(g). It further found that the Applicant was the proper taxable person, that the effective ownership change occurred on 26 February 2020, and that the existing assessment was wrongly computed. The assessment of Shs. 4,235,796,666 was set aside and the matter was remitted to the URA to recompute the tax using the formula prescribed by section 74(2), with both parties jointly directed to appoint a valuer to determine the market value of the Applicant's assets and liabilities as at 26 February 2020 [paras 140, 141].
Background
The Applicant operates as a fast-food restaurant with a core menu of fried chicken and fries, trading under the KFC brand name. It was incorporated in Uganda in 2011 and commenced business in 2013 [para 2].
At incorporation, the shareholders were Kuku Foods East Africa Holdings Limited (KFEAH), holding 999 shares, and Turnstone Trustees (New Zealand) Limited as Trustee of the Legacy Trust, holding 1 share, out of a share capital of Shs. 1,000,000 divided into 1,000 ordinary shares of Shs. 1,000 each [para 2].
On 19 June 2019, Vivo Energy Investments B.V. (Vivo Energy), KFEAH, and Gutsche Investment and Management Company Proprietary Limited (Gutsche Investment) entered into a share purchase and subscription agreement in respect of shares in Kuku Foods Kenya, Rwanda, and Uganda [para 4].
The agreement set out conditions precedent that had to be fulfilled before shares could transfer from KFEAH to Vivo Energy. These included: transfer of Turnstone Trustees' single share to FNB International Trustees as Trustees of the Paradise Trust; incorporation of Kuku Establishments Uganda Limited (KEUL); increase of the Applicant's shares from 1,000 to 30,395,674 ordinary shares; issuance of new shares to KFEAH offset against a shareholder loan of Shs. 21,816,911,414.64 and an equity investment of Shs. 8,577,762,800; transfer of 15,197,836 shares from KFEAH to KEUL; transfer of FNB International Trustees' one share to KEUL for Shs. 1,000; and transfer of KFEAH's remaining 15,197,837 shares to Vivo Energy for a consideration of Shs. 9,539,818,850 [para 5].
The transfer from KFEAH to Vivo Energy was registered with the Uganda Registration Services Bureau (URSB). Following completion, KEUL and Vivo Energy each held 50% of the Applicant [paras 5(viii), 5(ix)].
The URA reviewed the transaction and concluded that a capital gains tax was due. It issued assessments totalling Shs. 4,235,796,666 on the basis that the transactions resulted in a change in the Applicant's ownership, thereby triggering sections 74(2) and 78(h) of the Income Tax Act [para 5(x)].
Core Dispute
Two principal questions arose for determination: first, whether the Applicant was liable to pay the capital gains tax assessed; and second, what remedies were available to the parties [para 6].
Within those questions, four subsidiary issues were contested.
The first issue was which statutory provision applied: the Applicant argued the transaction was a direct share disposal taxable under section 78(g) of the ITA, which would place the tax liability on KFEAH and Turnstone as the selling shareholders, while the URA argued that section 78(h) read with section 74(2) applied, placing the liability on the Applicant as the resident entity whose ownership changed [paras 79, 85, 86].
The second issue was the identity of the correct taxable person: the Applicant contended it derived no income and that only its shareholders did, whereas the URA maintained Parliament had enacted section 74(2) to impose liability on the Ugandan entity whose ownership changes by 50% or more [paras 31, 63, 67].
The third issue was the effective date of the ownership change: the Applicant argued the transfer was effective on 20 January 2021, being the date of URSB registration, while the URA argued the effective date was 19 June 2019, when the Share Purchase and Subscription Agreement was executed, and alternatively used financial statements for the year ending 28 February 2019 [paras 15, 17, 48, 132].
The fourth issue was the correct purchase price and valuation methodology: the Applicant contended the actual purchase price was USD 2,604,059, while the URA used a base purchase price of USD 4,072,124 as the proxy for market value. The Applicant also challenged the URA's rejection of its market-based valuation report in favour of an income-based approach [paras 18, 42, 55, 70, 73].
Court Findings
On the applicable statutory provision, the Tribunal held that section 78 of the ITA is not a taxing provision but a sourcing rule [para 81(i)]. It analysed section 78(g) and section 78(h) sequentially, treating section 78(h) as residual to section 78(g) [para 89].
On section 78(g), the Tribunal held that the provision applies only to disposals of direct interests in immovable property or to disposals of shares in companies that are "immovable property rich", meaning their assets consist principally of immovable property such as land, buildings, mining rights, petroleum rights, and related intangible assets [para 93]. The Tribunal applied the ejusdem generis rule to restrict the words "any intangible asset" in the definition of immovable property in section 77 to items of the same class as mining rights, petroleum rights, mining information, or petroleum information [para 94]. It also noted that section 83 of the Companies Act provides that shares are movable property [para 95].
The Tribunal rejected the Applicant's argument that its right-of-use assets under IFRS 16 constituted immovable property within section 78(g), holding that such rights, while intangible, are not the kind of intangible assets envisaged by section 78(g) under the ejusdem generis rule [paras 99, 100]. Based on the Applicant's audited financial statements for the period ended 29 February 2020, the Tribunal found that out of a total asset base of Shs. 49 billion, only Shs. 7.9 billion related to immovable assets (leasehold improvements), while Shs. 35.6 billion related to right-of-use assets, representing 72.6% of the Applicant's interests [para 97]. The Tribunal concluded that the Applicant was not immovable property rich and that the transaction fell outside section 78(g) [para 101].
On section 78(h), the Tribunal held that this provision is residual and captures all changes in ownership of 50% or more, whether direct or indirect, that fall outside section 78(g) [para 105]. It found there was no conflict between sections 78(g) and 78(h): the former addresses disposals of immovable property interests or shares in immovable property-rich companies, while the latter is a catch-all for indirect disposals and direct disposals that fall outside 78(g) [para 105]. The Tribunal noted that before the Income Tax (Amendment) Act of 2018 introduced section 78(h), disposal of shares in companies that were not immovable property-rich escaped the tax net; section 78(h) cured that gap [paras 106, 109].
On the correct taxable person, the Tribunal agreed with the URA. Section 74(2) creates a statutory deeming fiction whereby the resident entity itself is treated as having realised and reacquired all its assets and liabilities immediately before the ownership change, creating a separate tax event distinct from the shareholder's disposal of shares [para 114]. The tax liability arises not on account of the sale and consideration received by the shareholders, but because Parliament deemed the company to have realised its underlying assets at market value upon the qualifying ownership change [para 115]. The Tribunal held that the Applicant's argument that it derived no income overlooked the legal effect of deeming provisions in tax legislation [para 117]. The fact that consideration was received by KFEAH rather than the Applicant did not displace the operation of section 74(2) [para 119].
On the effective date of the ownership change, the Tribunal held that the effective date was 26 February 2020 and not 19 June 2019 [para 138]. It reasoned that execution of the Share Purchase and Subscription Agreement on 19 June 2019 did not immediately effect legal transfer of shares, as the agreement contemplated several conditions precedent that had to be fulfilled first, leaving the transaction executory and incomplete [para 136]. The Tribunal found that the first effective transfer resulting in a 50% ownership change occurred pursuant to the resolution dated 13 February 2020, with the share transfer form signed on 18 February 2026 (the judgment appears to record this date), registered with the URSB on 26 February 2020, and corresponding stamp duty paid [para 137]. Legal ownership passed once the share transfer instruments were executed, stamp duty was paid, and the transfer was registered [para 137].
On valuation methodology and the correct figures, the Tribunal held that section 74(2) is prescriptive and requires valuation of the Applicant's assets and liabilities at market value; it does not refer to enterprise value, future earnings, or discounted cash flow valuation [paras 125, 131]. It rejected the URA's use of the base purchase price of USD 4,072,124 or the adjusted purchase price of USD 2,604,059 as proxies for market value under section 74(2), finding that neither approach follows the formula prescribed by the provision [para 129]. It also found that the provision does not mention enterprise value, which measures a company's total value by combining market capitalisation with debt and subtracting cash, and is different from net assets [para 126]. Any valuation must focus on the market value of each asset and liability of the Applicant as at the effective date of the ownership change [paras 131, 132]. The Tribunal found that the Applicant's market-based valuation report, focused on asset and liability values, was more consistent with the statutory requirement than the URA's income-based approach, though the URA was not bound by the Applicant's report and ought to have commissioned its own [para 128].
Outcome
The Tribunal made the following orders [para 141]:
(i) The assessment of Shs. 4,235,796,666 is set aside.
(ii) The matter is remitted to the URA to determine the gain and resultant tax arising from a correct application of sections 78(h) and 74(2) of the ITA.
(iii) Both parties are directed to jointly appoint a valuer, who may be the Chief Government Valuer or an independent third-party valuer, to determine the market value of the Applicant's assets and liabilities as at 26 February 2020.
(iv) The valuation exercise is to be completed by 30 September 2026.
(v) Each party shall bear its own costs, given that work remains to be done in recomputing the liability.
TP Method Highlighted
The Tribunal held that the correct method for computing the tax under section 74(2) of the ITA requires determining the market value of each of the Applicant's assets and liabilities as at the effective date of the ownership change, being 26 February 2020 [paras 131, 132, 138].
The formula, as set out in the Enviroserv (U) Ltd v Uganda Revenue Authority, TAT Application No. 378 of 2024 and reproduced in this judgment, is: Realisation proceeds at market value (A), less Total Assets (B), less Total Liabilities (C), giving a Capital gain or loss (D = A minus (B minus C)), with tax payable at 30% of D [para 121].
For tax depreciable assets, B is the tax written down value; for non-tax depreciable assets, B is the net book value. C is the total liabilities as shown in the statement of financial position. A represents the deemed proceeds from realisation of the Applicant's assets at market value, as evidenced by a valuation report [para 121].
The Tribunal rejected the URA's use of the base purchase price of USD 4,072,124 as a proxy for market value, finding it unsupported by statute or evidence and inconsistent with the contractual figures [paras 129, 130]. It equally rejected the adjusted purchase price of USD 2,604,059 for the same reason [para 129]. The Applicant's market-based valuation report dated as at 29 February 2020 was found to be more consistent with the statutory formula, though the Tribunal noted that the URA was at liberty to commission its own report, provided any valuation was conducted in line with section 74(2) [para 128].
Major Issues / Areas of Contention
- Whether the transaction was taxable under section 78(g) of the ITA, which would have made KFEAH and Turnstone Trustees the taxable persons as disposing shareholders [paras 79, 85, 102].
- Whether the transaction was taxable under section 78(h) read with section 74(2) of the ITA, placing the tax liability on the Applicant as the resident entity whose ownership changed by 50% or more [paras 79, 86, 116].
- Whether there was a conflict between sections 78(g) and 78(h) of the ITA that should be resolved in the taxpayer's favour [para 104].
- Whether the Applicant qualified as an immovable property-rich company for the purposes of section 78(g), in particular whether right-of-use assets under IFRS 16 constituted immovable property within section 77 of the ITA [paras 91, 96, 99, 101].
- Whether the Applicant was the correct taxable person, given that it received no consideration from the share sale, which was received by KFEAH [paras 31, 63, 67, 114, 116, 119].
- What was the effective date of the ownership change for purposes of section 74(2) and section 78(h): 19 June 2019 (date of Share Purchase and Subscription Agreement), 28 February 2019 (URA's substituted year-end), 26 February 2020 (URSB registration of the 50% transfer to KEUL), or 20 January 2021 (URSB registration of the transfer to Vivo Energy) [paras 132, 137, 138].
- Whether the correct purchase price for computing the capital gain was USD 4,072,124 (base purchase price used by URA) or USD 2,604,059 (adjusted price under Schedule 10 of the agreement, as argued by the Applicant) [paras 18, 42, 60, 70, 129].
- Whether the correct valuation methodology under section 74(2) is a market-based approach (valuing assets and liabilities) or an income-based approach (enterprise value, future earnings, discounted cash flow), as contended by the URA [paras 55, 125, 126, 131].
- Whether the financial statements for the year ended 28 February 2019 or those for the period ended 29 February 2020 were the appropriate reference point for the valuation [paras 48, 53, 54, 58, 97].