In a landmark tax dispute that has significant implications for multinational companies operating in Uganda, the Court of Appeal of Uganda has handed a decisive victory to the Uganda Revenue Authority (URA) in its long‑running case against ATC Uganda Limited over withholding tax on deferred interest.
On March 27, 2026, the Court of Appeal upheld URA’s assessment of UGX 24.23 billion in withholding tax, dismissing ATC Uganda’s appeal and supporting the tax authority’s interpretation of Uganda’s Income Tax Act. The judgment clarifies that the capitalisation of accrued interest into loan principal equates to “payment” for tax purposes, triggering a withholding tax obligation—even when no cash changes hands.
The dispute stems from a 2012 seven‑year shareholder loan arrangement worth USD 124.5 million that ATC Uganda obtained from its Netherlands‑based parent company. Interest on the loan was not paid regularly in cash; instead, it was accrued and added to the principal. URA argued that under Uganda’s tax law, these capitalised interest amounts should have attracted withholding tax at the point of capitalisation. ATC contested this interpretation, insisting that withholding tax was only due when actual payment occurred.
Both the High Court and Tax Appeals Tribunal previously ruled in favor of URA, and the Court of Appeal’s recent decision dismissed ATC’s contention that interest was not “paid” until cash was exchanged, and that URA could not rely on foreign financial records to make the tax assessment. In its judgment, the appellate court affirmed that value conferred through capitalisation constitutes payment under Section 47 of the Income Tax Act, and that using the lender’s audited accounts was permissible under the Netherlands–Uganda Double Taxation Agreement.
Strategic shift in Uganda’s tax enforcement
The outcome marks a significant shift in how tax liabilities on complex financial arrangements—particularly deferred or capitalised interest—are treated in Uganda. Previously, the timing of withholding tax for such transactions was contested and unclear, reflecting the tension between accounting conventions (which recognise interest when accrued) and tax law definitions (which depend on payment).
This ruling effectively resolves that ambiguity in favor of URA, broadening the scope of taxable events to include non‑cash value transfers that economically benefit a lender.
URA Commissioner for Legal Services and Board Affairs Catherine Donovan Kyokunda welcomed the decision, saying it reinforces the quality of URA’s assessments and its legal strategy. She also noted that URA has maintained a high success rate in litigation, with roughly 93 percent of cases resolved in its favor during the current financial year.
Tax practitioners suggest that the ruling could reduce planning flexibility for companies using shareholder loans to optimise cash flow and defer payments. By recognising capitalisation events as taxable payments, URA effectively discourages the use of deferred interest as a tax‑planning tool and encourages greater compliance with withholding tax obligations from the outset.
This judgment is likely to become a cornerstone precedent in future disputes involving deferred financial transactions and multinational taxation issues.