The Independent Uganda: You get the Truth we Pay the Price
Kampala, Uganda | THE INDEPENDENT | High Court’s dismissal of an appeal by the Uganda Revenue Authority (URA) against the Trustees of the Bank of Uganda Defined Benefit Scheme, affirmed that the Scheme qualifies as a Settlor Trust under the Income Tax Act.
The judgment, experts say, clarified and sets out important precedents on tax treatment of retirement funds and Settlor Trusts in Uganda, and, is now described as a landmark decision.
In Civil Appeal No. 89 of 2020, Hon. Justice Phillip Odoki ruled that the Tax Appeals Tribunal (TAT) did not err in its classification of the Scheme, nor in its interpretation of who bears tax liability under a Settlor Trust structure.
The dispute originated in 2016 when the Scheme, a licensed retirement fund under the Uganda Retirement Benefits Regulatory Authority (URBRA) Act, sought a Private Ruling from URA. The Scheme contended that since it was established by the Bank of Uganda—a tax-exempt entity—and structured as a Settlor Trust, its income should not be subject to tax. URA disagreed and issued tax assessments totaling UGX 106 million, arguing that the Scheme was a taxable retirement fund under Section 8(4) of the Income Tax Act.
The Scheme successfully challenged the assessments before the TAT, which held that the URA had erred in taxing the Scheme directly. The Tribunal found that under Section 71(5) of the Act, the tax liability of a Settlor Trust lies with the Settlor—in this case, the Bank of Uganda—not the Scheme or its trustees.
On appeal, URA asked the High Court to overturn TAT’s ruling. However, Justice Odoki upheld the Tribunal’s interpretation. Citing Section 70(f) of the Income Tax Act, the Court held that a trust qualifies as a Settlor Trust if the Settlor retains either the power to revoke or alter the trust, or a reversionary interest in the trust’s property or income.
“Bank of Uganda, through the trust deeds of 1998, 2005, and 2014, retains a reversionary interest upon termination of the Scheme,” the Court noted, adding that this sufficed to establish the Scheme as a Settlor Trust under Section 70(f)(ii). “TAT did not err in classifying the Scheme as such.”
The Court also clarified a key misunderstanding in the appeal. “TAT did not find that the Scheme is exempt from income tax,” Justice Odoki explained. “Rather, it found that the liability lies with the Settlor, and not with the trustees or the Scheme itself.”
However, the Court declined to rule on whether the Bank of Uganda’s exemption status meant that no tax could ultimately be collected. “This issue was neither raised before TAT nor included in the grounds of appeal,” the judgment stated, reinforcing the jurisdictional limits of appellate review under Section 27 of the Tax Appeals Tribunal Act.
The appeal was dismissed with costs awarded to the Respondents. Experts say the case highlights a growing area of legal and policy scrutiny in Uganda’s tax framework for pension schemes and trust arrangements, especially in relation to exempt entities.
