FGL · Uganda Tax · Full Case Analysis
The Tribunal accepted URA's power to estimate income from long-term contracts, but rejected the unsupported margin used to calculate the assessment. A separate withholding-tax finding also turned on the provision actually relied on.
The decision and its limits
On 31 October 2023, Uganda's Tax Appeals Tribunal set aside a corporate-tax assessment of UGX 7,287,370,395 against PAC SPA Limited. It also found the company not liable for the UGX 308,096,773 withholding tax assessed under section 119 of the Income Tax Act, and allowed the application with costs. [1, pp. 21–22]
The result contains an important qualification. The Tribunal found deficiencies in the taxpayer's project-cost documentation and accepted URA's use of the long-term-contract provisions and alternative allocation methods. URA nevertheless had to show that the particular estimate it selected had a reasonable factual foundation. The decision therefore turns on the quality of the computation and supporting evidence, alongside the legal power to assess. [1, pp. 19–21]
| Component decided | Amount (UGX) | Tribunal outcome |
|---|---|---|
| Corporate income tax | 7,287,370,395 | Assessment set aside: the 4% margin lacked substantiated comparators. |
| Withholding tax under section 119 | 308,096,773 | Applicant not liable for the assessment on the imports considered. |
These are the amounts in the operative findings. Some earlier passages contain different assessment figures; the ruling does not provide a complete reconciliation. The figures above should not be treated as proof of a cash refund received. [1, pp. 1–3, 6, 15 and 21–22]
What produced the dispute?
PAC SPA operated in Uganda as a branch of an Italian company and supplied construction engineering services for hydropower projects. URA conducted a comprehensive audit covering July 2015 to June 2019. The dispute concerned how the company recognised contract income and costs, and whether it had withheld tax on relevant payments. [1, pp. 1–3]
The taxpayer relied on audited financial statements, bills of quantities and the margins used for its projects. Its witness referred to a group margin of 1.1%, a margin of 0.54% for the Achwa projects and 1.1% for Kigati. PAC SPA argued that URA had displaced its records with a 4% industry margin without disclosing the comparable projects or an adequate basis for the selection. [1, pp. 2 and 18–19]
URA maintained that the company's records did not adequately demonstrate the percentage of contract work completed and the related costs. It argued that section 45 required a different treatment of long-term contracts and that an estimated margin was justified where the necessary information was missing. Its witnesses referred to varying industry margins, but did not establish the specific comparable-project evidence supporting the chosen 4%. [1, pp. 2–3 and 19–21]
Why section 45 mattered
The Tribunal examined section 45's treatment of long-term contracts for an accrual-basis taxpayer. Under the provisions reproduced in the ruling, income and deductions are taken into account by reference to the percentage completed during the year. The completion measure compares costs allocated to the contract and incurred by year-end with estimated total contract costs determined at commencement. [1, p. 17]
That completion percentage is conceptually different from a profit margin. A completion calculation addresses how much of a contract has been performed for the relevant period; a profit margin addresses the relationship between revenue and profit. Finance teams should preserve the workings connecting those measures instead of presenting a margin as a substitute for the underlying contract-cost evidence.
PAC SPA argued that the work had been completed, making estimates inappropriate. The Tribunal found that completion dates had not been established and that the financial statements covered periods when the contracts were ongoing. It also noted the company's own revenue recognition policy, which referred to the stage of completion and the relationship between costs incurred and estimated total costs. [1, pp. 18–19]
The Tribunal concluded that the necessary documents for determining allocated and incurred project costs had not been supplied. It upheld URA's reliance on section 45. Audited financial statements remained relevant evidence, but did not remove the need for the transaction and project records required by the tax computation. [1, pp. 19–20]
Why the 4% estimate failed
Section 56A, as applied in the ruling, permitted input-output ratios and other methods of allocating costs and revenue when determining chargeable income. The Tribunal accepted that URA could exercise judgment where the taxpayer's information was deficient. It required that judgment to be reasonable and grounded in facts. [1, p. 20]
The problem was the evidential bridge to 4%. URA did not supply the details of similar projects from which the margin had been derived. The witnesses' evidence also varied. The Tribunal said relevant comparisons needed to account for the size and magnitude of the projects, the contract's nature and the business environment. General industry statements did not establish those comparisons. [1, p. 21]
The quantity-surveyor evidence did not resolve the gap. The Tribunal distinguished knowledge of project costs from evidence of the revenues and profits earned on comparable projects. It found no demonstrated review of the relevant project-income information or comparable financial statements supporting the selected margin. It therefore set aside the corporate tax assessment. [1, p. 21]
The decision did not endorse the taxpayer's 1.1% margin as correct, establish an acceptable margin for the construction industry, or prevent future use of properly supported estimates. Its reasoning requires both sides to substantiate their position: the taxpayer's records must support the reported result, and the assessing method must support the result substituted for it.
The withholding tax finding was specific
URA relied on section 119, concerning designated payers and relevant payments to persons in Uganda. PAC SPA's evidence identified imported goods supplied by Meta Camuna in Italy. The Tribunal held that section 119 did not apply to those imports and rejected the WHT assessed under that provision. [1, pp. 21–22]
The Tribunal expressly declined to decide section 79 income source questions because the parties had not addressed them. The case therefore does not establish that all payments to overseas suppliers are free of withholding tax. A different payment, income category, recipient or applicable provision requires its own analysis. Nor does the final order separately award the refund and interest requested in the submissions. [1, pp. 16 and 22]
FGL analysis: make the computation reproducible
For project businesses, the practical weakness exposed by this case is the gap between financial statements and a defensible contract level tax computation. An annual audit provides useful assurance, but a reviewer still needs to reconstruct how contract revenue, costs and the relevant annual tax figures were derived.
A project evidence pack can connect the signed contract and variations to the original cost estimate, costs incurred, allocation rules, completion workings and ledger balances. Preserve the original estimate alongside later revisions, with approval records and explanations. This makes changes visible and allows the tax treatment of each change to be assessed deliberately.
| Working paper | Control purpose |
|---|---|
| Contract and approved variations | Establish the scope, value and commercial changes. |
| Original cost estimate and separately retained revisions | Preserve the computation's assumptions and explain changes. |
| Project cost ledger and allocation schedule | Trace direct costs and overheads to the contract. |
| Completion and tax reconciliation | Connect project records to annual income and deductions. |
| Supplier-location and payment analysis | Identify the actual payment and relevant withholding provision. |
For tax-review teams, an estimation file needs the same discipline. Identify the comparison population, explain why the selected projects are comparable and show how material differences affect the estimate. A percentage becomes defensible through that evidence. Selecting a figure within a plausible industry range is insufficient by itself.
For management, the two findings also illustrate why a tax dispute should be tracked by component. A successful challenge to the assessment does not prove that the underlying recordkeeping was adequate. Remediation can remain necessary after litigation succeeds. FGL's Medisell analysis and reconciliation guide explore related questions about connecting accounting differences to transactions and tax evidence.
Later proceedings and status
The official Judiciary cause list for 13–17 May 2024 (p. 6) identifies Civil Appeal HCT-00-CC-CA-0114-2023 between URA and PAC SPA, listed in 2024. The materials available for this review did not establish its connection to this particular TAT application or its final disposition. This article explains the Tribunal's 2023 decision and does not present it as a verified final litigation outcome. [2, p. 6]
Practical lessons for finance and governance teams
- Build a contract-level evidence file. Connect contract scope, estimates, costs incurred and completion workings.
- Keep audited accounts and detailed support aligned. Retain the working papers behind material contract balances.
- Separate completion from profitability. Explain how the completion calculation connects to revenue and profit.
- Challenge comparators with evidence. Identify project differences and substantiate the proposed adjustment.
- Classify each supplier payment. Establish the recipient, transaction and relevant withholding provision.
- Remediate after a successful challenge. Close documentation gaps even where the assessment is set aside.
Questions for management
Could an independent reviewer reproduce the contract-tax computation? Are comparison margins supported by identifiable evidence? Does the withholding review analyse the actual payment and legal provision rather than the supplier's overseas address alone?
Primary Sources
- Tax Appeals Tribunal — PAC SPA Limited v Uganda Revenue Authority, Application 27 of 2022, ruling of 31 October 2023.Complete supplied 22-page ruling reviewed. Contract and estimation reasoning: pp. 17–21; WHT and final orders: pp. 21–22. The operative amounts control this article.
- Uganda Judiciary — Commercial Division cause list for 13–17 May 2024, p. 6.Lists Civil Appeal HCT-00-CC-CA-0114-2023 between Uganda Revenue Authority and PAC SPA Limited. It is a scheduling record, not a judgment, and does not expressly identify TAT Application 27 of 2022 as its source.
Source and status review: . Statutory references follow the provisions and numbering applied in the decision. A public search that locates no later decision does not establish that no further proceeding exists.
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