KAMPALA — A High Court ruling against Ernst & Young Uganda has done more than settle a UGX 3.48 billion tax bill. It has drawn a sharper line around how far Uganda’s tax authority can reach into the internal cost structures of global corporate networks, and the answer should worry every multinational that runs services through a regional or global shared-services hub.
Justice Dr. Ginamia Melody Ngwatu of the Commercial Division dismissed EY Uganda’s appeal on June 11, upholding a Tax Appeals Tribunal decision that the firm owed VAT on IT support, strategy, marketing, risk management, due diligence and training services it received from EY Global Services Limited, EY (EMEIA) Services Limited, and two third-party providers, Face Technology and Dimension Data, between January 2014 and June 2018. The case, Ernst and Young v Uganda Revenue Authority, Civil Appeal No. 26 of 2022, is now the clearest judicial statement yet on how Uganda taxes cross-border services delivered through internal group structures rather than arm’s-length contracts.
The commercial logic of EY’s defense was straightforward, and it is the same logic used by virtually every professional services firm, bank and multinational that centralizes back-office functions abroad: the services were procured and paid for by a central entity, costs were merely reallocated to the Uganda office on a no-markup, cost-recovery basis, and no fresh “supply” therefore occurred inside Uganda. URA saw it differently, arguing that however the invoicing was structured internally, the Ugandan entity was the one that ultimately used the IT systems, absorbed the risk advice and sat through the training. The court sided unambiguously with URA, holding that for VAT purposes the question is not who signed the contract or fronted the cash, but who consumed the service. Once consumption happens in Uganda, the transaction is an “imported service” taxable under Sections 4 and 5 of the VAT Act, regardless of how the bill was routed through a global cost-allocation pool.
That consumption-based test is not new in principle — it tracks the destination basis that underpins VAT systems worldwide — but its application to intra-group reimbursement arrangements is what makes this ruling consequential. The court leaned on the earlier appellate precedent in Uganda Revenue Authority v COWI A/S, a case in which a Tax Appeals Tribunal decision favoring a Danish engineering firm’s branch was overturned on appeal, establishing that costs allocated by a foreign head office to a Ugandan branch for services performed abroad still count as imported services once the Ugandan unit is the place of use. EY’s case effectively extends that branch-level logic to a more common and more complex arrangement: a horizontal network of separately incorporated member firms sharing centrally procured services. Any company organized the same way — and that includes most Big Four and Big Ten accounting networks, many regional bank holding structures, and multinational FMCG and telecom groups with shared service centers in Johannesburg, Nairobi, Dublin or Manila — now has direct authority confirming that “no markup, internal reimbursement” is not a shield against Ugandan VAT.
EY also tried a second line of attack aimed at the structure of the law itself rather than the facts of the case, arguing that Uganda’s VAT Act only explicitly addresses electronic services supplied to non-taxable persons, leaving a legislative gap for services supplied to registered taxpayers like itself, and that any such gap should be resolved in the taxpayer’s favor under constitutional protections against taxation without clear legal authority. The court rejected this too, finding that Sections 4 and 5 of the VAT Act, together with Regulation 13 of the VAT Regulations, already supply a complete framework obliging any Ugandan recipient to self-account for VAT once a service is completed, paid for, or invoiced by a foreign supplier — whichever comes first. In other words, the absence of granular place-of-supply rules for digital services is an enforcement headache for URA, not a legal vacuum that taxpayers can exploit. That finding matters well beyond this case, because the digital-services gap EY pointed to is the same gap that software vendors, cloud providers, streaming platforms and offshore consultancies operating into Uganda have used to argue uncertainty in their own VAT positions.
A third strand of the judgment carries its own compliance lesson. URA had pointed out that EY withheld income tax on payments to its foreign affiliates — an act that, on its face, acknowledged the cross-border nature of the transactions — yet did not account for VAT on the same payments. EY argued income tax and VAT are separate regimes and liability under one cannot be inferred from the other. The court agreed they are legally distinct taxes, but ruled that a taxpayer cannot describe a transaction as foreign-sourced for one tax purpose and as domestic for another when the underlying facts have not changed. For finance teams, the takeaway is that withholding tax filings and transfer-pricing documentation are no longer siloed from VAT exposure; they can become evidentiary ammunition in a VAT audit.
For URA, coming weeks after the agency was forced to refund a property developer over a wrongly applied VAT charge on land sales, the EY victory is a useful counterweight that reinforces its broader push to widen the VAT net around cross-border digital and professional services — an area regulators across East Africa are racing to tighten as remote service delivery grows. For multinationals, the prudent response is not to wait for legislative clarity that the court has just said is unnecessary, but to revisit cost-allocation agreements, intercompany service contracts and withholding tax positions now, since the ruling suggests Ugandan courts will look through corporate and contractual form to find where value is actually being consumed.
