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Opinion & Analysis

Introduction of transfer pricing rules in Uganda to boost tax man

Uganda's Finance minister Maria Kiwanuka. File
Uganda's Finance minister Maria Kiwanuka. File 

In the face of mounting pressure from the high level of inflation currently being experienced and the recent price hikes that have hit the Ugandan economy, the Ugandan government, like its other East African counterparts, is in a tight position with regard to revenue generation.
It is on this basis that a tax increase targeting obvious tax heads such as Value Added Tax and Personal tax or the traditional corporate income tax was a hard nut to crack for the government in the recent budget speech read by finance minister Maria Kiwanuka titled “Promoting Economic Growth, Job Creation and Improving Service Delivery”.

Instead, one major highlight in her budget speech from a tax perspective, was the emphasis by the minister that issues to do with ‘transfer pricing’ demand urgent action and thereby introduced the transfer pricing regulations 2011.

Indeed as a quick follow up the minister finally published the Uganda Transfer Pricing Regulations, 2011 which require that all companies that have cross border transactions with related entities to prepare and document transfer pricing documentation. An interesting bit of these regulations is the requirement that even companies that have transactions with related entities within Uganda to provide documentation.

Transactions

Transfer pricing generally applies to all cross border transactions entered into between associated enterprises. It even applies to transactions involving a mere book entry having no apparent financial impact. The aim is to arrive at the comparable price as available to any unrelated party in the open market conditions and is known as the Arm’s Length Price.

The question for the Ugandan Revenue Authority (URA) thus is whether there would be any potential revenue loss or transfer of profits within the Uganda tax jurisdiction knowing well that companies within its jurisdiction are all required to account for corporation tax and any transfer within the entities would still be taxable in Uganda.

Unlike in Kenya, the Uganda transfer pricing regulations expressly require that a taxpayer who has transactions with related non - resident and even resident entities must prepare transfer pricing documentation. This has to be prepared prior to the taxpayer filing their next tax return. In effect for December year ends by June 2012 transfer pricing documentation should be ready.

Maina is a tax manager at PKF Taxation Services Ltd and the opinions expressed here are his own and not those of the firm.

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