Worldwide transfer pricing reference guide 2014

Uganda
Taxing authority and tax law
Taxing authority: Uganda Revenue Authority (URA).
Uganda’s transfer pricing legislation is contained in the Income Tax (transfer pricing) regulations 2011, under Sections 90 and 164 of the
Income Tax Act, Cap 340, effective 1 July 2011.
Relevant regulations and rulings
Uganda’s transfer pricing regulations apply to a controlled transaction if one party to the transaction is subject to tax in Uganda and
the other party is either located in Uganda or outside of Uganda. Controlled transaction is defined as a transaction between associates.
Further, the regulation makes reference to the definition of the term “associates” enshrined in the domestic Income Tax Act as follows
“Where any person, not being an employee, acts in accordance with the directions, requests, suggestions, or wishes of another person
whether or not they are in a business relationship and whether those directions, requests, suggestions, or wishes are communicated to
the first-mentioned person, both persons are treated as associates of each other.”
Thin capitalization — Where for a non-financial services, offshore related party intends to fund its Uganda operations with interest
bearing debt, the debt-to-foreign equity ratio cannot be in excess of 2:1 at any time during a year of income. A deduction is disallowed for
the interest paid by the company during the year on that part of the debt which exceeds the 2:1 ratio. Interest deduction will be allowed
on all interests generated from local financial assistance.
OECD guidelines treatment
Uganda regulations adopt the arm’s length standard and recognize the OECD Guidelines. However, where the OECD Guidelines are in
conflict with Domestic Taxing Acts, the provisions in Domestic Taxing Acts take precedence.
Priorities/pricing methods
Uganda accepts the five methods specified in the OECD Guidelines. The most appropriate method is selected based on the circumstances
and data available.
Transfer pricing penalties
Specific transfer pricing penalties apply for failure to comply with transfer pricing documentation requirements. Where one fails to put
in place transfer pricing documentation under the transfer pricing regulations, the person is liable upon conviction to imprisonment
for a term not exceeding six months or to a fine not exceeding 25 currency points (currently UGX500,000) or both. In addition to the
above, in the event an upward transfer pricing adjustment is raised by the URA, a 20% penalty on the shortfall will be imposed where the
provisional tax paid is less than 90% of the actual tax liability. The penalty on late payment is 2% per month on the shortfall and 2% of the
gross tax liability for the year when the return is filed late. Other civil and criminal penalties may be applied in specific circumstances.
Penalty relief
There is no specific penalty relief. However, there is room for objection and where such objection is ruled in favor of the taxpayer or on
appeal to tribunal or a court of law where such appeal is ruled in favor of the taxpayer.
Documentation requirements
Taxpayers are required to maintain sufficient information and analysis to verify that the pricing, terms and conditions attached to the
controlled transactions are consistent with the arm’s length standard. The URA came up with a practice note detailing the minimum
information that should be included in a transfer pricing documentation.
Documentation deadlines
Transfer pricing documentation must be in place at the time the income tax return is filed with effective date as 1 July 2011. Failure to
adhere to this could result in imprisonment or commercial penalty or both as highlighted above.
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