By Mulengera Reporters
The Tax Appeals Tribunal has dismissed an application by Standard Chartered Bank Uganda in its entirety, upholding a Sh1.107 billion withholding tax assessment imposed by the Uganda Revenue Authority (URA).
The ruling relates to withholding tax liabilities arising from transaction and account maintenance fees paid to foreign correspondent banks between January 2016 and May 2019.
Standard Chartered maintains foreign “nostro” accounts with correspondent banks in several countries, including the United States, Germany, Finland, Canada, the United Kingdom and Switzerland, to facilitate international trade and foreign currency settlements for its customers.
Following a compliance review, URA assessed the bank for Sh1,107,188,918 in additional withholding tax on charges paid to the overseas institutions.
The bank challenged the assessment before the Tribunal, arguing that the transaction fees were ultimately borne by its customers and therefore should not attract withholding tax liability on the bank.
Standard Chartered also argued that account maintenance fees qualified as exempt interest under the Income Tax Act, that Uganda’s Double Taxation Agreements (DTAs) with the United Kingdom and other countries had been misapplied, and that some of the assessments were made outside the legally permitted time limit.
Tribunal rules in favour of URA
In its ruling, the Tribunal rejected the bank’s arguments and upheld URA’s assessment, with costs awarded to the tax authority.
The Tribunal found that although Standard Chartered passed the economic cost of some transaction fees to its customers, the bank remained the legal entity receiving and paying for the services provided by the foreign correspondent banks.
As a result, the Tribunal held that the payments triggered withholding tax obligations.
The Tribunal also rejected the bank’s argument that account maintenance fees constituted exempt interest, finding that Standard Chartered had not provided sufficient evidence to support the classification.
It emphasised that relying on statutory definitions or descriptions without supporting contracts and concrete financial evidence was insufficient to discharge the taxpayer’s burden of proof.
DTAs applicable to cross-border payments
The Tribunal further upheld URA’s application of the relevant Double Taxation Agreements.
It found that payments relating to managerial or administrative services fell within provisions governing technical fees, rather than being treated as general business profits under provisions dealing with business income.
The Tribunal also rejected Standard Chartered’s argument that the assessments were time-barred.
It found that new information uncovered during an earlier refund audit provided a lawful basis for URA to review the relevant periods and issue the additional assessments.
Ruling sends compliance message to banks
The decision could have wider implications for banks and other financial institutions that make cross-border payments for services.
The Tribunal’s findings reinforce the principle that the economic burden of a payment may be passed on to customers without necessarily removing a financial institution’s statutory withholding tax obligations.
The ruling also places emphasis on the commercial substance of transactions and the actual flow of funds, rather than relying solely on how payments are labelled or structured.
The decision comes amid calls from URA for stronger tax compliance within the financial sector.
Speaking recently at the URA Bankers’ Conference, Commissioner General John Musinguzi Rujoki said tax non-compliance remains a concern despite the growing contribution of the financial sector.
He cited delayed payments, unresolved disputes and incomplete disclosures as some of the challenges affecting tax administration.
“These gaps highlight the need for stronger collaboration, enforcement, and better co-operation between taxpayers and authorities,” Musinguzi said.
The Tribunal’s decision therefore adds to the growing body of tax jurisprudence governing cross-border transactions and withholding tax obligations in Uganda. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
