URA gears up to combat fraudulent intra-group charges with new global standards

The Uganda Revenue Authority (URA) is preparing to implement stricter measures against companies inflating charges among their related entities, a practice known as transfer pricing.

This initiative is driven by the impending adoption of updated guidelines from the Organisation for Economic Co-operation and Development (OECD). The core of the new approach requires companies to demonstrate not only that a service was rendered but also that there was a clear business rationale for incurring the cost at the time the service was initiated.

This shift represents a significant change from previous practices. Previously, companies could often justify intra-group charges by comparing them to market rates. However, the revised OECD guidelines, which Uganda will automatically adopt due to existing tax regulations referencing them, will demand more rigorous evidence. This includes proving the actual benefit derived from the service and ensuring that costs are allocated based on actual benefit rather than arbitrary splits.

Furthermore, the new framework emphasizes separating distinct functions within a single activity. This means companies can no longer bundle varied services under a single charge; each component must be accounted for individually.

The URA has been strengthening its capacity to handle complex transfer pricing cases. Between 2014 and 2022, the authority utilized cross-border information exchange to recover over Shs259.9 billion, indicating a growing assertiveness in international tax compliance.

A high-profile dispute between Stanbic Bank and its holding company, contesting a Shs117.8 billion assessment related to franchise fees, highlights the importance of these evolving rules. The case revolves around whether the charges represented genuine support or were potentially inflated reimbursements.

Experts note that the revised guidelines place a greater burden of proof on taxpayers to demonstrate the commercial substance and necessity of intercompany transactions, moving away from a sole reliance on documentation. Companies will need to meticulously document their decision-making processes and expected benefits for services before incurring costs.

This proactive approach by the URA, aligned with global best practices, aims to ensure fairer tax contributions from multinational corporations operating within Uganda.