Supa Loaf Maker Mini Bakeries Loses Shs2 Billion Tax Battle

Mini Bakeries, the company behind the popular Supa Loaf bread, has lost a significant tax dispute amounting to Shs2 billion against the Uganda Revenue Authority (URA). The Tax Appeals Tribunal ruled in favor of the URA, upholding assessments related to royalty payments for the Supa Loaf trademark and interest on loans provided to related entities.

The core of the disagreement stemmed from an audit of transactions between Mini Bakeries and its associated companies, covering the period from July 2015 to June 2023. The URA challenged Shs3.78 billion in royalty payments made by Mini Bakeries to Northgate Holdings, another related company, for the use of the Supa Loaf brand in Uganda. The authority also questioned the interest income adjustments on loans advanced to related businesses in Kenya and Tanzania.

The URA disallowed the royalty expenses and adjusted the interest income, leading to the substantial tax assessment. Mini Bakeries contended that its royalty rates and loan interest were compliant with the arm’s-length principle, arguing that Northgate Holdings was instrumental in the brand’s creation and strategic positioning across East Africa.

However, the Tribunal found that Mini Bakeries itself undertook significant activities in developing, maintaining, and enhancing the commercial value of the Supa Loaf trademark. These included managing manufacturing, product quality, pricing, customer relationships, market expansion, and assuming operational risks. The Tribunal determined that Northgate’s ownership alone did not justify the turnover-based royalty, as the substantial value-creation functions were performed by Mini Bakeries.

Similarly, the Tribunal upheld the URA’s adjustments regarding interest on approximately $2.2 million in loans Mini Bakeries had provided to its Kenyan and Tanzanian affiliates. The company failed to demonstrate that the interest rates on these unsecured loans were in line with what independent parties would have agreed upon in comparable circumstances.

The Tribunal also dismissed Mini Bakeries’ claims for refunds or credits on withholding tax and Value Added Tax (VAT) related to the royalty payments, concluding that the transfer-pricing adjustments did not negate the original transactions. The ruling affirmed the URA’s assessments and dismissed the company’s refund requests, with costs awarded to the URA.

Source: https://www.monitor.co.ug/uganda/business/markets/supa-loaf-maker-loses-shs2b-tax-dispute—5585534