The Convention on Mutual Administrative Assistance in Tax Matters facilitates international co-operation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers. It provides for all possible forms of administrative co-operation between states in the assessment and collection of taxes.
This co-operation ranges from exchange of information, including automatic exchanges, to the recovery of foreign tax claims. 147 jurisdictions currently participate in the Convention including India, Mauritius, Cayman Islands, Jersey, United States, United Kingdom etc. Cabinet of the Republic of Uganda ratified the Convention on Mutual Administrative Assistance in Tax Matters on 6th May 2016.
The Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate the automatic exchange of information in accordance with the Standard for Automatic Exchange of Financial Information in Tax Matters (“the Standard”). It avoids the need for several bilateral agreements to be concluded.
The legal basis for the MCAA (which is agreed at competent authority level) rests in Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) which provides for the automatic exchange of information between Parties to the Convention, where two Parties subsequently agree to do so. The Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information was ratified by Cabinet of the Republic of Uganda on 18th November, 2021.
The Common Reporting Standard sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
These two treaties together with the Common Reporting Standard form the Automatic Exchange of Information framework. In this framework, information of persons who are in other jurisdictions but have assets or accounts in Uganda is collected by reporting financial institutions such as banks, insurance companies and others and shared with their respective jurisdictions. In determining whether the assets or accounts should be reported, the beneficial ownership test is used such that indirect ownership of assets in Uganda by persons in other jurisdictions will still be reported.
The benefit for Uganda is that other participating jurisdictions will similarly collect information relating to persons in Uganda who hold assets in those jurisdictions based on the same beneficial ownership test and share the information with Uganda, specifically, Uganda Revenue Authority.
The Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Bill, 2023 operationalises these two Treaties.
The “Competent Authority” in the Bill is the Commissioner General, Uganda Revenue Authority.
- Proposed definition of beneficial owner
Clause 2 of the Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Bill defines beneficial owner as follows:
“beneficial owner” means a natural person who ultimately owns or controls a customer or the natural person on whose behalf a transaction is conducted and includes any natural person who exercises ultimate control over a legal person or arrangement and—
(a) in relation to a legal person, includes—
(i) the natural person who either directly or indirectly, alone or jointly, holds at least ten percent of shares or voting rights of the legal person;
(ii) the natural person who exercises control of the legal person through other means, including personal or financial superiority or relationship; and
(iii) the natural person who has power to make or influence decisions of a legal person;
(iv) where exceptionally, no natural person is identified in subparagraphs (i), (ii) or (iii), the natural person who holds the position of senior managing official;
(b) in relation to trusts includes—
(i) the settlor;
(ii) the trustee;
(iii) the protector;
(iv) the beneficiary or the individual benefitting from the trust who is yet to be determined; and
(v) any other natural person exercising ultimate control of the trust; and
(c) in relation to other legal arrangements similar to trusts, the natural person who holds positions equivalent to the positions referred to in subparagraph (b);
Implications/Comments
The proposed definition of a beneficial owner is relevant for determining who qualifies as a controlling person who is in charge of an entity. This proposed definition closely mirrors that in the Income Tax Act. The implication is that in determining whether or not a company or turts or any other entity qualifies to have its accounts reported under the automatic exchange scheme, regard will be had to the beneficial ownership of that entity.
- Clause 3: Convention to have force of law in Uganda.
Clause 3 of the Bill proposes that the Convention on Mutual Administrative Assistance in Tax Matters specified in Schedule 2 to the Act shall have the force of law in Uganda.
Implications/Comments
This proposed provision gives the Convention on Mutual Administrative Assistance in Tax Matters force of law in Uganda.
- Clause 4: Agreement to have force of law in Uganda.
Clause 4 of the Bill proposes that the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information specified in Schedule 3 to the Act shall have the force of law in Uganda.
Implications/Comments
This proposed provision gives the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information force of law in Uganda.
- Clause 5: Common Reporting Standard to have force of law in Uganda.
Clause 5 of the Bill proposes that the Common Reporting Standard specified in Schedule 4 shall have the force of law in Uganda.
Implications/Comments
This proposed provision gives the Common Reporting Standard force of law in Uganda.
- Clause 6: Due diligence
Clause 6(1) of the Bill proposes that a reporting financial institution shall, with effect from 1st January, 2024, apply the due diligence, described in sections II to VII of the Common Reporting Standard as specified in Schedule 4 to the Act.
Clause 6(2) of the Bill proposes an obligation for an account holder or a controlling person to notify the reporting financial institution when there is a change in circumstances, including a change in the residence of the account holder or controlling person for tax purposes, within thirty days from the occurrence of the change.
Clause 6 (3) of the Bill proposes that a reporting financial institution shall maintain the information obtained in the process of conducting due diligence under this Act, for the period during which the account is active and for at least five years from the date when the account is closed.
Implications/Comments
This clause requires financial institutions such as banks and insurance companies and other investment vehicles to apply due diligence requirements set out in the Common Reporting Standard with effect from 1st January, 2024. The lead time given to them is for purposes of familiarising themselves with these new requirements and communicating the new obligations to their clients.
- Clause 7: Reporting obligations
Clause 7(1) of the Bill proposes that a reporting financial institution shall submit a return to the Competent Authority providing the information on the account held by a non-resident person or on a reportable account for the year ending 31st December in every calendar year and by the 31st day of May of the following year.
Clause 7(2) of the Bill proposes that where a reporting financial institution applies the procedures of due diligence described in sections II to VII of the Common Reporting Standard as specified in Schedule 4 to this Act for a calendar year and no financial account is identified as a reportable account, the reporting financial institution shall file a return, which shall provide that the reporting financial institution maintains no such reportable accounts in respect of the calendar year.
Clause 7(3) of the Bill proposes that the Competent Authority shall, by notice in the Gazette and in a newspaper of wide circulation, prescribe the format of the return for obtaining the information referred to in subsection (1).
Implications/Comments
Reporting Financial institutions will be required to file returns with URA for a year ending on 31st December by the by the 31st day of May of the following year in which they will communicate the desired information.
- Clause 8: Offences relating to automatic exchange of information
The Bill proposes that A person who—
(a) fails to file a return on the due date for purposes of the automatic exchange of information, is liable to a civil penalty of two hundred and fifty currency points for each day of default;
(b) fails to maintain information obtained in the process of conducting the due diligence required under this Act, is liable to a penalty of five hundred currency points and an additional penalty of twenty currency point for each day of default in case of a continuous violation;
(c) makes a false or misleading statement in a return for purposes of the automatic exchange of information commits an offence and is liable, on conviction, to a fine not exceeding two thousand and five hundred currency points or imprisonment for a term not exceeding ten years, or both;
(d) submits a false or misleading self-certification to a reporting financial institution commits an offence and is liable, on conviction to a fine not exceeding two thousand five hundred currency points or imprisonment for a term not exceeding ten years, or both; or
(e) omits from a statement made in a return for purposes of the automatic exchange of information, commits an offence and is liable, on conviction, to a fine not exceeding two thousand five hundred currency points or imprisonment for a term not exceeding ten years, or both.
Implications/Comments
These penalties are designed to replace those introduced in 2022 in Section 62H of the Tax Procedures Code Act. However, that provision does not appear to have been replaced. The penalties target the reporting institutions which are non-compliant.
Clause 9: Anti- avoidance provision
Where a person enters into any arrangement or engages in a practice, the main purpose or one of the purposes of the Agreement or practice may reasonably be considered to be circumventing or avoiding an obligation imposed under this Act, the Competent Authority may re-characterise the transaction or an element of the transaction as part of the anti- avoidance scheme and shall require the person to comply with the obligations under this Act.
Implications/Comments
This is an anti-avoidance mechanism to prevent schemes for avoiding reporting by reporting financial institutions.
