For years, many Ugandan companies have believed that supplying services to a foreign company automatically qualifies as an exported service, attracting zero-rated Value Added Tax (VAT). But a recent High Court decision in the case of Allied Beverages Company Limited vs Uganda Revenue Authority has challenged that assumption. In a ruling that could reshape how businesses structure cross-border service contracts, the court clarified that what matters most is not where the client is located, but where the service is actually used and consumed.
Allied Beverages Company Limited, a Ugandan company engaged in brand marketing, promotional services, and market research, entered into a service agreement in July 2016 with The Coca-Cola Export Corporation (TCCEC), a foreign entity headquartered in Atlanta, United States.
Under this agreement, Allied Beverages provided marketing and promotional services relating to Coca-Cola products. In March 2022, the parties executed an addendum to clarify that the place of use and consumption of the services would be outside Uganda, effective from November 2020.
During a tax audit covering the period from December 2020 to August 2022, the Uganda Revenue Authority (URA) reviewed Allied Beverages’ VAT returns. The company had classified its services to TCCEC as exported services, applying a zero-rated VAT treatment.
However, URA took a different position.
According to the tax authority, the services were performed and consumed in Uganda, since the marketing and promotional activities targeted the Ugandan market and involved local operations. URA therefore concluded that the services were local supplies subject to the standard VAT rate of 18%.
The reclassification resulted in a VAT assessment exceeding UGX 9 billion, prompting Allied Beverages to challenge the decision before the Tax Appeals Tribunal (TAT). After losing at the Tribunal, the company appealed to the High Court.
The central question was straightforward but legally complex: Were the services provided by Allied Beverages to TCCEC exported services (zero-rated) or local supplies subject to VAT?
Under Uganda’s VAT Act, exported services are zero-rated if the services are supplied for use or consumption outside Uganda. The interpretation of “use or consumption” therefore became the heart of the dispute.
Allied Beverages argued that:
- The client receiving the services, TCCEC, was a foreign company.
- Payments for the services were made from outside Uganda.
- The service agreement explicitly stated that the services were intended for use and consumption outside Uganda.
Based on these factors, the company maintained that the services qualified as exports.
URA, however, argued that:
- The marketing and promotional services were physically carried out in Uganda.
- The activities targeted Ugandan consumers and markets.
- The economic benefit of the services was therefore realized within Uganda.
URA insisted that contractual wording alone could not override the actual economic reality of where services were consumed.
The High Court ultimately dismissed the appeal and upheld URA’s position.
Justice Susan Odongo ruled that the substance of the transaction must prevail over contractual labels. Even though the contract stated that the services were consumed outside Uganda, the court found that the actual activities and their benefits occurred within Uganda.
The court emphasized that:
- Promotional and marketing services aimed at the Ugandan market are consumed in Uganda.
- The location of the contracting party does not automatically determine the place of consumption.
- Taxpayers cannot rely solely on contractual clauses to alter the factual tax position.
As a result, the services were deemed local supplies subject to VAT at 18%.
One of the most important lessons from this case lies in the tie-breaking rule applied by the court: the principle of substance over form. This principle is widely recognized in tax law and means that the real nature of a transaction matters more than how it is described on paper. In determining whether a service is exported, tax authorities and courts will consider several factors, including:
- Where the service is physically performed
- Where the economic benefit is realized
- Who ultimately consumes the service
- The target market of the activity
If these factors point to Uganda, the service is unlikely to qualify as an export even if the client is foreign.
The ruling carries major implications for multinational groups and Ugandan service providers.
Many companies structure contracts with foreign affiliates to benefit from zero-rated VAT on exported services, particularly in sectors such as marketing, consulting, IT services, and research.
However, the Allied Beverages decision sends a clear message: URA and the courts will look beyond contracts and examine the actual economic activity.
Businesses must therefore ensure that: Services genuinely benefit customers outside Uganda, the place of consumption can be demonstrated with evidence and Contracts align with the practical reality of the service delivery. Failure to do so could lead to significant tax reassessments and penalties, as seen in this case.
Therefore, the Allied Beverages decision reinforces a timeless principle in taxation: substance prevails over form. A service cannot be transformed into an export simply because a contract says so or because payment comes from abroad. What matters is where the service truly lives where it is delivered, where its impact is felt, and where its economic value is consumed. For many businesses operating in Uganda’s increasingly globalized economy, this ruling may well become the reference point for how exported services are understood in the years ahead
The writer is a chartered Accountant and a Chartered Tax advisor.