The Uganda Revenue Authority (URA) has secured a significant legal victory against a prominent car importing company, Crane Autos Limited, in a landmark tax evasion battle.
URA accused Crane Autos Limited of evading sh20.1 billion in tax.
The case was presided over by High Court Judge, Justice Stephen Mubiru who on July 16, 2024 ruled in favour of URA.
The court found that Crane Autos Limited and its affiliates were involved in unlawful tax avoidance, using schemes such as transfer pricing and manipulation of tax havens to shift profits and conceal taxable income.
Transfer pricing and the manipulation of tax havens are critical issues in global tax enforcement, affecting governments’ ability to collect fair revenue.
Transfer pricing refers to the prices set for transactions between related entities within a multinational corporation. By manipulating these prices, companies can shift profits from high-tax jurisdictions to subsidiaries in low-tax or no-tax jurisdictions, effectively reducing their overall tax burden. For instance, a parent company may sell goods or services to its subsidiary at inflated prices, thereby shifting profits to the subsidiary located in a tax haven.
Tax havens, on the other hand, are jurisdictions with minimal or no tax liabilities, strong financial secrecy laws, and limited regulatory oversight. These havens attract businesses looking to reduce their tax obligations.
Companies often set up shell companies or special purpose entities (SPEs) in these jurisdictions to hold assets and conduct transactions, taking advantage of the favorable tax regime. Intellectual property (IP) holding companies are also commonly established in tax havens, where they can manage royalties and licensing fees with minimal taxation.
These practices, while often legal, raise significant ethical and economic concerns. They erode the tax base of higher-tax countries, leading to reduced public revenues.
According to court documents, the case involved a tax evasion scheme where Crane Autos Limited established a branch in Dubai and continued operations through the branch between 2002 and 2020, purchasing Ural armored trucks from M/s Ural Automobile Works JSC and selling them at a markup to its sole customer, East African Motor Supplies Ltd, which was under the same management and ownership.
The Court also found that the Dubai branch had no role to play in the transaction cycle except to facilitate aggressive transfer pricing and shift profits to an offshore entity in a tax haven.
The Judge concluded that there were exceptional public interest grounds to justify deferring dissolution of Crane Autos Limited, as there was obvious public interest in undoing a reasonably suspected unlawful tax avoidance scheme.
The company had self-declared taxes amounting to 603.8 million shillings but URA‘s investigations revealed additional liabilities of sh20.1 billion bringing the total tax evaded to sh20.7 billion.
“The ruling highlights the importance of vigilance against tax evasion schemes to avoid revenue leakages. The court‘s decision to defer the company’s dissolution has saved Uganda from losing sh20.1 billion in tax revenue,” URA announced.