The decision in East African Breweries Int. Ltd Vs URA – TAT No.14 of 2017 delivered on 7th July 2020, demonstrates the importance of assessing the tax consequences of various versions of a transaction before making a decision about whether to engage in the tax avoidance scheme or not. The complexities of the tax laws and the challenges associated with their interpretation can blur the line between legitimate avoidance and abusive avoidance which borders on evasion. Where a taxpayer fails to properly analyse the various tax law provisions that may be brought into play, post-transactional tax decisions emanating from the substance-over-form doctrine, the step transaction doctrine, the economic substance doctrine, and a number of anti-abuse rules applicable to specific areas of tax law may be used to overturn a transaction that amounts to a scheme in aggressive or abusive tax avoidance.

Tax advisors must realise that the boundaries between acceptable legal tax planning activities and unacceptable illegal tax planning activities have significantly changed with the introduction of various tax anti-avoidance rules in many domestic tax laws.

#AlternativeFacts for tax planners to note is that generally, the taxman normally uses two methods to unearth tax avoidance i.e. piercing of the corporate veil and substance over form. What the taxman considers as acceptable tax planning entails the legitimate exploitation of legislated tax incentives and ordinary business structures that can result in obtaining a favourable tax result for a taxpayer as long as it is within the letter and spirit of the law. Tax planning for tax avoidance that represents a behaviour trait by a taxpayer that is deliberately aimed at reducing tax liability by taking advantage of loopholes in the tax laws is considered aggressive or abusive, and is accordingly discouraged by virtue of the anti-avoidance provisions in the tax laws. This affects avoidance schemes where taxpayers structure transactions so as to minimize or reduce their tax liability in a way that appears to be permissible by law, but actually contrary to the intended purpose of the law by the legislators.

When it comes to tax planning for tax minimisation, you need to #GetItRightTheFirstTime! Leave no loose ends. EABL and Uganda Breweries could have done better. However, the approach taken by Uganda Revenue Authority (URA) to assess East African Breweries ltd as a resident company and not recharacterise the transactions of Uganda Breweries Limited, is really walking a thin line. The decision may be different if appealed!