JOSHUA KATO: Your Next VAT Liability May Arrive by Email

Lessons from the URA Vs EY Tax Battle

A landmark High Court ruling has confirmed that services can be imported even when no goods cross Uganda’s borders. The decision in URA v EY Uganda sends a powerful message to businesses receiving foreign expertise, management support, technology services, and other cross-border services in an increasingly digital economy.

A few decades ago, international trade was easy to identify. A ship would dock at a port carrying machinery, electronics, or raw materials. Customs officers would inspect the cargo, determine its value, and taxes would be paid before the goods entered the country.

Trade had a physical presence. You could touch it, count it, and see it cross a border. Today, the world looks very different.

Imagine a finance manager sitting in Kampala opening an email from a colleague in London. Attached are risk management reports, technical guidance, quality assurance reviews, and strategic recommendations prepared by specialists thousands of miles away. No truck has crossed a border, no container has arrived at a customs warehouse. No cargo has landed at Entebbe International Airport. 

Yet according to Uganda’s tax laws, something valuable has entered the country, a service.

That simple reality lies at the heart of a landmark decision delivered by the High Court on June 11, 2026, in a dispute between Uganda Revenue Authority (URA) and Ernst & Young Uganda (EY Uganda).

The Court upheld URA’s assessment of approximately Shs 3.48 billion in Value Added Tax (VAT) against EY Uganda in a ruling that is likely to influence the taxation of imported services for years to come. While the case involved one of the world’s leading professional services firms, its implications extend far beyond EY. The decision affects multinational corporations, local subsidiaries, professional service firms, technology companies, and virtually every business receiving services from abroad.

At its core, the case raises a fundamental question that governments around the world continue to grapple with: Where should a service be taxed?

For physical goods, the answer is often straightforward. A vehicle imported into Uganda enters through a border point. A machine imported from China arrives through customs. The movement can be seen and tracked.

Services, however, are different.

A cybersecurity expert in India can protect a company’s systems in Kampala without ever boarding a plane. A management consultant in South Africa can advise a Ugandan business through virtual meetings. An accounting specialist in London can review financial records remotely and deliver recommendations within minutes. In today’s interconnected world, expertise travels faster than goods.

The dispute arose after URA audited EY Uganda and concluded that the firm had received various services from foreign entities within the global EY network and other non-resident service providers between 2014 and 2018. These services included information technology support, quality assurance reviews, risk management services, marketing support, training, financial advisory services, and other professional assistance.

URA’s position was that these were imported services consumed in Uganda and therefore subject to VAT.

EY Uganda challenged the assessment, arguing among other things that some services were contracted and paid for outside Uganda, while certain charges represented cost allocations and reimbursements among member firms within the global network. The company also argued that the law did not clearly impose VAT on some of the transactions in question.

The High Court ultimately disagreed.

In what may become one of the most cited VAT decisions in Uganda’s recent history, the Court reaffirmed the principle that what matters is not where the service originates but where it is consumed.

This principle, commonly referred to as the destination principle, forms the backbone of VAT systems around the world. Under this approach, VAT is charged in the jurisdiction where the final consumer enjoys the benefit of the goods or services.

The Court found that EY Uganda was the ultimate beneficiary and consumer of the services provided by the foreign entities. Consequently, the services were consumed in Uganda and fell within the VAT net.

This finding carries significant implications for businesses operating in Uganda.

Many multinational groups operate through regional headquarters and shared service centers. Human resource support may be provided from one country, information technology services from another, and management oversight from yet another. Costs are then allocated among group entities through recharge mechanisms.

Historically, some businesses have viewed these allocations as internal arrangements that differ from ordinary commercial transactions. However, the Court’s reasoning suggests that tax authorities and courts are likely to focus on the economic reality of the transaction rather than the label attached to it.

Simply describing a payment as a reimbursement, recharge, allocation, or cost recovery may not be sufficient to remove it from the VAT net if a genuine service has been supplied and consumed.

The judgment therefore reinforces an increasingly important principle in tax administration: substance matters more than form.

Tax authorities around the world are moving beyond contractual terminology and examining the actual economic benefit received by taxpayers. If a Ugandan company receives technical expertise, strategic guidance, professional support, or digital services from abroad, the question will increasingly be whether that benefit was consumed in Uganda.

The ruling is also a reflection of how dramatically the global economy has evolved.

A generation ago, businesses largely operated through physical offices and local employees. Today, value is often created through knowledge, intellectual property, data, technology, and professional expertise.

Cloud computing services are delivered remotely. Software updates occur automatically across borders. Training sessions are conducted virtually. Technical support is provided through online platforms. Entire business functions can now be performed from different countries simultaneously.

As commerce evolves, tax systems must evolve as well.

The EY decision demonstrates the judiciary’s recognition that economic activity can no longer be measured solely by the movement of physical goods. Services have become one of the most important drivers of value creation, and tax laws are increasingly being interpreted in a manner that captures this reality.

The judgment also provides valuable lessons regarding consistency in tax treatment.

The Court noted that withholding tax had been accounted for on some payments made to foreign service providers. While VAT and withholding tax are distinct taxes serving different purposes, the Court observed that taxpayers should maintain consistency in how they characterize transactions across different tax obligations.

This serves as an important reminder that businesses should not analyze VAT, withholding tax, transfer pricing, and corporate income tax in isolation. Cross-border transactions often create obligations under multiple tax regimes, and positions taken under one tax head may influence how another tax head is interpreted.

Perhaps the most important lesson from the URA-EY ruling is that taxation follows value.

In the past, value crossed borders in shipping containers, trucks, and cargo aircraft. Today, it often arrives through cloud servers, video conferences, software platforms, digital networks, and professional expertise delivered remotely from thousands of kilometers away.

The High Court’s message is clear. The absence of a physical border crossing does not mean that a taxable event has not occurred.

For businesses operating in an increasingly global and digital economy, the decision should serve as a timely reminder to review intercompany service arrangements, management fee structures, technology support agreements, and other cross-border transactions. What appears to be a simple internal recharge today may carry significant VAT implications tomorrow.

The URA-EY case is therefore more than a dispute about Shs 3.48 billion. It reflects how taxation is adapting to a world where knowledge, expertise, and digital services have become as valuable as the goods that once dominated international trade.

And in that world, the place where value is consumed matters more than the place where it originates.

The writer is a chartered Accountant and a chartered Tax Advisor

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