The High Court has dismissed an application filed by the Uganda Revenue Authority (URA) against the Trustees of the Bank of Uganda Defined Benefit Scheme, ruling that the Scheme qualifies as a settlor trust under the Income Tax Act.

The dispute originated in 2016 when the scheme, a licensed retirement fund under the Uganda Retirement Benefits Regulatory Authority (URBRA) Act, sought a private ruling from URA. The scheme receives contributions from employees at (4%).

The scheme argued that since it was established by the Bank of Uganda, which is tax exempt under the act and structured as a settlor trust, its income should not be subject to tax.

URA disagreed and issued tax assessments totalling Shs 106 million, arguing that the scheme was a taxable retirement fund under Section 8(4) of the Income Tax Act. The scheme challenged the application at the Tax Appeals Tribunal (TAT), which ruled in its favour, classifying it as a settlor trust and holding that URA should have assessed the Bank of Uganda, not the scheme.

URA appealed the matter to court, arguing that the Tax Appeals Tribunal (TAT) erred in law in holding that the scheme is a settlor trust and also held that the income of the trust is exempt from income tax.

Hon. Justice Phillip Odoki found out that on the classification of the scheme as a settlor trust, Section 70(f) of the Income Tax Act defines a settlor trust as one in which the settlor either “has power to revoke/alter the trust to gain a beneficial interest or has a reversionary interest in the trust’s corpus or income”.

Justice Odoki held that Bank of Uganda, via the scheme’s trust deeds (1998, 2005, and 2014), retains a reversionary interest upon termination of the trust, satisfying Section 70(f)(ii). Therefore, TAT did not err in classifying the scheme as a settlor trust.

Justice Odoki further ruled that since Bank of Uganda is exempt, the issue of whether an exempt entity can be liable for settlor trust tax was noted but left undetermined due to lack of joinder and jurisdictional limits and reiterated that it cannot address issues not raised at TAT or in the appeal grounds and dismissed the appeal.