KFC Uganda loses capital gains tax case but wins reprieve on Shs4.2bn bill

A tax tribunal ruling against Kuku Foods Uganda, the company behind the country’s KFC restaurants, is emerging as a pivotal moment in how Uganda taxes corporate ownership changes that happen far from public view — even as it leaves the company’s actual tax bill unresolved.

The Tax Appeals Tribunal found that Kuku Foods is liable for capital gains tax following a restructuring that altered who ultimately controls the company. But in the same ruling, the tribunal threw out the Uganda Revenue Authority’s Shs4.2 billion assessment, finding the agency had not adequately justified how it arrived at that figure, and ordered URA to redo the calculation from scratch.

The result is a split decision that resolves the legal question at the heart of the dispute while leaving the financial one wide open — and according to legal analysts who reviewed the ruling, the final bill could still run into the billions once URA recalculates it.

The case turns on a 2018 amendment to Uganda’s Income Tax Act that closed what had been a significant loophole: companies whose value lies mainly in brand, franchise rights or goodwill — rather than physical property — could previously change hands offshore without triggering Ugandan tax, because the law’s existing provisions targeted only property-rich firms.

The amendment added a catch-all provision allowing URA to tax any Ugandan company where ownership changes by 50 percent or more within a three-year window, regardless of what the company’s underlying assets are made of.

That distinction mattered directly in Kuku Foods’ case. According to a legal analysis of the ruling by Kampala law firm Kampala Associated Advocates, the tribunal found that only around 16 percent of the company’s assets were leasehold improvements, with the bulk — some 72.6 percent — classified as right-of-use assets rather than owned property.

That meant Kuku Foods did not qualify as immovable-property-rich under the law’s older provisions, but fell instead under the newer catch-all clause designed precisely to capture franchise and service businesses like it.

URA’s theory of the case was that a change in Kuku Foods’ beneficial ownership — executed through entities sitting above the Ugandan operating company in its broader corporate structure — amounted to a deemed disposal of all the company’s assets and liabilities at market value, creating a taxable gain even though no sale proceeds flowed to the Ugandan entity itself and even though the transaction was structured through foreign holding companies.

Kuku Foods pushed back hard, arguing the liability — if it existed at all — belonged instead to the non-resident shareholder that sold its stake, not to the Ugandan operating company, and that URA’s valuation methodology was flawed.

The tribunal sided with URA on the core legal question, ruling that Uganda’s tax code looks at the economic substance of a transaction rather than its legal form, and that a Ugandan company can be taxed on its own deemed gain regardless of whether the ownership change happens directly or through layers of offshore entities.

But the judges were considerably less forgiving of URA’s math. The ruling found that the tax authority had not shown its work: it had failed to properly justify the valuation methodology behind the Shs4.2 billion figure, including its reliance on the deal’s purchase price rather than a market valuation of the Ugandan company’s own assets and liabilities, as the law specifically requires. The tribunal set the assessment aside and ordered URA to recompute it.

The decision lands in the middle of an already tense relationship between Kuku Foods and the tax authority. The capital gains dispute is only the latest in a string of confrontations between the two sides. URA officers, accompanied by armed personnel, raided Kuku Foods’ Kampala offices in November 2025 as part of a separate investigation into the company’s declared income between 2019 and 2022.

The company described the operation in a formal protest letter as disproportionate and procedurally improper, alleging that officers extracted data from company devices without explaining how it would be secured. URA has rejected the characterization as overblown.

That same audit period has also produced a separate, ongoing dispute over Kuku Foods’ declared operating losses, which URA slashed from a claimed Shs16.8 billion to Shs8.3 billion after disallowing certain expenses — a revision the tribunal separately declined to block.

Kuku Foods has pushed back on its broader public image as a tax holdout, noting in correspondence with URA that it remitted more than Shs24.7 billion in direct and indirect taxes in the ten months to October 2025 alone, spanning PAYE, income tax, withholding tax, VAT and import duties, and that it purchased more than Shs43 billion in goods and services from Ugandan suppliers over the same period.

Tax lawyers say the capital gains ruling will likely outlive the Kuku Foods dispute itself. Because the case turns on how Uganda treats ownership changes executed offshore — a structure common among multinational franchise operators, private equity-backed groups and companies undergoing mergers or group reorganizations — the precedent gives URA fresh legal grounding to scrutinize parent-level transactions even when no money visibly changes hands inside Uganda.

At the same time, the tribunal’s rejection of URA’s valuation work sends a parallel message to the tax authority: establishing that a transaction is taxable is only half the job. The agency must also be able to show, with a transparent and defensible methodology, exactly how it arrived at the number it is demanding.

For now, Kuku Foods avoids an immediate Shs4.2 billion bill, but not the underlying liability. URA must return with a new computation, one the company will have the opportunity to scrutinize and contest. Given the tribunal’s insistence on valuing the Ugandan entity’s own assets and liabilities — rather than the price paid in the offshore transaction — the recalculated figure could land higher, lower, or roughly where the original assessment did. Either way, the case has already reshaped the legal terrain for how Uganda taxes the invisible mechanics of corporate ownership.