East African Breweries International Limited in US$2.6m tax arrears battle with Uganda Revenue Authority

UGANDA – The Tax Appeals Tribunal of Uganda has ordered East African Breweries International Limited (EABIL), a wholly owned subsidiary of East African Breweries Limited (EABL) and incorporated in Kenya to pay Uganda Revenue Authority (URA) tax arrears of Shs9.7b (US$2.6m).

The arrears, according to documents, accumulated over a period of seven years for income received on transactions involving Uganda Breweries Limited, the Ugandan operating arm of EABL and EABIL, reports Daily Monitor.

The Tribunal heard that EABIL was purchasing and disposing stock where the company purchased goods from Uganda Breweries Limited at a cost and mark-up of 7.5 per cent.

URA also highlighted that EABIL, obtained income from the export of beer, which was sold to third parties at a cost and mark-up of 70 to 90 per cent.

In the ruling the tribunal stated that there was doubt on how EABIL was able to purchase goods from Uganda Breweries Limited and export them without having a presence in Uganda.

“This doubt is exacerbated by the invoices and dispatch notes tendered in evidence that show that they were issued in Uganda. They had the address of the applicant as also in Kampala. How was the applicant stamping the said documents if it did not operate in in Uganda?” the tribunal ruled.

In neighbouring Kenya, the Court of Appeal ruled in favour of the brewer, EABL in a case against Bia Tosha, an alcohol distributor, where it had sought monopoly over the routes of product distribution.

According to the Standard Media reports, the ruling is expected to open the distribution of EABL products in parts of Nairobi to other companies that could not access these markets owing to claims of exclusivity by Bia Tosha.

Bia Tosha and EABL entered into a partnership in 1997. Bia Tosha was then distributing EABL products in Kiambu.

In 2000, Bia Tosha would get an even bigger territory that comprised Baba Dogo, Kariobangi North and Dandora Phase I and II. For the latter deal, Bia Tosha paid a goodwill fee of Sh6.63 million (US$61,875).

Bia Tosha’s territory grew in 2006 and included the area between Kitengela and Namanga, parts of Langata and Rongai as well as Ngong Road and Dagoretti, making it one of the largest distributors. For the new contract, the distributor paid Sh27.3 million (US$254,700) as goodwill.

After clinching the larger territory, EABL had demanded that Bia Tosha gives up the routes it had been servicing in Nairobi’s Eastlands.

This ignited the dispute after EABL assigned other distributors in the area. In 2011, Bia Tosha had demanded a refund of the goodwill it had paid to EABL for the distributorship in Baba Dogo, Kariobangi North, Dandora I and Dandora II. That was when Bia Tosha filed its suit that was determined by the High Court in 2016.

The Court of Appeal has now ruled that it was anti-competitive and contrary to the Competition Act for Bia Tosha to make the claims. It also noted that such a move would occasion financial loss to other distributors and inconvenience EABL customers.

The court has referred EABL and Bia Tosha to arbitration as per their distribution agreement. Bia Tosha has the right to appeal the judgement within 30 days at the Supreme Court.

“Order made on June 29, 2016 is hereby set aside and substituted with an order staying the proceedings before the High Court pending the dispute being referred to arbitration,” reads the ruling made by a three bench judge.

“The dispute between the first appellant (EABL) and the first respondent (Bia Tosha) shall be referred to arbitration in accordance with the respective parties’ distributorship agreements.”

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