Capital gains tax on indirect changes in ownership

A foreign sale with a Ugandan tax consequence

Enviroserv Uganda’s direct shareholders stayed the same. Yet a sale higher up the group led to a Ugandan income tax assessment of UGX 9,267,550,780. The case shows why a local share register alone cannot settle the tax consequences of a group transaction.

Enviroserv Uganda Limited operates in waste management. Its shares were held by EnviroServ Waste Management Proprietary Limited, a South African company, with 52%, and Green Albertine Limited, a Ugandan company, with 48%.

Rockwood Fund 1 began divesting its interest in the group in 2019. The share purchase agreement took effect on 30 September 2022. The sale of the group holding company to new owners changed the indirect ownership of the 52% interest in Enviroserv Uganda, although its immediate shareholders remained unchanged. URA assessed the Ugandan company on a deemed capital gain. [1]

The threshold is 50% or more

The Tax Appeals Tribunal read section 78(h) of the Income Tax Act together with section 74(2). As quoted in the ruling, the provisions cover a change of ownership of 50% or more, including an indirect change. Section 74(2) brings in a three-year period.

Here, the threshold was crossed in one transaction. The Tribunal explained that the three-year period also captures gradual changes that reach the threshold within that period. It does not give a company three years to wait after a qualifying change has already occurred. [1]

Why the Ugandan company bore the tax

Section 74(2) was central to identifying the taxpayer. The Tribunal held that the Ugandan company was treated as realising all its assets and liabilities immediately before the ownership change, with the assets deemed realised at market value and then reacquired.

That mechanism required Enviroserv Uganda to calculate the resulting gain or loss. The Tribunal distinguished this deemed realisation by the resident company from a tax on the non-resident sellers’ share proceeds.

This distinction also explained its treatment of the Uganda–South Africa Double Taxation Agreement. The Tribunal found that the treaty did not prevent the assessment in this case because the deemed gain was attributed to the Ugandan resident company. That conclusion should be read in the context of these facts and the provisions applied. [1]

An unchanged local share register can still sit beneath a significant change in ownership.

The liability and the calculation are separate questions

URA had apportioned the cost base by reference to the group’s 52% shareholding. The Tribunal rejected that approach: section 74(2) treated all the company’s assets and liabilities as realised, so it did not support apportioning the cost base in that way.

The Tribunal also found shortcomings in both parties’ calculations. They needed to account for liabilities and distinguish tax-depreciable assets from other assets. On 11 June 2025, it set aside the assessment and returned the matter to URA for recomputation, while holding that the transaction fell within section 74(2). [1]

A further ruling on 27 June 2025 corrected the formula in the original decision to D = A − (B − C): the deemed realisation proceeds at market value, less the net asset position. In the Tribunal’s explanation, B represents the relevant asset values and C the liabilities. This correction matters when reading or applying the original calculation. [2]

Three checks before a group ownership change

• Map the full ownership chain. Record direct and indirect interests before and after the transaction. Track the effective dates and earlier changes relevant to the three-year period.
• Prepare the valuation and tax records. Assemble asset-level market values, tax written-down values, other relevant asset values and liabilities at the transaction date. Reconcile the calculation to the supporting records; do not assume the percentage sold determines the deductible cost base.
• Assess the Ugandan entity’s exposure before completion. Bring local tax advisers into the group transaction early. Establish who bears the tax, test any treaty or relief argument against the actual transaction, and plan for the resulting funding and reporting obligations.

A foreign share sale can have consequences for a Ugandan subsidiary even when its direct shareholders do not change. Trace the ownership first, then substantiate the gain or loss using the applicable law.

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Sources and case details

1. Tax Appeals Tribunal: Enviroserv (U) Ltd v Uganda Revenue Authority, Application No. 378 of 2024, ruling dated 11 June 2025. See pages 1–2 and 13–25.
2. Uganda Revenue Authority v Enviroserve (U) Ltd, Miscellaneous Application No. 134 of 2025, ruling dated 27 June 2025. See pages 2–3 and 7–8.
3. Judiciary: Commercial Division cause list, 27–31 October 2025, page 36, records a subsequent High Court appeal, Civil Appeal No. 79 of 2025. The cause list does not establish the outcome of that appeal.

Adapted from Kisaka & Company’s LinkedIn update of 30 January 2026. This note explains the Tribunal’s June 2025 rulings using the statutory numbering in those decisions; it does not report an appellate determination. A particular transaction requires analysis of its facts and the law applicable to its period.