Tax
When a company structure tells only half the story
Techno Three v URA: dormant companies, interest deductions and the evidence behind a tax position.
The case behind the principle
An ownership chart shows who holds the shares. It takes a fuller record to show which companies trade, how a business borrows and where its interest payments go.
That distinction was central to Techno Three Uganda Limited v Uganda Revenue Authority. The construction company’s shareholders had registered three other businesses for future ventures. Those companies had not begun operating and filed nil income tax returns.
URA treated the shared ownership as placing Techno Three within a group for the purposes of section 25(3) of the Income Tax Act. It restricted interest deductions and issued assessments totalling approximately UGX 1.12 billion. The company challenged the assessments: the other entities were dormant, and the interest related to borrowing from third-party resident lenders.
On 4 February 2026, the Tax Appeals Tribunal ruled in the company’s favour and set aside the assessments. [1]
Why the underlying activity mattered
The Tribunal considered the purpose of the interest restriction alongside the ownership structure. Its reasoning focused on the absence, on these facts, of the profit-shifting concern the provision was intended to address: the associated entities were non-trading, while interest was paid to third-party resident lenders.
Applying the restriction mechanically would, in the Tribunal’s view, produce an unreasonable outcome. It also considered the implications for access to finance and the cost of doing business. [1]
A tax position is stronger when the records explain the business behind the structure.
The decision offers a specific lesson about statutory purpose and commercial evidence. It should not be read as a general exemption for bank borrowing, or as permission to disregard the wording of tax legislation.
What changed after the ruling
The law has since changed. The Income Tax (Amendment) Act, 2026 amended the definitions used in section 25. A group now requires at least 51% common underlying ownership and excludes dormant members. For this purpose, dormancy requires both an absence of business activity and no accounting transactions in the year of income. [2]
URA confirms that the Act commenced on 1 July 2026. [3] This later statutory change is distinct from the Tribunal’s February decision. The period under review matters: an earlier assessment and a current return may require different analyses.
A company described informally as “inactive” may still have transactions in its books. Check its records against the applicable definition before treating it as dormant.
Three checks for your finance team
- Document each entity’s activity. Keep ownership records, financial statements, ledgers and tax returns together. A nil return is part of the evidence; reconcile it with what the books and bank accounts show.
- Make the financing traceable. Retain loan agreements, lender details, bank statements and interest calculations. Record the commercial purpose of the borrowing and how the funds were used.
- Match the analysis to the period. Identify the legislation applicable to the year under review. Explain how the facts meet its requirements, and distinguish the case’s reasoning from the later amendment.
The useful question is straightforward: can another person follow the tax treatment from the company structure, through the commercial activity, to the supporting records?
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Sources and case details
- ICPAU: summary of Techno Three Uganda Limited v URA. Case reference: TAT Application No. 009 of 2025, ruling dated 4 February 2026. See also the ULII case record, [2026] UGTAT 3.
- Income Tax (Amendment) Act, 2026, section 5 (amendment of section 25).
- URA: effective date of the 2026 amendments, notice published 23 September 2026.
Adapted from Kisaka & Company’s February 2026 tax appeal update, with a legislative update as at 15 October 2026. This article provides general information; the treatment of a particular transaction depends on its facts and the law applicable to the period.