This FT Note covers the interest deductibility and BEPS Action 4 issues in this ruling. Rwenzori Commodities is a tea grower and processor — the interest expense at issue arises from ordinary commercial borrowing, not a TP correction on a specific intragroup financing arrangement. It is covered because the Tribunal’s treatment of BEPS Action 4 and the gross/net interest question is directly relevant to capital structure analysis for groups operating in Uganda and comparable African jurisdictions.
The facts
Rwenzori Commodities Limited (the Applicant) grows and manufactures tea products in Uganda. The Uganda Revenue Authority (URA) International Tax Department reviewed the Applicant’s corporate income tax returns for 2019–2021 and found that interest expense of Shs 1,738,250,300 exceeded the 30 per cent EBITDA cap in section 25(3) of the Income Tax Act. Relying on that provision, the URA disallowed the excess and raised additional assessments totalling Shs 521,475,118.
The Applicant objected on the basis that it had both paid interest on debt and earned taxable interest income during the relevant periods. Its position was that section 25(3) should be applied to net interest expense — interest expense minus interest income — not to gross interest expense in isolation. Using gross interest, it argued, produced double taxation: the Applicant was taxed on interest income it earned and simultaneously denied a deduction for the full cost of the interest expense that income was meant to offset. The URA rejected the objection on 30 January 2024, maintaining that the statute requires gross interest. The Applicant brought the matter to the Tax Appeals Tribunal at Kampala as Application No. 36 of 2024.
The Tribunal’s findings
The Tribunal identified the central issue as whether section 25(3) of the Income Tax Act caps deductible interest on a gross or net basis.
On the statutory text: section 25(1) allows a deduction for ‘interest incurred’ on a debt obligation used to generate taxable income, and section 25(3) caps ‘deductible interest’ — the interest that would otherwise be allowed under subsection (1) — at 30 per cent of tax EBITDA. The Tribunal read subsection (5)’s EBITDA definition as reinforcing this: EBITDA is computed by adding back interest deducted under subsection (1), which is gross interest expense. Nothing in the Act refers to net interest or authorises netting of interest income against interest expense before applying the cap. The plain meaning of the provision is gross.
On GAAP: the Applicant argued that section 38(1) — which requires accounting methods to conform to generally accepted accounting principles — supports netting, since under IAS 1 interest income and interest expense may be presented net. The Tribunal rejected this. Accounting principles govern how records are maintained; they do not override express tax legislation. The tax position is determined by the statute, not by the taxpayer’s accounts.
On BEPS Action 4: the Applicant argued that OECD BEPS Action 4 — which recommends applying the fixed ratio rule to net interest expense — should inform the interpretation of section 25(3). The Tribunal declined. BEPS Action 4 was published in 2015. Uganda enacted section 25 in its current form through the Income Tax (Amendment) Act 2018, three years later, without incorporating a net interest rule. The deliberate legislative choice not to adopt the BEPS recommendation defeats the interpretive argument. OECD guidelines are persuasive where domestic legislation is silent; they cannot override a clear statutory provision. The application was dismissed, with costs awarded to the URA.
ajiho commentary
BEPS adoption is not BEPS alignment
The Tribunal’s reasoning is tight and probably correct on its own terms. Uganda’s section 25 says what it says, and a tribunal cannot read into legislation what Parliament chose to leave out. But the case exposes a structural problem that is not unique to Uganda: many African jurisdictions have adopted the BEPS Action 4 fixed ratio rule in form — a 30 per cent EBITDA cap — without adopting it in substance. The BEPS recommendation is a net interest rule, designed to measure the entity’s true net financing cost and limit deductions by reference to that figure. Applied to gross interest, the same percentage cap produces a materially harsher outcome for any entity that also earns interest income, including entities with cash deposits, intragroup receivables, or treasury balances.
The result is that groups operating in Uganda face an interest limitation that is structurally more aggressive than what BEPS Action 4 recommends, even though Uganda’s rule is nominally BEPS-derived. For capital structure planning this is not a technicality — it directly affects the optimal debt level, the placement of interest-bearing assets, and the efficiency of intragroup treasury arrangements. The Tribunal acknowledged the double taxation concern but concluded it was a matter for Parliament, not the courts.
What this means for your business
The practical consequence of a gross interest cap — confirmed and now on the TAT record — is that the 30 per cent EBITDA threshold is reached more quickly than it would be under a net interest rule. Two things follow. First, the optimal debt level for a Ugandan entity is lower than a BEPS-aligned jurisdiction would suggest, because the cap bites harder. Second, interest-earning assets — cash deposits, intragroup loans receivable, treasury balances — do not reduce the cap exposure at all under the gross rule, even though they generate taxable income that is economically offsetting. Holding interest-earning assets inside a Ugandan entity while that entity is also a net borrower is structurally inefficient under the current rule.
Groups with existing Ugandan structures should review whether the current debt loading and asset placement remain optimal in light of this ruling. The carry-forward provision in section 25(4) — which allows excess interest to be carried forward for up to three years — provides some relief, but does not cure the structural problem for entities that are consistently above the cap.
Case reference
Rwenzori Commodities Limited v Uganda Revenue Authority · Tax Appeals Tribunal at Kampala · Application No. 36 of 2024 · 30 July 2025
Tribunal: Ms Crystal Kabajwara (Chairperson), Mr Siraj Ali (Member), Ms Christine Katwe (Member). Primary source: official TAT ruling [2025] UGTAT 19. This FT Note covers the interest limitation and BEPS Action 4 issues only.