URA Triumphs in Landmark Tax Evasion Case Against Crane Autos Limited

The Uganda Revenue Authority (URA) has achieved a major legal victory in its battle against Crane Autos Limited, a leading car importing company accused of evading Sh20.1 billion in taxes.

The case, presided over by High Court Judge Justice Stephen Mubiru, culminated in a ruling favoring URA on July 16, 2024. The court found that Crane Autos Limited, along with its affiliates, engaged in unlawful tax avoidance practices. These included using transfer pricing and exploiting tax havens to shift profits and conceal taxable income.

Transfer pricing involves setting prices for transactions between related entities within a multinational corporation. By manipulating these prices, companies can transfer profits from high-tax regions to subsidiaries in low-tax or no-tax jurisdictions, thereby reducing their overall tax liabilities. For example, a parent company might sell goods to a subsidiary at inflated prices, shifting profits to the subsidiary in a tax haven.

Tax havens are jurisdictions known for minimal or nonexistent tax obligations, strict financial secrecy, and limited regulatory oversight. Businesses often establish shell companies or special purpose entities (SPEs) in these regions to benefit from favorable tax conditions. Intellectual property (IP) holding companies are also commonly set up in tax havens to manage royalties and licensing fees with minimal tax impact.

While these practices can be legally complex, they raise significant ethical and economic issues. They undermine the tax bases of higher-tax countries, resulting in diminished public revenues.

In this case, Crane Autos Limited was found to have set up a branch in Dubai, operating from 2002 to 2020. The branch facilitated the purchase of Ural armored trucks from M/s Ural Automobile Works JSC and their subsequent sale at a markup to East African Motor Supplies Ltd, a company under the same management. The Dubai branch’s role was limited to aggressive transfer pricing, shifting profits to an offshore entity in a tax haven.

Judge Mubiru ruled that, given the public interest in addressing the suspected unlawful tax avoidance scheme, there were grounds to delay the dissolution of Crane Autos Limited. The company’s self-declared taxes amounted to Sh603.8 million, but URA’s investigations uncovered additional liabilities of Sh20.1 billion, bringing the total evaded tax to Sh20.7 billion.

URA highlighted the significance of this ruling, stating, “The court’s decision underscores the importance of vigilance against tax evasion schemes. By deferring the company’s dissolution, Uganda has preserved Sh20.1 billion in potential tax revenue.”