Coca-Cola’s Ugandan marketing agency, Allied Beverages Limited, has been found guilty of attempting to evade Value Added Tax (VAT) amounting to Shs 9.7 billion by falsely classifying local advertising services as exports, according to a ruling by the Tax Appeals Tribunal.The Tribunal sided with the Uganda Revenue Authority (URA), confirming that promotional campaigns carried out between December 2020 and August 2022 were conducted and consumed within Uganda, and therefore subject to the standard 18% VAT rate under the VAT Act.At the heart of the case was a contract between Allied Beverages and The Coca-Cola Export Corporation (TCCEC), a U.S.-based affiliate. Allied invoiced TCCEC for marketing services, arguing that since the contracting entity was outside Uganda, the services qualified as exports and should be zero-rated for VAT purposes.But the Tribunal ruled that this was a misrepresentation intended to mask local consumption.“The economic reality of the marketing services provided by the Applicant is that they were performed in Uganda and targeted Ugandan consumers. The direct beneficiary was Century Bottling Company (CBL), Coca-Cola’s bottling partner in Uganda,” the Tribunal ruled.Disguised Local Advertising as ExportsEvidence presented showed that Allied Beverages ran extensive promotional campaigns across Ugandan media — including Capital FM, NTV Uganda, Radio Simba, BBS TV, and on local billboards — to boost sales of Coca-Cola products such as Fanta, Minute Maid, and Nutri Bushera.Even though Allied pointed to a March 2022 addendum in their contract claiming the services were used and consumed outside Uganda, the Tribunal rejected this as a deliberate attempt to distort the actual location of service delivery.“The Applicant subcontracted Ugandan advertising agencies to run campaigns in local languages for the benefit of Ugandan consumers. This was not export; this was local consumption,” the ruling stated.URA lawyers dismissed the notion that the services were “consumed in Atlanta,” branding it a “fiction” aimed at avoiding taxes on revenue earned in Uganda.Legal Form vs Economic SubstanceAllied Beverages had leaned heavily on contractual wording to argue for export status, but the Tribunal emphasized that substance overrides form in tax matters.“While a contract may indicate a place of consumption, this cannot override the factual context of the service delivery,” the Tribunal stated, warning that multinational firms cannot use legal technicalities to escape taxation.The Tribunal drew on precedents — including the Elma Philanthropies and Allied Beverages High Court cases — to reinforce the principle that tax liability is determined by the location where the service is actually used, not where the invoice is addressed.Credit Note Relief Granted, But Tax Position RemainsWhile URA secured a win on the core VAT issue, the Tribunal faulted the tax body for blocking Allied Beverages from correcting a credit note worth Shs 4.68 billion, which could reduce the final tax payable.URA had declined to reopen the tax period in its Electronic Fiscal Receipting and Invoicing System (EFRIS), which was necessary to post the revised credit note.“The Respondent denied the Applicant the opportunity to correct the matter by not opening up the period. The correct and right thing is to allow the Applicant to post the credit note,” the Tribunal ruled, referring the issue back to URA for review.Costs and Broader ImplicationsThe Tribunal ordered Allied Beverages to pay 80% of the legal costs, underlining that companies must not abuse cross-border contractual relationships to avoid domestic tax obligations.URA welcomed the ruling as a significant milestone in its efforts to tighten compliance among multinational companies and their local affiliates.“This ruling sends a strong message to marketing and service agencies that the place of consumption — not the location of the client — is what determines VAT obligations in Uganda,” a URA official told this publication.The case also shines a spotlight on Coca-Cola Beverages Africa’s operations in Uganda. The company restructured in 2022, consolidating Rwenzori Bottling Company and Century Bottling Company into Coca-Cola Beverages Uganda Limited (CCBU). It also operates a plastic recycling plant in Uganda through Rwenzori Bottling.The ruling may prompt a wider investigation into the tax practices of large multinational marketing operations in Uganda, especially where services are rendered domestically but invoiced internationally to exploit loopholes.The post MULTINATIONAL TRICKS FAIL: Coca-Cola Agent Exposed In Shs9.7Billion Tax Evasion Case appeared first on The Insider.