SECTION A This section has one compulsory question to be attempted Question 1 (a) Property Management Company (U) Limited (PMCUL) is a wholly owned subsidiary of Property Management Company Limited - India (PMCIL). PMCUL deals in property management and quantity surveying. PMCUL acquires leases from individuals, companies and trusts and rents out the property for both commercial and residential use. Majority of PMCUL clients are Ugandan born Indian landlords who left Uganda in 1972 and have not been in Uganda since then. One of PMCUL's clients based in Canada, Mr. Abirig, recently requested PMCUL to manage his properties in Nairobi Kenya, in addition to his properties in Uganda. Mr. Abirig is not sure of his residence as he has two homes; one in Uganda and the other in Canada. Acting as the tax and finance manager at PMCUL: Required: Draft a letter to Mr. Abirig explaining: (i) with clear examples and relevant case law, how to determine his tax residence with respect to Uganda's tax laws. (7 marks) (ii) The tax treatment of his rental income from Kenya from a Ugandan tax perspective. (6 marks) (b) Recently, another client approached PMCUL with a request for their specialist knowledge in evaluating the financial viability of three investment options. The client wants to own and operate a hotel business based on one of the following options: 1. 2. The client owns a dilapidated hotel building, built in the early 1920s by the British colonialists. This building is located along the Nile River overlooking breath-taking water falls. Taking this option would require significant capital improvements to the old building but still maintain the same structure and design. The client can breakdown the old structure, construct and complete a new building in the same location by March, 2019. Extra costs aside, he has sentimental attachment to the old building and is not very enthusiastic about this option. I

3. The client could acquire a recently built six-storey hotel opposite its location on the Nile River. This building was constructed in 2012. However, for the last 5 years the topmost 3 floors have been used as residential apartments for Japanese contractors constructing the new Nile Bridge. Required: As the tax advisor to PMCUL: (i) draft a report on the tax implications of each investment option. (7 marks)

(ii) discuss the element of residue of expenditure highlighting any examples from the options mentioned above. (3 marks) (c) Recently Kingstone University (KU) entered the Ugandan market. KU was founded in 1782, is the twentieth oldest university in the English-speaking world and one of Scotland's ancient universities. The university is deeply embedded in the fabric of the city of Kingstone, with most of the buildings in the historic Old Town belonging to the university. However, due to the declining local population, there has been an increasing number of African students against a reducing number of local students. The university's management has identified a strategic gap and identified Uganda as a hub for it to expand its operations. The university approached PMCUL on the possibility of acquiring property on which to establish an educational institution. The university has also requested PMCUL to advise on the tax implications of the different options available to it. PMCUL has a sister company in the names of Malcolm Accounting and Management Training Institute (MAMTI) who is a tuition service provider. KU management is considering one of two options: 1. 2. Setting up a wholly owned subsidiary that acquires the land as identified by PMCUL, builds the campus and leases it to MAMTI; or Contracting MAMTI as a tuition provider who will acquire the land as identified by PMCUL and builds the campus in their names. Required: As the tax advisor to PMCUL: (i) (ii)evaluate the above proposals, their tax implications and then select an option giving your reasons. (9 marks)

advise on the incentives available to a tertiary education service provider. (5 marks)

(d) In addition to the investment in tertiary education, the university intends to set up a separate and functional state of the art laboratory to examine oil and gas samples extracted from geological and geophysical exploration activities from the Albertine region. These samples shall be analysed and results shared with the exploration and production companies at a fee. The laboratory will be a landmark investment of Kingstone University, UK, in Uganda. The land acquisition and the construction costs shall be provided by KU to PMCUL. All fees generated from the laboratory will be deposited directly on the University's account in Citibank in Scotland. The income is to be reflected in the income and expenditure of the books of account of the Kingstone University in Scotland. Required: As the tax advisor to PMCUL evaluate the tax implications of this arrangement. (6 marks) (e) Prior to 1 July, 2014 MAMTI was running both a management consultancy service and training institute. In this period, business income derived by a person from managing or running an educational institution was exempt from tax under provisions of S.21(1) aa. In its financial statements MAMTI incurred capital expenditure on the buildings that housed both the school and the management consultancy service. It claimed industrial building allowances on the buildings and this resulted into an assessed loss. Required: As the tax advisor, discuss the validity of the assessed loss resulting from the capital expenditure and its treatment. (7 marks)

Question 2 (i) (ii) (iii) (iv) explaining the steps taken before temporary closure of a business. (5 marks) discussing the other enforceable tax collection measures that can be utilised. (4 marks) outlining the errors made by the enforcement staff, if any. (4 marks) proposing possible remedial action, if any, to be taken against the officers. (3 marks) SECTION B The Sweet FM radio station operating in Bushenyi town is run under Sweet Sounds Uganda Limited (SSUL). Uganda Revenue Authority (URA) carried out an audit of SSUL which resulted in an assessment amounting to Shs 60,011,382 being income tax for the period 2015/ 16. An exit meeting was held with the directors of the company on 25 February, 2017 in which the tax was agreed upon. Following various reminders for clearance of the above taxes, SSUL defaulted on payment which resulted in URA issuing a warrant of distress and a notice of intention to close down the premises. The debt collection team consequently sealed off SSUL's premises from 6 March, 2017 till the end of the month. Clients who came to place radio advertisements and announcements only found large padlocks. This action resulted into loss of revenue for the station. SSUL has written a complaint letter to URA requesting that it investigates the actions taken and take remedial action on the officers that carried out the operation. Following a reconciliatory meeting with SSUL, it was discovered that the company had made a payment of Shs 30 million. However, this payment had been wrongly entered under customs duty. It was further discovered that the income tax return for the period 2014/ 15 had been filed with a liability of Shs 20 million but no payment had been made. A penalty of Shs 6 million has been raised and interest computed amounting to Shs 12 million. URA has transferred the payment to the income tax ledger. You are the URA manager in charge of Western Region and SSUL falls under your jurisdiction. Required: (a) Draft letter responding to SSUL: Page 5 of 10

(b) Draft liability notification letter to the management of SSUL explaining: (i) The allocation of the Shs 30 million to SSUL tax liabilities. (6 marks) (ii) When the Commissioner can undertake rectification of a mistake. (3 marks) (Total 25 marks) Question 3 (a) Tolby Oil Limited (TOL) has offered to acquire Kwatako Oil Company Limited (KOCL) interests in south western Uganda. KOCL acquired a license in 2014 under a private bid and over the next two years explored and discovered oil in a field named Tonya A3. In the last 4 years, KOCL has incurred the following expenditure: Signature bonus Exploration costs: Seismic data acquisition & analysis Drilling operations Well completion costs Development costs (FEED) 2014 USD 200,000 850,000 955,000 2015 2016 USD USD 350,000 100,000 400,000 600,000 400,000 2017 USD 800,000 600,000 2,000,000 KOCL intends to accept TOL's offer effective 1 January, 2018. TOL's proposal is to make a cash payment of USD 132 million, in addition to a work commitment amounting to USD 28 million. Required: As a the tax advisor to TOL, draft a memo: (i) explaining the basis on which the transaction is taxable. (ii) computing the value of the gain/ loss on disposal of the interest. (7 marks) (b) Following a URA audit, it was discovered that 40% of the costs in 2013 relate to part of the contract area that was relinquished. Furthermore, the auditors stated that the seismic data costs in 2012 were not allowable deduction because these were incurred prior to acquisition of the exploration license.

Required: (i) Draft an objection letter to URA stating whether you agree/ disagree with URA's treatment of seismic data costs from 2012 and your basis. (7 marks) (ii) Discuss the treatment of the costs relating to the part of the contract area that was relinquished? (5 marks) (Total 25 marks) Question 4 (a) Tukole Uganda (TuGa), a locally based NGO, has been operating in the Kalangala Islands for the last four years helping fishermen to acquire boats and nets on a pay as you fish basis. The activities of TuGa are open to benefit all fishermen from the area. The donor community from Canada have been impressed with the performance of TuGa and are interested in injecting more funds to ensure the programme touches more lives. The directors have requested you to ensure that the next consignment of boats and nets arrive free of withholding tax. Required: As the tax manager of TuGa, prepare a detailed report: (i) describing the conditions for an NGO to qualify for income tax exemption. (ii) explaining the exclusion of the doctrine of mutuality. (iii) explaining the tax treatment of the donor funds. (4 marks) (3 marks) (3 marks) (b) In addition, to the assistance given to the fishermen, TuGa has opened up a restaurant and guest house that serves food to the foreign tourists, the local population and the public. The donor funds and the surplus revenue from the guest house and eatery are placed on two separate fixed deposit accounts with the interest used to pay for the directors' trips to Canada to address the donors. Required: (i) Advise on nature of the different income and its tax treatment. (5 marks) (ii) Explain whether the above circumstance would affect the tax exemption sought above. I

(c) Tupakase Uganda Limited (Tupakase) is a manufacturer of fishnets and the main supplier of TuGa. Tupakase is willing to donate a significant number of fishnets to TuGa especially if it successfully sought tax exemption. At the end of 2016, TuGa successfully sought for tax exemption from the Commissioner. In 2017, Tupakase made gross revenues of Shs 10 billion of which the chargeable income was Shs 1 billion. Tupakase made a donation of fishnets to TuGa worth Shs 69 million in 2017. The cost of production of the nets to Tupakase was Shs 47 million. Required: (i) (ii) Discuss why Tupakase would be interested in TuGa's tax exemption before it donates fish nets to TuGa. (3 marks) Compute the tax deduction, if any, that will be allowed to Tupakase on the donation of fishnets made to TuGa. (4 marks) (Total 25 marks)

Not exceeding Shs 2,820,000 (Shs 235,000 pm) Exceeding Shs 2,820,000 (Shs 235,000 pm) but not exceeding Shs 4,020,000 (Shs 335,000 pm) Nil 10% of the amount by which chargeable income exceeds Shs 2,820,000 (Shs 235,000 pm) RATES OF TAX Resident Individuals Chargeable income Rate of tax Exceeding Shs 4,020,000 (335,000 pm) but not exceeding Shs 4,920,000 (Shs 410,000 pm) Shs 120,000 (10,000 pm) plus 20% of the amount by which chargeable income exceeds Shs 4,020,000 (Shs 335,000 pm). Exceeding Shs 4,920,000 (Shs 410,000 pm) (a) Shs 300,000 (Shs 25,000 pm) plus 30% of the amount by which chargeable income exceeds Shs 4,920,000 (Shs 410,000 pm) and (b) Where the chargeable income of an individual exceeds Shs 120,000,000 (Shs 10,000,000 pm) an additional 10% charged on the amount by which chargeable income exceeds Shs 120,000,000 (Shs 10,000,000 pm). Non-resident Individuals Not exceeding Shs 4,020,000 (Shs 335,000 pm) 10% Chargeable income Rate of tax Exceeding Shs 4,020,000 (335,000 pm) but not exceeding Shs 4,920,000 (Shs 410,000 pm) Shs 402,000 (Shs 33,500 pm) plus 20% of the amount by which chargeable income exceeds 4,020,000 (Shs 335,000 pm). Exceeding Shs 4,920,000 (Shs 410,000 pm) (a) Shs 582,000 (Shs 48,500 pm) plus 30% of the amount by which chargeable income exceeds Shs 4,920,000 (Shs 410,000 pm) and (b) Where the chargeable income of an individual exceeds Shs 120,000,000 (Shs 10,000,000 pm) an additional 10% charged on the amount by which chargeable income exceeds Shs 120,000,000 (Shs 10,000,000 pm). Small Business Taxpayers Gross Turnover Tax Payable Where the gross turnover of the taxpayer exceeds Shs 50 million but does not exceed Shs 75 million per annum. Where the gross turnover of the taxpayer exceeds Shs 75 million but does not exceed Shs 100 million per annum. Where the gross turnover of the taxpayer exceeds Shs 100 million but does not exceed Shs 125 million per annum. Where the gross the turnover of the taxpayer exceeds Shs 125 million but does not exceed Shs 150 million per annum. Shs 937,500 or 1.5% of the gross turnover, whichever is lower Shs 1,312,500 or 1.5% of the gross turnover, whichever is the lower. Shs 1,687,500 or 1.5% of the gross turnover, whichever is the lower. Shs 2,062,500 or 1.5% of the gross turnover, whichever is the lower.

Small Business Taxpayers Tax Rates where the gross turnover is below Shs 50 million (i) Kampala City and Divisions of Kampala Income Tax - Paper 8 Business Trade General trade Carpentry /metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Clinics Drug shops Others (ii) Municipalities Business Trade General trade Carpentry/ metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Clinics Drug shops Others (iii) Towns and Trading Centres Business Trade General trade Carpentry / metal workshops Garages (motor vehicle repair) Hair and beauty salons Restaurants or bars Clinics Drug shops Others Between Shs 35 - 50 million 500,000 500,000 550,000 550,000 550,000 550,000 500,000 450,000 Between Shs 35 - 50 million 400,000 400,000 450,000 450,000 450,000 450,000 400,000 400,000 Between Shs 35 - 50 million 300,000 300,000 350,000 350,000 350,000 350,000 300,000 300,000 Turnover Between Shs 20 - 35 million 400,000 400,000 450,000 400,000 450,000 450,000 350,000 300,000 Turnover Between Shs 20 - 35 million 300,000 300,000 350,000 350,000 350,000 350,000 300,000 350,000 Turnover Between Shs 20 - 35 million 200,000 200,000 250,000 250,000 250,000 250,000 200,000 250,000 Between Shs 10 - 20 million 250,000 250,000 300,000 300,000 300,000 300,000 100,000 200,000 Between Shs 10 - 20 million 150,000 150,000 200,000 200,000 200,000 200,000 150,000 150,000 Between Shs 10 - 20 million 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000