In this case the Uganda Revenue Authority (URA) sought to lift the corporate veils of five companies—Crane Autos Ltd (in liquidation), Kampala Properties Ltd, Punjani Motors Ltd, East African Motor Supplies Ltd, and Autotune & Engineering Ltd—alleging they were associated entities used in a tax evasion scheme. URA claimed that Crane Autos owed over UGX 20 billion in unpaid taxes stemming from transactions through its Dubai branch, and that the other four companies had been used to conceal assets and frustrate tax recovery.
Judgment
The High Court found that although the corporate veil should only be pierced in exceptional cases involving misuse of the corporate form to commit fraud or evade obligations, this was one such case. The evidence showed that the five companies shared common ownership, directors, employees, and addresses, and that transactions—particularly involving the resale of Ural trucks to East African security forces—were structured through the Dubai branch to shift profits offshore and avoid Ugandan tax. The 4th respondent (East African Motor Supplies) was the appointed Ural distributor in East Africa but instead bought trucks via the Dubai branch at marked-up prices. Management fees and bonuses were then paid offshore to Salim Punjani, without declaration or withholding tax.
The Court also held that the timing of share transfers and liquidations, just after URA began its investigations and demanded compliance, indicated a deliberate effort to disassociate and shield assets from creditors, especially the URA. The court applied a dynamic and purposive interpretation of section 108 of the Insolvency Act, allowing veil-piercing even where companies were not directly controlled by the insolvent, if they were effectively under the same directing mind.
Concluding that all five companies functioned as a single economic entity orchestrated to avoid tax, the Court ordered that their assets be pooled and used to satisfy the tax liabilities of Crane Autos Ltd. The companies, including their directors and shareholders, were made jointly and severally liable.
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