Tag Archives: TAX CONSULTING FIRMS IN KAMPALA

Brand Marketing and Advertising Services in Cross Border Trade; Where and How does consumption Occur for VAT Purposes?

Marketing and advertising services aim to build brand goodwill, which is an intangible asset tied to specific territories. It is obvious that brand visibility and consumer engagement occur within the market targeted by the advertisements and brand marketing, in this case, Uganda.

Goodwill, in law, is territorial and can be quantified financially but this is tied down to the territory in which the reporting entity operates because again in law, goodwill only exists with the existence of trading activities in a particular market. 

This means the economic benefit sought when buying marketing services is goodwill enhancement. This economic benefit is therefore realized in the market where goodwill is enhanced as a result of the brand marketing and advertising targeting that market. In this case Uganda and most certainly not in the United States.

TAX TREATMENT OF MARKETING AND PROMOTIONS ‘FREEBEES’; LEARNING INSIGHTS FROM THE CROWN BEVERAGES CASE

In finance, a credit memo’s role is not to constitute payment for goods or services but rather to adjust accounting records to reflect a reduction in receivables. In simpler terms, a credit memo corrects or cancels a previous transaction, and as such, cannot logically be considered a form of payment for subsequent transactions

In this case, the Tribunal’s characterization of the transactions between the taxpayer and its distributor as “purchases’’ of promotional sodas and the description of the credit memo as a “form of payment” for those goods may be problematic.

The credit memo issued by Crown Beverages does not reflect a new or separate purchase. Instead, it can only be, either a reversal or adjustment of previous transactions between Crown Beverages and Lira Resort Enterprises Ltd or a promotion discount for which a promotion expense is recognised in Crown Beverages books. It can not be both.

For income tax reporting purposes, treating the credit memo as a payment method for a new separate sales transaction could lead to unintended consequences and, potentially, open up a loophole for a tax avoidance scheme.