Professional fees under Kenya - France DTA are not subject to Withholding Tax

Background

This Alert brings to your attention the Tax Appeals Tribunal’s judgment in the case of Total Kenya Limited (Taxpayer) vs Commissioner of Domestic Taxes (KRA) Appeal No 151 of 2016 (Consolidated with Appeal No. 16 of 2017).

The Taxpayer entered into a General Assistance Agreement with Total Outré Mer (TOM) for technical and general assistance services. These services included general management, strategy development, human resources, corporate affairs, logistic supply and commercial development. Consequently, the Taxpayer withheld tax on the payments for technical services made to TOM.

On 4 December 2007, the Government of Kenya and France entered a Double Tax Agreement (DTA). The Taxpayer stopped remitting WHT for technical services on the effective date of the DTA on grounds that Kenya had no taxing rights and TOM had no Permanent Establishment (PE) in Kenya.

KRA rejected this position and demanded WHT for the period 2011-2012 and 2013- 2015 amounting to KES 310,068,589 and KES 256,849,272 respectively. KRA cited Article 21(4) of the DTA dealing with ’other income’ and Section 35 (1) of the Income Tax Act (ITA).

The Taxpayer objected and invoked Article 24 of the DTA initiating a Mutual Agreement Procedure (MAP) with the competent authorities to resolve the dispute. However, this was closed without resolution and the matter brought back to the Tribunal for determination.

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