KPMG report: Digital platform operator with transactional control liable for VAT (Kenya High Court decision)

The Kenya High Court on October 23, 2025, held in Commissioner of Domestic Taxes v. Sendy Limited (Income Tax Appeal E137 of 2024) that digital platforms exercising significant control over transactions are deemed principal sellers for valued added tax (VAT) purposes.

Summary

The taxpayer operated a digital marketplace for delivery services, connecting third-party customers with independent transporters. The taxpayer argued that the transport services were provided by the third-party sellers and that their VAT obligation was limited to the commissions it charged to the drivers for the use of its platform. Furthermore, it had earlier obtained a private ruling from the tax authority stating that it was liable for VAT only on its commissions. A Tax Tribunal held in the taxpayer’s favor, finding that it did not provide transport services.

On appeal, the High Court, analyzing the VAT Act, noted that the law broadly defines the provision of services and does not specify who the provider is in complex, multi-party transactions on digital platforms. The court relied on European Union (EU) VAT jurisprudence, particularly Article 28 of the EU VAT directive, which presumes a platform is the seller if it acts in its own name or sets terms and conditions. The court also reviewed relevant CJEU cases, distinguishing between platforms acting as sellers and those merely providing information services. It emphasized assessing the economic reality over contractual form.

The court found that the taxpayer controlled the transport services by setting prices, dispatching service providers, issuing payment requests as tax invoices, and collecting payments. Consequently, it held that the taxpayer was liable for VAT on the full customer payment, rather than only on its commission.

The judgment also clarified that private rulings issued by the Kenya Revenue Authority (KRA) cannot override statutory interpretation by a court. Although the taxpayer had obtained a private ruling confirming VAT liability only on commissions, the court held that administrative opinions cannot supersede judicial determinations.

KPMG observation

The High Court’s decision marks a material shift in how VAT obligations may be assessed for digital marketplace platforms operating in Kenya. By affirming that a platform exercising substantive control over key aspects of a transaction—such as price setting, dispatch, invoicing, and payment collection—can be deemed the principal supplier, the decision significantly broadens the potential VAT exposure for marketplace operators. Under that approach, VAT may be imposed on the full customer payment, not merely the commission or facilitation fee earned by the platform.

This development is particularly relevant for both resident and nonresident digital platforms, including gig‑economy, sharing‑economy, and multi‑sided marketplaces whose business models involve more than passive facilitation. In practice, the KRA may increasingly apply this reasoning in audits and compliance reviews, especially when platforms exercise operational or economic control similar to the features highlighted by the court.

Given the heightened audit risk, nonresident platforms facilitating transactions in Kenya, including beyond the sale of digital services, need to reevaluate the nature of their activities, contractual arrangements, user terms, and operational flows to determine whether the Sendy criteria could apply. When elements of control are present, the KRA may assert that VAT is due on the gross transaction value, creating retroactive exposure and potential penalties.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com