{"id":43,"date":"2024-05-27T16:55:00","date_gmt":"2024-05-27T16:55:00","guid":{"rendered":"https:\/\/taxbaraza.co.ke\/?p=43"},"modified":"2025-07-27T17:50:44","modified_gmt":"2025-07-27T17:50:44","slug":"case-law-naivas-kenya-ltd-vs-commissioner-for-dommestic-taxes","status":"publish","type":"post","link":"https:\/\/taxbaraza.co.ke\/?p=43","title":{"rendered":"Case Law: Naivas Kenya LTD vs Commissioner for Dommestic Taxes"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

Naivas Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal No. 934 of 2022) [2023] KETAT 499 (KLR)<\/strong>, delivered on 4 August 2023<\/strong>:<\/p>\n\n\n\n

Genesis and Background of the Case<\/strong><\/h3>\n\n\n\n

The dispute in this case arose from a corporate tax assessment issued by the Kenya Revenue Authority (KRA) against Naivas Kenya Limited (NKL) after KRA appointed NKL as the tax representative for Gakiwawa Family Investments (GFI), a Mauritian-based investment holding company. The transaction in question involved the sale of a 30% stake<\/strong> in Naivas International Limited (NIL)<\/strong> by GFI to Amethis Retail<\/strong>, finalized in March 2020<\/strong> at a value of Kshs. 5.2 billion<\/strong>. The KRA assessed corporate tax liability amounting to Kshs. 1,794,000,000<\/strong>, inclusive of penalties and interest, and issued an objection decision on 18 July 2022<\/strong>.<\/p>\n\n\n\n

Naivas Kenya Limited contested both the assessment and their appointment as tax representative, arguing that they were neither involved in the transaction nor met any statutory criteria for such a designation. The central legal question revolved around whether GFI was a Kenya tax resident<\/strong> under the Income Tax Act<\/strong>, and whether NKL was rightly appointed a tax representative under Section 15 and 16 of the Tax Procedures Act<\/strong>.<\/p>\n\n\n\n

Background of the Case<\/strong><\/h3>\n\n\n\n
    \n
  1. Corporate Structure<\/strong>: GFI (Mauritius) owns NIL (Mauritius), which in turn owns Naivas Kenya Limited. GFI is a family investment vehicle and originally owned 100% of NIL.<\/li>\n\n\n\n
  2. The Transaction<\/strong>: On 4 December 2019<\/strong>, Amethis Retail acquired a 30% stake<\/strong> in NIL from GFI, with the deal concluding in March 2020<\/strong> for Kshs. 5.2 billion<\/strong>.<\/li>\n\n\n\n
  3. Tax Assessment<\/strong>: KRA issued a corporate tax assessment on 27 May 2022<\/strong>, arguing the sale was taxable in Kenya and appointed NKL as GFI\u2019s tax representative. The tax was assessed at 30% of Kshs. 5.2 billion<\/strong>, totaling Kshs. 1.56 billion<\/strong>, which grew to Kshs. 1.794 billion<\/strong> with penalties and interest.<\/li>\n\n\n\n
  4. Objection and Appeal<\/strong>: NKL lodged an objection on 17 August 2022<\/strong> and filed this appeal on 10 June 2022<\/strong>, challenging both the assessment and the appointment as a tax representative.<\/li>\n<\/ol>\n\n\n\n

    Appellant’s Submissions (Naivas Kenya Limited)<\/strong><\/h3>\n\n\n\n
      \n
    1. No Nexus<\/strong>: NKL argued it had no involvement in the share sale transaction between GFI and Amethis, and therefore had no tax obligation arising from it.<\/li>\n\n\n\n
    2. Separate Legal Entities<\/strong>: NKL emphasized corporate separateness, asserting that GFI, NIL, and NKL are distinct entities and GFI\u2019s actions do not confer liability on NKL.<\/li>\n\n\n\n
    3. No Statutory Qualification<\/strong>: Citing Section 15(1)(i)<\/strong> of the Tax Procedures Act<\/strong>, NKL stated that it was not in control of GFI\u2019s affairs in Kenya and thus did not meet the criteria to be appointed as GFI\u2019s tax representative.<\/li>\n\n\n\n
    4. No Control Over GFI\u2019s Assets or Income<\/strong>: Under Section 16(5)<\/strong> of the same Act, NKL argued that since it held no assets or income on behalf of GFI, any attempt to make it liable was futile.<\/li>\n\n\n\n
    5. Violation of Fair Administrative Action<\/strong>: NKL alleged that KRA violated Article 47 of the Constitution<\/strong> and Section 4(2)<\/strong> of the Fair Administrative Action Act<\/strong>, for not giving clear reasons for their appointment.<\/li>\n\n\n\n
    6. No Evidence of Piercing the Veil<\/strong>: NKL maintained that KRA failed to meet the legal threshold for lifting the corporate veil and did not demonstrate any fraud or improper conduct.<\/li>\n\n\n\n
    7. Improper Use of Objection Decision<\/strong>: NKL argued that KRA wrongfully transformed the objection decision into an assessment tool against NKL, contrary to Section 51(8)<\/strong> of the Tax Procedures Act<\/strong>.<\/li>\n<\/ol>\n\n\n\n

      Respondent’s Submissions (KRA)<\/strong><\/h3>\n\n\n\n
        \n
      1. Control and Management in Kenya<\/strong>: KRA asserted that GFI is effectively managed from Kenya by Kenyan directors, thus making it a Kenya tax resident<\/strong> under Section 3(b)<\/strong> of the Income Tax Act<\/strong>.<\/li>\n\n\n\n
      2. Central Management & Control Test<\/strong>: Drawing on UK case law (e.g., De Beers<\/strong>, Laerstate BV<\/strong>), KRA stated that actual decision-making for GFI occurred in Kenya, not Mauritius.<\/li>\n\n\n\n
      3. Substance Over Form<\/strong>: KRA conducted an “independent entity test” and found that GFI had no substantial business or physical presence in Mauritius, implying it was a shell entity.<\/li>\n\n\n\n
      4. Legal Basis for Appointment<\/strong>: KRA justified NKL\u2019s appointment under Section 15(1)(i)<\/strong> of the Tax Procedures Act<\/strong>, stating that NKL managed GFI\u2019s affairs in Kenya by virtue of being a subsidiary.<\/li>\n\n\n\n
      5. Income Derived from Kenya<\/strong>: KRA argued that the gain from the share sale constituted income accrued in Kenya<\/strong>, hence subject to corporation tax under Section 3(2)(a)(i)<\/strong> of the Income Tax Act<\/strong>.<\/li>\n\n\n\n
      6. Section 16(5) Irrelevant to Appointment<\/strong>: KRA claimed that Section 16(5) limits liability\u2014not qualification\u2014for a tax representative and does not bar such an appointment.<\/li>\n\n\n\n
      7. Tax Transparency and Enforcement<\/strong>: KRA maintained that the structure was designed to avoid tax and that substance must override form in such circumstances.<\/li>\n<\/ol>\n\n\n\n

        Tribunal\u2019s Decision<\/strong><\/h3>\n\n\n\n
          \n
        1. GFI is Tax Resident in Kenya<\/strong>: The Tribunal held that GFI was managed and controlled in Kenya<\/strong>, based on the activities and decision-making authority of its Kenyan directors, fulfilling the \u201cmanagement and control\u201d test<\/strong> for tax residence.<\/li>\n\n\n\n
        2. Nexus Exists Between NKL and Transaction<\/strong>: The Tribunal concluded that there was sufficient substantive linkage<\/strong> between NKL and the transaction, warranting the appointment of NKL as a tax representative<\/strong>.<\/li>\n\n\n\n
        3. Appointment Under Law Was Proper<\/strong>: The Tribunal found that Section 15(1)(i)<\/strong> of the Tax Procedures Act<\/strong> provided a lawful basis for appointing NKL, and Section 16(5)<\/strong> does not preclude such appointment.<\/li>\n\n\n\n
        4. Appeal Dismissed<\/strong>: The Tribunal dismissed the appeal<\/strong>, upheld the objection decision dated 18 July 2022<\/strong>, and ordered each party to bear its own costs<\/strong>.<\/li>\n<\/ol>\n\n\n\n

          <\/p>\n","protected":false},"excerpt":{"rendered":"

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