Nairobi Bottlers Ltd v Commissioner of Domestic Taxes [2024] KETAT 259 (KLR)

Nairobi Bottlers Ltd v Commissioner of Domestic Taxes (Appeal 1559 of 2022) [2024] KETAT 259 (KLR) (8 March 2024) (Judgment)

Neutral citation: [2024] KETAT 259 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1559 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

March 8, 2024

Between

Nairobi Bottlers Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya. It is an affiliate of the Coca-Cola group of Companies and its principal activity is the manufacture and bottling of various beverages under licence by the Coca-Cola Group.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5(2) of the Act with respect to performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. On 22nd May 2019, the Appellant made an application for refund of taxes paid in error for the period December 2018. The taxes constituted of Withholding tax in respect of technical fees and computer charges amounting to Kshs 41,711,350. 00 and Kshs 17,106,753. 00, respectively.

4. The Respondent rejected the refund application vide its letter dated 13th October, 2021.

5. Vide its letter dated 16th November, 2021. the Appellant objected to the Respondent’s decision albeit late. This was rejected by the Respondent on 11th January 2022.

6. Vide a letter dated 30th December 2021, the Respondent informed the Appellant that its objection was done out of time.

7. The Appellant filed an appeal with the Tribunal on 4th February 2022 and requested for an alternative dispute resolution. The Appellant was consequently allowed to file its objection out of time which it did on 15th September, 2022.

8. The Respondent issued its objection decision on 11th November 2022 disallowing the application and upholding its refund decision.

9. Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal dated 7th December 2022 and filed on even date.

THE APPEAL 10. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 21st December, 2022 and filed on even date:a.That the Respondent erred in law and fact by failing to acknowledge the provisions of the Kenya-South Africa Double Taxation Agreement (DTA) which came into force on 1st January 2016. b.That the Respondent erred in law and fact by failing to acknowledge that the Appellant had met the requisite provisions of Section 41(5) and (6) of the Income Tax Act CAP 470 of the laws of Kenya (ITA) as at 2019 and therefore the benefit of exemption of the services from withholding tax in Kenya was applicable.c.That the Respondent erred in law by interpreting the provisions of the Income Tax Act in such a way that renders the provisions and benefits of the Kenya South Africa DTA as deemed irrelevant and its objectives defeated.d.That the Respondent erred in law and fact by failing to recognize that there is no non-resident individual or individuals that hold more than 50% of shares in Coca-Cola Sabco (Pty) Ltd.e.That the Respondent erred in law and fact by failing to recognize that an individual means a natural person under the ITA.f.That the Respondent erred in fact and in law by failing to acknowledge that the underlying ownership of Coca-Cola Sabco (Pty) Ltd is the Coca-Cola Company which does not qualify as a natural person as the company is mainly held by institutional investors.g.That the Respondent erred in law and fact by failing to recognize that professional fees paid by the Appellant are business profits under Article 7(1) of the Kenya South Africa DTA.h.That the Respondent erred in law and fact by failing to appreciate that the Appellant had paid Withholding tax on technical fees and computer charges in error and that the refund is therefore due and payable.i.That the Respondent erred in law in claiming that withholding tax was rightfully deducted under the provisions of Section 35(1) of the ITA in respect to technical fees and computer charges paid to Coca-Cola Sabco (Pty) Ltd.

THE APPELLANT’S CASE 11. The Appellant stated its case through its Statement of Facts dated 21st December, 2022 and filed on even date.

12. It contended that the payments in respect of technical fees of Kshs 41, 711,350. 00 and Kshs 17,106,753. 00 for computer charges it made were to Coca-Cola Sabco (Pty) Ltd, a company resident in South Africa and were erroneously subjected to Withholding tax. It stated that the Respondent rejected the application for the refund of taxes despite the provisions for exemption of taxes based on double tax agreements.

13. The Appellant cited the Respondent’s reasons for rejecting, the application where it had averred that Coca-Cola Sabco Pty Ltd is not listed in the South African Stock exchange, neither did its 50% underlying ownership consist of an individual or individuals who are residents of South Africa. It therefore averred that Section 41 of the ITA provides for relief from double taxation between Kenya and South Africa with regard to taxation of Income tax due to the existence of the Kenya-South Africa DTA which was ratified in 2016.

14. The Appellant relied on the definition of an individual as per Section 2 of the ITA which defines an individual as a natural person where a natural person is an individual human being as opposed to a legal person. It also relied on the Black’s Law 4th Edition dictionary’s definition which defined an individual as:-“a single person as distinguished from a group or class, and also, very commonly, a private or natural person as distinguished from a partnership, cooperation or association”.

15. It argued therefore that Coca-Cola does not qualify as a natural person and that there is no non-resident individual or individuals who holds more than 50%of the shares in Coca-Cola Sabco (Pty) Ltd, hence the Kenya-South Africa DTA is applicable to the Appellant as it satisfies the conditions set out by Section 41(5) and 41(6) of the ITA.

16. It averred that its position is that the underlying ownership of Coca-cola Sabco (Pty) Ltd is the Coca-Cola company which does not qualify as a natural person as the company is mainly held by institutional investors and that no individual or individuals who are non-residents of South-Africa hold more than 50% of the underlying ownership of Coca-Cola Sabco (Pty) Limited. It relied on the Ninth Schedule of the ITA which defines underlying ownership as:-“Underlying ownership,” in relation to a person, means an interest in the person held directly or indirectly through an interposed person or persons, by an individual or by a person not ultimately owned by the individuals.”

17. The Appellant’s view on a without prejudice basis was that even if the Respondent’s interpretation of Section 41(6) of the ITA was that the treaty benefits did not accrue due to the ownership structure, a position it does not agree with, the decision of the Respondent to limit the application of the DTA renders the main objects of the DTA redundant and fails to appreciate the supremacy of the DTA as a source of Law in Kenya.

18. It noted that an amendment of Section 41(6) of the ITA was effected through the Finance Act 2021 in light of which the Respondent recognises that the law prior to this change was specific to limiting the treaty benefit where shareholding was by non-resident individuals or individual who owned more than 50%. It therefore asserted that with this subsequent amendment, the word ‘individual’ has now been replaced by ‘persons’ which includes individuals, companies and other entities.

19. It averred that the management and professional fees paid are provided for in the Kenya-South Africa DTA under Article 7. Further that Article 3(2) of the same DTA provides that any term that has not been defined under the DTA shall have the meaning that it has at the time under the law of that State for purposes of the taxes to which the Agreement applied, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under the other laws of that State.

20. The Appellant averred that Section 2 of the ITA defines what a business is and also defines management and professional fees. It therefore argued that professional activities are business activities hence their income constitutes business profits, a position that was affirmed in the case of McKinsey and Company Inc. Africa Proprietary Limited vs Commissioner of Legal Services and Board Coordination (TAT No 199 of 2020. )It stated therefore that the services received from Coca-Cola Sabco (Pty) related to technical fees and computer charges which fall under the definition of management and professional fees as captured by the contractual and consultancy fees as well as falling under the definition of a business. It averred that services offered by Coca-Cola Sabco (Pty) were not subject to withholding tax and therefore the taxes paid were wrongfully withheld and should be refunded by the Respondent.

Appellant’s Prayers 21. It therefore prayed for orders against the Respondent that: -a.The application rejecting for refund of taxes withheld on technical fees and computer charges of Kshs 58,818,103. 00 be allowed.b.The Respondent be ordered to pay the refund of Kshs 58,818,103. 00 to the Appellant.c.The Appeal be allowed with costs to the Appellant; andd.Any other remedies that the Honorable Tribunal deems just and reasonable

THE RESPONDENTS CASE 22. The Respondent addressed the Appellant’s grounds of Appeal though its Statement of Facts dated 20th January,2023 and filed on even date, where it established three issues for determination.a.Amenability to Refund of Taxes

23. The Respondent stated that upon the Appellant claiming that the taxes were withheld and paid in error as they were exempt as outlined in the DTA between Kenya and South Africa, it carried out the underlying ownership test in accordance with Section 41(5) of the ITA which states that where benefits to persons accorded by any DTA are not realizable if:“fifty percent or more of the underlying ownership of that person is held by an individual or individuals who are non-residents of that other contracting state.”

24. It argued that Section 41(7) of the ITA also refers the terms ‘person’ and ‘underlying ownership’ to bear the meaning assigned in the Ninth Schedule which defines underlying ownership. It asserted that according to the ownership structure provided by the Appellant, Coca-Cola Sabco (Pty) Ltd is not a listed company and that the majority shareholders (indirectly) is the Coca-Cola company, which is a listed company in the USA and not South Africa, the Country of concern. This implies that Coca-Cola Sabco (Pty) Ltd does not pass the underlying ownership test and therefore the provisions of Section 41(5) and (6) of the ITA do not apply and in extension the benefits accorded by the DTA between Kenya and South Africa.

25. The Respondent emphasized on the superiority of the Income Tax Act as appertains any DTA in reference to Section 41(1) of the ITA and averred that the withheld taxes on payment made to Coca-Cola Sabco (Pty) Ltd were correctly done since they were payment made to a non-resident and Kenya South Africa DTA is therefore not applicable.

26. The Respondent refuted the Appellant’s claim that these costs were not subject to Withholding under the ITA by asserting that the invoices provided by the Appellant did not clearly show that the payments made consisted of computer charges. It therefore concluded that the payments made related to IT services provided in line with the Technical Assessment Services Agreement between each of the companies and Coca-Cola Sabco (Pty) Ltd, hence withholding tax would therefore be applicable subject to the DTA between Kenya and South Africa and the provisions of the Income Tax Act.b.Applicability of Section 41(5) and (6) of the ITA in 2019

27. The Respondent averred that Section 41(5) of the ITA limits the relief from double taxation where more than 50% of the underlying ownership is held by an individual or individuals who are not residents of the contracting state. It averred further that Section 41(5) and (6) of the ITA envisioned a situation where the benefits of exclusion of the Kenya-South Africa DTA would be enjoyed where;i.A company is listed in the South Africa stock exchange as per Section 41 (6) of the ITAii.A company holding 50% or more of the underlying ownership of that person is owned by individual or individuals who are residents of South Africa.’

28. It argued that the lawmaker introduced Section 41(5) of the ITA to curb “treaty shopping/abuse” where entities would try to take advantage of benefits accorded by bilateral trade agreements between Kenya and other countries in order to pay less taxes even though the final beneficiary/beneficiaries may not be residents of the contracting states in such agreements. It stated that Coca-Cola Sabco (Pty) Ltd is not listed in the South Africa Stock Exchange neither does its underlying ownership consist of an individual or individuals who are residents of South Africa. It stated further that as per the ownership structure provided to the Respondent, Coca-Cola Sabco(Pty) Ltd is owned by Coca-Cola Beverages Africa (Pty) Ltd which is owned by the Coca-Cola company(67. 5%) and Gutsche Family Investments (33. 5%).

29. It asserted that from the foregoing, the beneficiaries of both Coca-Cola Sabco(Pty) Ltd and Coca-Cola Beverages Africa(Pty) Limited are not individuals who are South African residents therefore the Kenya-South Africa DTA is not applicable in this case.

30. The Respondent referred to Section 2 of the ITA which defines an individual as a natural person and that in jurisprudence, a natural person is a person that is an individual human being as opposed to a legal person. It therefore argued that Coca-Cola Company does not qualify as a natural person and that it is incorrect to cite the ownership held by Coca-cola company as the reason why Section 41(5) of the ITA is applicable on the entity. This is because Coca-Cola Company is held by institutional investors and not by natural persons. It therefore reiterated that there was no individual or individuals that hold more than 50% of the shares in Coca-Cola Sabco (Pty) Ltd.c.Applicability of Kenya-South Africa DTA

31. The Respondent stated that the Appellant received services from Coca-Cola Sabco(Pty) Ltd whose service hub is based in South Africa. However, the Kenya-South Africa DTA does not provide for management and professional services as defined under Section 2 of the ITA. It averred that the services received from Coca-Cola Sabco (Pty) related to technical fees and computer charges that fall under the definition of management and professional fees perfectly captured by contractual and consultancy services and that the services also fall under the definition of a business which the ITA defines as:“Any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade but does not include employment.”

32. The Respondent also relied on Article 7 with respect to treatment of business profits. The said Article states that;“The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other Contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other state but only so much of them as is attributable to: -i.That permanent establishmentii.Sales in that other state of goods or merchandise of the same or similar kind as those sold through that permanent establishment; oriii.Other business activities carried on in that other state of the same or similar kind as these effected through that permanent establishment.”1. The Respondent contended therefore that due to supremacy of Article 7 of the DTA in relation to business profits, where income is not expressly provided for and reasons presented above, it is clear that the payment made to Coca-Cola Sabco (Pty) would fall under the scope of business profits as per the DTA and Withholding tax would be due from these amounts.2. It concluded by averring that the taxes were correctly withheld and that the refund decision was in line with the law and further that it did not err in law or fact as it carefully examined the information availed before issuing the objection decision. It also argued that it is guided by Section 56(1) of the Tax Procedures Act (hereinafter ‘TPA’) which provides that:-“in any proceeding under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

Respondent’s Prayers 35. The Respondent therefore prayed that the Tribunal; -a.Upholds the Respondent’s Objection Decision dated 11th November, 2022b.Dismisses this Appeal with costs to the Respondent as the same is devoid any merit.

SUBMISSIONS OF THE PARTIES 36. The Appellant submitted on four issues through its Written Submissions dated 17th May, 2023 and filed on even date:a.Does the Kenya-South Africa DTA apply in respect to the technical fees and computer charges?

37. On this issue, the Appellant submitted that the services received from Coca-Cola Sabco (Pty) Ltd related to technical fees and computer charges which fall under the definition of management and professional fees captured by the contractual and consultancy fees, a position that the Respondent agreed with at Paragraph 28 of its Statement of Facts. It submitted further that the services also fall under the definition of a business and are sufficiently covered in the Kenya-South Africa DTA and that Article 3 (h) of the OECD Model Tax Convention on income and capital includes professional activities in the definition of the term business. It provides as follows:-“The term ‘business’ includes the performance of the professional services and of other activities of an independent character.” It submitted that whereas in the Kenya-South Africa DTA, management and professional fees paid are not directly provided for, Article 7 of the Kenya South Africa provides for business profits.”

38. It asserted that Article 3(2) of the same DTA provides that any term that has not been defined under the DTA shall have the meaning that it has at that time under the law of that state for the purposes of the taxes to which the Agreement applies, any meaning under the applicable tax laws of that state prevailing over a meaning given to the term under other laws of that state.

39. It reiterated its reliance on Section 2 of the ITA in the definition of business and management and professional fees a position it stated was taken by the Government of Kenya as elucidated in the case of Tax Justice Network-Africa vs Cabinet Secretary for National Treasury & 2 others (2019) eKLR where the Cabinet Secretary for National Treasury stated as follows concerning the Kenya-Mauritius DTA in his submission:“That the taxing of services and management fees which the Petitioner is alleging is 0% was cleverly crafted and inserted under Articles 5(3) (b) of the agreement while insurance commissions are dealt with under Article 5(7). Article 5 (permanent establishment) enables Kenya to tax services, management fees and insurance commissions since a permanent establishment is established to existent will be as provided in article 7(business profits) which tax shall be so much as is attributable to that permanent establishment.”

40. It submitted that the Petitioner in this case argued that because there was no Article on management fees in the Kenya-Mauritius DTA, the Government of Kenya relinquished its taxation rights on management fees to Mauritius. However, the Cabinet Secretary for National Treasury in his submissions stated that management and professional fees are taxable under business profits as cited in the holding above. It argued further that the position that management and professional fees are covered under business profits in the Kenya-South Africa DTA was also affirmed in the case of Mckinsey and Company Inc. Africa Proprietary Ltd vs Commissioner of Legal Services and Board Coordinator (TAT No.199 of 2020) and the case of Total Kenya Ltd vs Commissioner of Domestic Taxes (TAT No 151 of 2016).b.Is the Appellant entitled to relief from double taxation under section 41 of the ITA

41. The Appellant submitted that Section 41 of the ITA provides for relief from double taxation between Kenya and South Africa with regard to taxation of income tax pursuant to the existence of the Kenya-South Africa DTA which was ratified in 2016.

42. The Appellant noted that in the amendment of Section 41(6) of the ITA that was effected through the Finance Act 2021, the Respondent recognises that the law prior to this change was specific to limiting the treaty benefit where shareholding was by non-resident individuals or individual who owned more than 50%. However, with the subsequent amendment, the word individual has now been replaced by persons which include individuals, companies and other entities. It argued therefore that it was entitled to relief from double taxation under Section 41 of the ITA since the limitation of benefit clause does not apply in its case as there is no individual or individuals who own more than 50% of the company in South Africa.(c ) Would limiting the application of the DTA constitute a Treaty override

43. The Appellant submitted that from its argument in issues (a) and (b) above, it was clear that the DTA applied to the technical fees and the computer charges that were payable by the Appellant and further that the limitation of benefit clause would not apply, considering the ownership structure of the Appellant. It argued on a without prejudice to the above that had the limitation of benefits clause been deemed applicable, would it have affected the enjoyment of the treaty benefits?

44. The Appellant submitted that the DTAs form part of the laws of Kenya pursuant to Article 2(5) and 2(6) of Kenya’s Constitution, 2010 and that the amendment of the law through the Finance Act 2021 constituted a treaty override as the DTA was signed in 2016 and Kenya has an obligation to abide to International Agreements and the same cannot be amended through domestic legislation.

45. It was the Appellant’s view on a without prejudice basis that even if the Respondent’s interpretation of Section 41(6) of the ITA is that the treaty benefits do not accrue due to the ownership structure, a position it does not agree with, the decision of the Respondent to limit the application of the DTA renders the main objects of the DTA redundant and fails to appreciate the supremacy of the DTA as a source of law in Kenya. It clarified that treaty override generally refers to subsequent tax legislation that is in conflict with the terms of a treaty and that it is common doctrine that a subsequent general law does not override a prior special law.

46. The Appellant relied on the following cases to buttress its arguments;a.Alta Energy Luxembourg vs The Queen S.A.R.I,2021 SCG 49b.Petition No. 2 of 2015, Karen Njeru Kendia vs Alassane Ba & another (2017) eKLR

47. It submitted in conclusion that the withheld taxes on technical fees and computer charges were withheld erroneously and it is therefore entitled to a refund as holding otherwise would be unfair to it and would be against the law.

48. The Respondent’s Written Submissions dated and filed on 3rd May, 2023 and its Supplementary Submissions dated and filed on 6th June 2023 raised a total of four issues for determination, the first three being a reiteration of the issues as stated in its Statement of Facts.a.Amenability to refund of taxes withheld on technical fees

49. The Respondent stated that contrary to the Appellant’s claim that the taxes were withheld and paid in error as they were exempt as outlined in the DTA between Kenya and South Africa and that those costs were not subject to withholding under the Income Tax Act, it submitted that the invoices provided by the Appellant did not clearly show that the payments made consisted of computer charges.

50. That it was guided by Section 56(1) of the TPA which provides that:-“in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”

51. It also relied on the case of Commissioner of Domestic Taxes vs Metoxide Limited (Income Tax Appeal E100 of 2020) (2021) KEHC3(KLR) (Commercial and Tax) (2 September 2021) (Judgement) where the Court stated as follows:“The central issue is whether there was proof of a taxable supply for which the respondent could base its claim for input tax refunds. Section 56(1) of the Tax Procedure Act provides that, the taxpayer has the burden of proving that a tax decision is incorrect…”

52. The Respondent submitted that it carried out an underlying ownership test in accordance with Section 41(5) of the ITA (currently Section 41(2) of the ITA) where benefit to persons accorded by any double taxation agreement are not realizable if:-“fifty per cent or more of the underlying ownership of that person is held by an individual or individuals who are not residents of that other contracting state”.

53. It therefore argued that according to the ownership structure provided by the Appeal, Coca-Cola Sabco (Pty) limited is not a listed company and that the majority shareholding (indirectly) is Coca-Cola Company which is a listed company in the USA and not South Africa, the Country of concern. As such Coca-Cola Sabco (Pty) Limited does not pass the “underlying ownership” test and therefore the provisions of Section 41(5) and (6) of ITA do not apply and in extension the benefits accorded by the DTA between Kenya and South Africa.b.Applicability of Section 41(5) and (6) of the ITA in 2019 (currently Section 41(2) and (3) of the ITA).

54. The Respondent averred that Section 41(5) of the ITA limits the relief from double taxation where more than 50% of the underlying ownership is held by an individual or individuals who are not residents of the contracting state. It averred further that Section 41(2) and (3) of the ITA envisioned a situation where benefits of exclusions of the Kenya-South Africa DTA would be enjoyed where:-a.A company is listed in the South Africa stock exchange as per Section 41(6) of ITA above.b.A company holding 50% or more of the underlying ownership of that person is owned by individual or individuals who are residents of South Africa.’

55. It therefore submitted that Coca-Cola Sabco (Pty) is not listed in the South Africa stock exchange neither does its underlying ownership consist of an individual or individuals who are residents of South Africa. It argued further that as per the ownership structure provided to the Respondent, Coca-Cola Sabco(Pty) Ltd is owned by Coca-Cola Beverages Africa (Pty) Limited and that Coca-Cola Beverages Africa (Pty) Limited is owned by the Coca-Cola Company at 67. 5% shareholding and Gutsche Family investments at 33. 5% shareholding .As such the Respondent submitted that the beneficiaries of both Coca-Cola Sabco (Pty) and Coca-Cola Beverages Africa(Pty) limited are not individuals who are South African residents hence the Kenya-South Africa DTA is not applicable.b.Applicability of Kenya-South Africa DTA

56. It was the Respondent’s submission that the Appellant received services from Coca-Cola Sabco (Pty) Ltd based in South Africa. However, it averred that the Kenya –South Africa DTA does not provide for management and professional services which is defined in Section 2 of the ITA to mean:“any payment made to a person, other than a payment made to an employee by his employer, as consideration for any managerial, technical, agency, contractual, professional or consultancy services however calculated.”

57. It therefore submitted that the services received from Coca-Cola Sabco (Pty) Ltd relates to technical fees and computer charges which fall under the definition of a business which the ITA defines as any trade, profession or vocation, and every manufacture adventure and concern in the nature of trade but does not include employment.

58. The Respondent referred to Article 7 of the DTA that explains the treatment of business profits and that due to its supremacy in relation to business profits, where income is not expressly provided for and the reason cited, it is clear that the payment made to Coca-Cola Sabco (Pty) would fall under the scope of Business profits as per the DTA and Withholding would be due from these amounts.

59. The Respondent cited the case of Tax Justice Network –Africa vs Cabinet Secretary for National Treasury & 2 others (2019) eKLR where the court cited the case of Dileep Manibhai Patel & 3 others vs Municipal Council of Nakuru & another (2014) eKLR as follows:-“The Court should take a purposive approach to ascertain the intention of why the DTA was drafted. In the Dileep case Emukule J. quoted Ditcher vs Danison Limoore Pc.325 at 357 stating;“It is good general rule in jurisprudence that one who reads a legal document whether public or private should be prompt to ascribe - should not, without necessity or some sound reason impute to its language tautology or superfluity and should rather at the outset be inclined to suppose every word intended to have some effect or to be of some use...”b.Whether Section 41 of the ITA was applied correctly

60. The Respondent made reference to Article 23 of the Kenya-South Africa DTA and submitted that the language of the Kenya-South Africa DTA is that elimination of double taxation takes effect if the taxpayer is taxed in one of the contracting State and the same is deducted from the tax due in the resident State. It submitted further that the Kenya-South Africa DTA was brought into force to supplement local statutes and not as an aim to override the same.

61. It relied on the Supreme Court case in Mitu-Bell Welfare Society vs Kenya Airports Authority& 2 others, Initiative for Strategic Litigation in Africa (Amicus Curriae) Petition 3 of 2018(2021) KESC 34 (KLR)(11 January 2021) (Judgement) on how both international and domestic law guides states in their business interactions .It submitted that the meaning to be attributed to the phrase “shall form part of the law of Kenya” in Articles 2(5) and 2(6) of the Constitution was that in determining a dispute, a domestic court of law had to take cognizance of rules of international law to the extent that the same were relevant and not in conflict with the Constitution , States or a final pronouncement.

62. It averred that Article 4 of the Kenya-South Africa DTA warranted it to establish the residence of the Appellant in South Africa. Further that Section 41 (5) of the ITA limits the relief from double taxation where more than 50% of the underlying ownership is held by an individual or individuals who are not residents of the contracting status. It averred that Section 41 (2) (3) of the ITA envisioned a situation where benefits of exclusions of the Kenya South Africa DTA would be enjoyed where: -a.A company is listed in the south Africa stock exchange as per Section 41(6) of the ITAb.A company holding 50% or more of the underlying ownership of that person is owned by individual or individuals who are residents of South Africa.’

63. It therefore submitted that the documents and literature provided by the Appellant did not disprove its residency status assessment of the Appellant in South Africa

ISSUES FOR DETERMINATION 64. The Tribunal has considered the parties pleadings, documentation and submissions and is of the view that this Appeal raises a sole issue for determination.Whether the Respondent was justified in rejecting the Appellant’s tax refund application.

ANALYSIS AND FINDINGS 65. The Appellant herein received technical and computer services from Coca-cola Sabco (Pty) Ltd domiciled in South Africa. In making payment for the services, it withheld tax and paid to the Respondent. It however sought for a refund of the taxes paid stating that it had paid the same in error. Its argument was that the Kenya-South Africa DTA provided some tax relief under the circumstance. The Respondent on its part had argued that the ownership structure indicated that Coca-Cola Sabco (Pty) Ltd, though resident in South Africa, its owners were not resident in South Africa.

66. Both parties agree that these services fall under the management and professional fees, the question is therefore whether under the Kenya-South Africa DTA they are taxable income and whether the Appellant is entitled to the tax exemption under the DTA.

67. The Tribunal has analysed the ownership structure of Coca-Cola Sabco (Pty) Ltd and also considered the Respondent’s argument that Coca-Cola Sabco (Pty) Ltd is owned by Coca-Cola Beverages Africa Ltd which is owned by the Coca-Cola company (67. 5%) and the Gutsche Family Investments (33. 5%).

68. Section 41(2) (3) of the ITA on Double Taxation Relief is instructive on who is excluded from realizing the benefits of tax exceptions. It provides as follows:“2)Subject to subsection (3), where an arrangement made under this section provides that income derived from Kenya is exempt or excluded from tax, or the application of the arrangement results in a reduction in the rate of Kenyan tax law, the benefit of that exception , exclusion or reduction shall not be available to a person who, for purposes of the arrangement, is a resident of the other contracting state if fifty percent or more of the underlying ownership of that person is held by a person or persons who are not residents of that other contracting state for the purposes of the agreement.(3)Subsection (2) shall not apply if the resident of the other contracting state is a company listed in a stock exchange in that other contracting state”.

69. It is clear the provision of the above Sections of ITA envisioned a situation where the benefits of exclusions of the Kenya –South Africa DTA would be enjoyed only where the following conditions were met:-‘a.A company is listed in the South Africa stock exchange.b.A company holding 50% or more of the underlying ownership of that person is owned by individual or individuals who are residents of South Africa.’

70. From the analysis above and the documentation availed, Coca-Cola Sabco (Pty) Limited though domiciled in South Africa is not listed in the South Africa Stock Exchange and is owned by Coca-Cola Beverages Africa (Pty) Limited an entity owned by the Coca-Cola Company USA at 67. 5% shareholding and Gutsche Family Investments at 33. 5% shareholding. It is curious to note that if Coca-Cola Sabco (Pty)Ltd fails the ownership test, the question would then be for whom is the Appellant applying for the refund?

71. The Tribunal is of the view that even if the Appellant may have wrongly remitted withheld amounts, then the proper claimant for these amounts would be Coca-Cola Sabco (Pty) Ltd. This is because the Appellant merely withheld and remitted payments which belonged to another party and as such cannot claim refund as it was not the payee. The Tribunal has not sighted any such request from Coca-Cola Sabco (Pty) Ltd hence the Appellant would be unjustly enriched from the refund of taxes paid to the Respondent.

72. The Tribunal has perused the documentation availed by the Appellant and has not found evidence of a claim by Coca-Cola Sabco (Pty) Ltd claiming the withheld funds, who in this case would be the rightful owner as it is the party that offered the services and was paid for the same.

73. The Tribunal notes that the Appellant had relied on the Mckinsey case and argued that professional and management fees are considered profits under Article 7 of the DTA which cannot be taxed unless such a provider carries on its business through a branch in Kenya considered a permanent establishment. However, if the party to benefit from the tax exception has 50% or more of its underlying ownership held by a non-resident, then Section 41(5) of ITA negates the relief that such a party would otherwise be enlisted under the provisions of the DTA including Article 7. Therefore, the Appellant’s argument based on Article 7 does not apply.

74. In view of the foregoing, the Tribunal finds that the Respondent was justified in rejecting the Appellant’s tax refund application.

FINAL DECISION 75. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following final Orders: -a.The Appeal be and is hereby dismissedb.The Respondent’s Objection decision dated 13th January, 2022 be and is hereby upheldc.Each party to bear its own costs.

76. It is so ordered.

DATED andDELIVERED at NAIROBI this 8thday of March, 2024. ERIC NYONGESA WAFULACHAIRMANDELILAH K. NGALA CHRISTINE A. MUGAMEMBER MEMBERGEORGE KASHINDI MOHAMED A. DIRIYEMEMBER MEMBERSPENCER S. OLOLCHIKEMEMBERJUDGMENT APPEAL NO. 1559 OF 2022- NAIROBI BOTTLERS LTD VS. COMMISSIONER OF DOMESTIC TAXES Page 26