Pollen Limited v Commissioner of Domestic Taxes [2023] KETAT 529 (KLR)

Pollen Limited v Commissioner of Domestic Taxes (Tax Appeal 693 of 2022) [2023] KETAT 529 (KLR) (Civ) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 529 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 693 of 2022

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

September 1, 2023

Between

Pollen Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya. Its principal business activity is the production of ornamental plant cuttings for export. It is a producer appointed by Syngenta Seeds BV (Syngenta BV) a non-resident company incorporated in the Netherlands as a producer of unrooted and rooted cuttings of flower varieties. The Appellant also provides research and development services to Syngenta Crop Protection, (Syngenta SCP), a non-resident company based in Switzerland.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is a public body duly established under the Kenya Revenue Authority Act Cap 469 of the laws of Kenya whose primary mandate is the assessment and collection of tax revenue on behalf of the Government of Kenya.

3. The Appellant claimed a refund of input VAT for the period October 2019 to December 2019 and April 2020 to June 2021 of Kshs 77, 957,095. 00.

4. The Respondent rejected the Appellant’s VAT refund application vide rejection notifications dated 4th March, 2022 and 29th March 2022.

5. The Appellant objected to the Respondent’s decision vide its notice of objection dated 31st March 2022 disputing the Respondent’s claim that it had incurred the input VAT as an agent of its non-resident customers and that it had been reimbursed for cost incurred in providing services to its non-resident customers.

6. The Respondent issued an objection decision dated 19th may, 2022 in which it fully rejected the appellant’s objection.

7. Dissatisfied with the Respondent’s decision, the Appellant lodged its Notice of Appeal dated 17th June, 2022 and filed on 20th June, 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed on 1st July, 2022:-a.That the Respondent erred in law and fact by finding the Appellant had incurred the input VAT, subject of the refund claims, as an agent of its non-resident customers; andb.That the Respondent erred in law and fact by rejecting the Appellant’s assertion that it was reimbursed for costs including input VAT incurred in providing services to its non-resident customers.

The Appellant’s Case 9. The Appellant’s case is premised on its Statement of Facts dated and filed on the 1st July, 2023.

10. The Appellant contended that it was appointed by Syngenta BV as a non- exclusive Toll producer of unrooted and rooted cuttings of flower varieties which involves the Appellant receiving materials for production of the flower varieties from Syngenta BV. Further that these materials remain in the ownership of Syngenta BV. since they are the intellectual property of Syngenta BV.

11. It also stated that it provides research and development (R&D) services for Syngenta SCP a non-resident entity. These R&D services majorly relate to factors that affect the European and American markets.

12. The Appellant averred that its services are export services hence zero-rated under the Second Schedule to the VAT Act, a fact that the Respondent also acknowledges. It contended therefore that the Respondent has erred in law by claiming that the Appellant incurred the input VAT as an agent of its non-resident customers. The Appellant refuted this allegation by asserting that its business model is one of an independent contractor and not an agent as alleged by the Respondent.

13. The Appellant averred that it was appointed by Syngenta BV and Syngenta SCP through Toll Production Agreement and Research and Development Services Agreement respectively. Further, that it was appointed by the two entities due to its expertise and knowhow in this particular field.

14. The Appellant averred that under both the Toll and R&D Agreements, the consideration it received for the services rendered is calculated as the sum of costs incurred in production / research and development plus a mark-up. That thus, contrary to the Respondent’s assertion, the expenses it incurs are for the furtherance of its business and thus part of its cost of sales. That this is because it incurs each of the expenses on its own behalf to ensure compliance with the Tolling and the R& D Agreement.

15. The Appellant agreed that the agreements were in compliance with Section 13 of the VAT Act and that since its related to both Syngenta BV and Syngenta SCP the remuneration for its services is calculated on an arms-length basis in compliance with Section 13 (1) (b) as well as Income Tax Transfer Pricing Rules 2006.

16. The Appellant refuted the Respondent’s assertion that it incurs expenses on behalf of its non-resident affiliates and submitted that indeed a cost-plus model of remuneration is simply one of the transfer pricing methods and the existence of this method on its own is not indicative of a principal- agency relationship. It therefore submitted that under the provisions of Section 13 (5) all costs incurred in making a supply including incidental costs qualify to be included in the value of the supply for VAT purposes.

17. In expounding on what a principal-agency relationship entails, the Appellant relied on the case of Kennedy v De Trafford (1897) AC 180 which clarified on the use of the word agent as follows:-“No word is more commonly and constantly abused than the word “agent”. A person may be spoken of as an agent, no doubt in the popular sense of the word, may properly be said to be an “agent” although when it is attempted to suggest that he is an “agent” under such circumstances as it creates legal obligations attaching to agency, that use of the word is only misleading. Therefore, whatever expressions Dodson may have used calling himself an agent, and however true or applicable they may be in the popular sense, in point of law and in their legal sense, they are meaningless”

18. In regard to what amounts to agency in the context of an agent-principal relationship, the Appellant relied on the Bow Stead & Reynolds on Agency 21st Edition, which defined agency in the following terms: -“The word “agency,” to a common lawyer refers in general to a branch of the law under which one person , the agent, may directly affect the legal relations of another person, the principal , as regards yet another person’s, called third parties, by acts which the agent is said to have the principal’s authority to perform on his behalf and which when done are in some respects treated as the principals’ acts….”The Term “agency” is best used…… to connote an authority or capacity to create legal relations between a person occupying the position of principal and third parties. Usually, the legal relationship so created will be contractual in nature”

19. The Appellant therefore asserted that an agency relationship requires the consent of the principal and the agent and that the consent must be given either expressly or by implication from their words and conduct without which there cannot be an agency relationship. It therefore argued that the relationship between itself and Syngenta BV or Syngenta SCP does not qualify as a principal –agent relationship in accordance with the foregoing authorities herein above.

20. The Appellant argues that a key characteristic of the agency relationship is that the agent has power to bind the principal should it enter into contracts with third parties as an agent which is not the case herein. That this is because the Tolling Agreement and R&D Agreement do not grant the Appellant any power to bind Syngenta BV and Syngenta SCP with third parties. Further that it enters contractual relationships with its suppliers on its own behalf.

21. The Appellant argues that the remuneration it received is based on costs incurred with a margin established on an arm’s length basis and that neither Syngenta BV nor Syngenta SCP corrects or adjusts the service fee invoiced by the Appellant and the said entities do not have a right under either of their agreements to inspect the books of the Appellant.

22. The Appellant therefore asserted that the Respondent erred in law and fact by disallowing the Appellant’s VAT refund claims on the misguided view that the Appellant is an agent of Syngenta BV and Syngenta SCP hence the Respondent’s assertion lacks any legal merit and that its refund claim is therefore merited in law.

23. The Appellant argued that under the proviso in Section 13 (5) of the VAT Act, 2013, the only expenses disallowable are disbursement incurred merely by an agent on behalf of a third party and not recharges. Further that the terms disbursements and recharges do not mean one and the same thing. It therefore contended that the Respondent erred in equalling recharges of costs to disbursements.

24. The Appellant reiterated that it bought goods and services for its own use in furtherance of its business which is the production of rooted and unrooted cuttings to the requisite standard and that the cost incurred by the Appellant when applying services to Syngenta BV and Syngenta SCP are not therefore disbursements as described in Section 13(5) of the VAT Act, 2013. It argued therefore that the fact that it recharges expenses or costs incurred does not preclude it from being entitled to a VAT refund under Section 17(1) as read with together with Section 17(5) of the VAT Act 2013.

25. It therefore contended that the Respondent erred in law and fact by rejecting the Appellant’s refund application on the basis that it was reimbursed for costs incurred in providing services to its non-resident customers.

Appellant’s Prayers 26. The Appellant therefore prayed that: -a.This Appeal be allowedb.The Respondent’s Decision dated 19th May, 2022 be annulled and set aside.c.The Appellant be paid VAT refund claims amounting to Kshs 77, 957,095. 00 relating to the period October 2019 to December 2019 and April 2020 to June 2021;d.The costs incidental to this Appeal be awarded to the Appellante.Any other orders that the Tax Appeals Tribunal may deem fit.

The Respondent’s Case 27. In response to the Appellant’s grounds of Appeal, the Respondent, filed a Statement of Facts dated and filed on 3rd August, 2020.

28. It averred that the Appellant was contracted by Syngenta BV and Syngenta SCP to produce unrooted and rooted cuttings and to carry out research and development activities and that the costs incurred to carry out these activities were reimbursed to the Appellant at cost-plus mark-up in accordance with the agreements entered between the parties.

29. It stated that a review of the said Agreements indicate that all costs of production are borne by Syngenta BV including the supply of material which is done for free and that the agreement defined costs to include: -a.Costs incurred for maintenance of production plant.b.Costs of idle capacity of its production plant.c.All salary costs and related benefits for employees.d.All costs for non-supply chain purchases such as energy, water and other utilities.e.All costs for production materials.

30. It argued further that clause 2 of the Agreements provided that the Appellant shall produce in the name and on behalf of Syngenta BV, cuttings of varieties listed in the production orders. That therefore, the Appellant incurred costs in furtherance of the business of the non-resident companies and that it was reimbursed for all the costs incurred plus mark-up of 5%.

31. The Respondent stated that it relied on Section 13(5) of the VAT Act which provides that in calculating the value of any services for the purposes of subsection(1),there shall be included any incidental costs incurred by the supplier of the services in the course of making the supply to the client; provided that, if the Respondent is satisfied that the supplier has merely made a disbursement to a third party as an agent of his client, then such disbursement shall be excluded from the taxable value.

32. The Respondent asserted that it established that the relationship between the Appellant and Syngenta BV and Syngenta SCP is that of an agent acting on behalf of its principals and being remunerated at margin on cost for the services provided. That as such, the input VAT on costs is incurred by the non-resident companies as stated in clause 6. 1 of the Agreement. It averred therefore that an agency relationship can arise by explicit appointment or by implication.

33. The Respondent reiterated that it was an established fact that the Appellant produces unrooted and rooted cuttings on behalf of Syngenta BV and that the cuttings are delivered outside Kenya hence qualifying as an export as defined in Section 2 of the VAT Act. That similarly, the Appellant provides research and development services to Syngenta SCP a non-resident entity amounting to services exported outside Kenya. Further, that a review of the invoices to Syngenta BV and Syngenta SCP by the Respondent indicates that the Appellant is reimbursed for all costs plus a 5% mark-up on monthly basis where the VAT is charged at zero-rate.

34. The Respondent therefore prayed that this Honourable Tribunal:a.Upholds the Respondent’s decision dated 19th May, 2022 as proper and in conformity with the provisions of the law.b.Dismisses this Appeal with costs to the Respondent as the same is devoid any merit

Submissions Of The Parties 35. The Appellant’s Written Submissions dated 10th August, 2023 raised three issues for determination.

a. Whether the Appellant is an Agent of Syngenta BV and Syngenta SCP 36. On this issue, the Appellant submitted that an agency relationship requires the consent of the principal and the agent, and that the consent must be given either expressly or by implication from their words and conduct. Further that without the consent, there cannot be an agency relationship. The Appellant submitted further that an agency is a legal relationship which has at least two essential elements; the consent (or assent) of both principal and agent; and the authority given to the agent by the principal to alter the principal’s legal relations with third parties.

37. The Appellant emphasized the context of an agent/principal relationship by relying on the definition in Bow Stead & Reynolds on Agency which defines agency in the following terms.“The term agency is best used …. “to connote an authority or capacity to create legal relations between a person occupying the position of principal and third parties. Usually the legal relations so created will be contractual in nature”

38. It was the Appellant’s submission that the relationship between itself and Syngenta BV or Syngenta SCP does not qualify as principal-agent relationship as the agreements appointing the Appellant to produce rooted and unrooted cuttings, do not grant the Appellant any power to bind Syngenta BV in agreements with third party obligations. It argued further that the Production and Sale Agreement dated 1st January 2019 and the R&D Agreement effective 1st January 2014 at Clause 13 and Clause 2. 1 respectively provide that the “...relationship of the parties is that of an independent contractor…” and that neither of the parties are an agent or legal representative of the other part.

39. The Appellant averred that the Respondent had not provided evidence that the Appellant contracts on behalf of Syngenta BV and Syngenta SCP and that its contract with Brinks Security Limited for the provision of security services is entered on its own behalf and neither Syngenta BV nor Syngenta SCP is a party to the contract.

40. The Appellant argued that other than pointing to the remuneration method applied between the parties, the Respondent has not pointed out any evidence demonstrating that the Appellant has the consent of Syngenta BV and Syngenta SCP to alter their legal relations vis-à-vis third parties. Further that an agency contract cannot be implied between the Appellant and Syngenta BV or Syngenta SCP and neither can contracts be implied between the Appellant’s suppliers and Syngenta BV and Syngenta SCP.

41. The Appellant argued further that the application of the cost-plus method for transfer pricing purposes requires the Appellant to determine the cost basis and apply an arm’s length mark-up on these costs and that this pricing is not a commission. That the Appellant’s use of the cost-plus method cannot therefore be adequate to establish agency without the Respondent producing further evidence that such a relationship exists.

42. The Appellant asserted that the authority the Respondent relied on of Cofftea Agencies Ltd which indicated that it is only the principal who may deduct input VAT incurred, is not applicable to this Appeal. That the Cofftea Case the Respondent relied on does not apply in the present case because of the following reasons: -i.That Cofftea Agencies Limited was a commission agent of a non- resident company.ii.To support the commission agency Cofftea would receive funds upfront from its non-resident principal to support its expense and to buy tea and coffee for and on behalf of the principal.iii.The Appellant adds significant value to the raw materials which it buys from Syngenta BV which are used to produce the unrooted and rooted cuttings unlike in the case of Cofftea. The Appellant acts on its own behalf and adds value to the products and hence its correct to claim for input VAT.iv.In the case of Cofftea, the Tribunal found that in making payments to third parties, the Cofftea acted as an agent of its principal and that the services it procured were on behalf of its Principal, and paid for with money from the principal and/or subsequently reimbursed by the Principal. This precluded Cofftea from deducting VAT as payments were made strictly as an agent of the principal.v.Since there is no agency relationship between the Appellant and Syngenta BV or Syngenta SCP, the Cofftea Case is a not a relevant authority on which the Respondent could base its refund decision.

43. The Appellant submitted that the decision in the case of Commissioner of Domestic Services v Dutch Flower Group which the Respondent relied on, the Court implied an agency relationship between the service provider and a service producer despite the express wording of the agreement between them. This was based on the high degree of control that the service consumer exercised over the service provider.

44. That the Dutch Flower Group Kenya Case is distinguishable from the facts in the present case for the following reasons:a.According to the agreements between the Appellant and Syngenta BV and Syngenta SCP the Appellant invoices Syngenta monthly based on costs associated with production. From the agreements, there is no arrangement for forecast on costs or a yearly budget agreed between the Appellant and Syngenta BV and Syngenta SCP as was the case for the service provider in Dutch Flower Group Kenya.b.The remuneration paid to the Appellant is based on the costs incurred with a margin established on an arm’s length basis as required by Section 18(3) of the ITA and is recognised transfer pricing method under Rule 7(c) of the Income Tax Transfer Pricing Rules 2006. c.The contract between the Appellant and Syngenta BV and Syngenta SCP do not restrict who the Appellant can contract with to obtain goods and services in furtherance of its own business. The Appellant is free to contract with any third party it wishes to do so which demonstrates the Appellant’s high level of independence.

45. The Appellant made reference to the Tribunals finding in Pollen Limited v Commissioner of Domestic Taxes (TAT No 311 of 2022) which held that Syngenta BV had a higher control over the Appellant hence creating an agency relationship and submitted that in making this determination, the Tribunal failed to consider the true test of agency which is whether the Appellant had legal authority to bind Syngenta BV and Syngenta SCP in legal relationships with third parties in light of the Production and Sale Agreement as well as the R&D Services Agreement. It averred that a Tribunal is not bound by its previous decisions as held in the Supreme Court case of SGS Kenya Limited v Energy Regulatory Authority Commission & 2 other (2020) eKLR. It therefore urged the Tribunal not to consider “control” essential in agency relationships but rather that the Appellant had no legal authority to bind Syngenta BV and Syngenta SCP in legal relationships with third parties.

b. Whether the Respondent has misinterpreted the meaning of “disbursement” in Section 13 (5) of the VAT Act, 2013 46. The Appellant submitted that it is an undisputed fact that it applies the cost –plus transfer pricing method as provided for under Rule 7 (c) of the Income Tax (Transfer Pricing ) Rules to ensure that its transactions with Syngenta BV and Syngenta SCP are at arm’s length and that there is no other way to apply the cost-plus method provided for under Rule 7 (c) of the Income Tax (Transfer Pricing) Rules without a clear determination of the costs incurred by the Appellant and the costs are essentially recharged.

47. The Appellant submitted that the terms “disbursements” and “recharges” do not mean one and the same thing and that the Respondent erred in equating the aggregation and recharging costs incurred for purposes of applying Rule 7 (c) of the Income Tax (Transfer Pricing) Rules with disbursement. It submitted further that reimbursement of expenses or recharges for costs can represent compensation for supply of services irrespective of whether they are itemised separately or form part of an inclusive overall fee. It reiterated that a recharge is not the same as disbursement and that recharges consist of costs that the business incurs itself while supplying goods or services to customers.

48. The Appellant submitted that it bought goods and services for its own use in furtherance of its business which is the production of rooted and unrooted cuttings to the requisite standards. That an example was the contract for security services which it paid for with Brinks Security services which cost cannot qualify for treatment as disbursement for VAT purposes. It asserted that under the proviso in Section 13(5) of the VAT Act, 2013, the only expenses disallowable are disbursements incurred merely by an agent on behalf of a third party and not recharges. It submitted that there is no factual or legal merit to the Respondent’s contention that the costs incurred by the Appellant could not be included in the consideration for VAT purposes due to Section 13 (5) of the VAT Act, 2013.

c. Whether the Appellant is entitled to claim Input VAT 49. The Appellant contended that the input VAT it claimed, and which is the subject of the present dispute with the Respondent relate to the input costs incurred on its own behalf in the production of goods for exported services. That the input VAT incurred therefore does not form part of the cost base for purposes of determining its remuneration since it understood that the input VAT is recoverable against its output VAT as per the provisions of Section 17 of the VAT Act 2013. It argued therefore that the Respondent’s allegation that the Appellant has no claim to the input VAT has no factual basis. Further that when determining whether a taxpayer is entitled to a deduction of input tax, it must be considered whether the expenses to which the input tax attract were incurred for the furtherance of the business of the person claiming the deduction by way of input tax.

50. The Appellant submitted that it procured goods and services in the course or furtherance of a business carried on by it and paid consideration including input VAT and the fact that it recharges expenses or costs incurred does not preclude it from being entitled to a VAT refund under Section 17(1) as read together with Section 17(5) of the VAT Act, 2013.

51. The Respondent’s Written Submissions dated 8th December, 2022 and filed on even date raised a sole issue for determination.

Whether the Appellant qualifies for a refund of input VAT 52. The Respondent submitted that the Appellant is appointed by Syngenta BV as a non-exclusive toll producer of unrooted and rooted cuttings of flower varieties through a Toll Production Agreement and also entered into a Research and Development Agreement with Syngenta Crop Protection AG (Switzerland).

53. The Respondent submitted that it rejected the Appellant’s VAT refund claim because an interpretation of the Toll Agreement and the Research and Development Agreement showed that the Appellant is an agent of Syngenta Seeds BV and Syngenta Crop Protection AG (Switzerland).That as a consequence and in accordance with Section 13(5) of the VAT Act 2013, it is only the principal(Syngenta Seeds BV and Syngenta Crop Protection AG Switzerland) who may deduct input VAT in relation to supplies made to an agent on behalf of the principal.

54. The Respondent submitted that the Black’s Law Dictionary 10th Edition defined what an agency is “…Agency is a relationship that arises when one person (principal) manifests assent to another (an agent) that the agent will act on the principal’s behalf , subject to the principal’s control, and the agent manifests assent or otherwise consents to do so”

55. It was the Respondent’s submission that according to Halsburys Law of England 4th Edition volume 1 (2) Paragraph 19 and 20, a principal agency relationship is created by the express or implied agreement of the principal and the agent or by ratification by the principal of the agent’s acts done on his behalf. That express agency is created where the principal or some person authorized by him, expressly appoints the agent whether by deed, by writing under hand or orally, implied agency arises from the conduct or situation of parties.

56. The Respondent submitted that a principal agency relationship can be implied by virtue of the fact that Syngenta seeds BV reimburses the Appellant for all the costs incurred in the production of unrooted and rooted cuttings of flower varieties. It submitted further that a principal agent relationship can also be implied by virtue of the fact that Syngenta Crop Protection AG (Switzerland) reimburses the Appellant for all costs that are incurred while providing research and development services.

57. To establish that the Appellant is an agent of Syngenta Seeds BV, the Respondent relied on Clause 2 and Article 6. 1, 6. 2 and 6. 3. of the Toll Agreement. The Respondent submitted that the Toll Production Agreement defines costs to include:a.Costs incurred for maintenance of productive plant.b.Costs out of idle capacity of its production plantc.All salary costs and related benefits for employeesd.All costs of non-supply chain purchases such as energy, water, and other utilitiese.All costs of for production materials.

58. The Respondent also relied on Clause 3. 9 and 4 of the Research and Development Agreement between the Appellant and Syngenta Crop Protection AG (Switzerland).

59. It submitted that the relationship between the Appellant and the two non- resident companies (Syngenta seeds BV and Syngenta Crop Protection AG) is that of an agent acting on behalf of its principals and being remunerated at a margin on costs for the services provided.

60. The Respondent averred that input VAT on costs is incurred by the two non-resident companies as precisely stated in Clause 6. 2 of the Tolling Production Agreement between the Appellant and Syngenta Seeds BV which states that “VAT shall be payable in addition to the tolling fee, if due”. The Respondent asserted that in accordance with Section 13(5) of the VAT Act 2013, it is the principal who may deduct input VAT made to an agent on behalf of the principal.

61. The Respondent relied on the case of Cofftea Agencies Ltd v Commissioner of Domestic Taxes where the Court held that an agent cannot claim the principal’s inputs. The Respondent also relied on the finding in the case of Commissioner of Domestic Services v Dutch Flower Group Kenya to buttress its argument.

Issues For Determination 62. The Tribunal has considered the parties’ pleadings, submissions and documentation availed and is of the view that the Appeal raises two issues for determination.a.Whether the Appellant is an agent of Syngenta BV and Syngenta SCPb.Whether the Respondent was justified in rejecting the Appellant’s input VAT refund application.

Analysis And Findings 63. Having established the issues for determination, the Tribunal will now analyse them as herein under.

a. Whether the Appellant is an agent of Syngenta BV and Syngenta SCP 64. The Appellant had submitted that the input VAT it claimed related to input costs it incurred in the production of goods and exported services. Further that it procured these goods and services in the course or in furtherance of its business. It submitted further that the true test of an agency is whether the Appellant had legal authority to bind Syngenta BV and Syngenta SCP. It stated that it had no power to bind Syngenta BV and Syngenta SCP with third party obligations.

65. On its part, the Respondent argued that it rejected the Appellant’s VAT refund claim because an interpretation of its Toll Agreement and R&D Agreement showed that the Appellant is an agent of Syngenta Seeds BV and Syngenta SCP and that pursuant to Section 13(5) of the VAT Act 2013 it is only the principal (Syngenta BV and Syngenta SCP) who may deduct input VAT in relation to supplies made by an agent on behalf of the principal.

66. In order to better understand the relationship between the Appellant and Syngenta BV and Syngenta SCP, the Tribunal has perused through both the Toll Production and the R&D Agreements. The Tribunal hereby reproduces Articles 2, 6. 1 ,6. 2 and 6. 3 of the Agreement between the Appellant and Syngenta BV;Article 2“The parties agree that Producer shall produce in Kenya in the name and on behalf of Syngenta Netherlands, the Unrooted Cuttings of the Varieties in the Product Orders, according to the terms and conditions of the present Agreement, the Production Orders and any specific instructions given by Syngenta Netherlands.Syngenta Netherlands shall pay to the Producer the Tolling fee as described in Articles 6….”Article 6. 1“In consideration of sorting out the Production by the Producer of the Unrooted Cuttings, Syngenta Netherlands shall pay and/or reimburse Producer for all Costs associated with the Production with a margin to be established on arm’s length basis based upon market conditions and as agreed in Annex 4”Article 6. 2“Producer shall invoice Syngenta Netherlands on a monthly basis the actual Tolling Fee due for the invoiced month. Upon receipt of a VAT compliant invoice, Syngenta Netherlands shall pay the Producer the invoiced amount in accordance with Syngenta treasury instructions for inter-company payments. VAT shall be payable in addition to the actual Tolling Tee, if due;”Article 6. 3“The Tolling Fee as well as the costs (including the Costs as well as the costs of Production, Waste, Materials and transportation) shall be invoiced by Producer in US Dollar.”

67. On the other hand, Article 4 of the R&D Agreement also stipulates the relationship between the Appellant and Syngenta SCP (Switzerland) and it states as follows:“Article 4. 1In consideration for carrying out the R&D Services as provided hereunder, SCP shall reimburse Service Provider (the “Remuneration”); all actual costs and expenses incurred by the Service Provider itself in connection with its own performance of the R&D Services in accordance with the terms of this Agreement, plus an arm’s-length mark-up on such costs, plus.

all actual costs and expenses incurred by Service Provider to contract third parties who have been retained by the Service Provider to conduct certain R& D Services, with no mark-up on such costs.

The initial mark-up shall be 5%....Article 4. 2 The costs referred to in 4. 1 shall include; Compensation (including fees, wages on salaries, overtime, bonuses, deferred compensation and other fringe benefits) of all persons engaged in the performance of the R&D Services.

Travel and associated expenses of persons engaged in the performance of any R&D Services.

Materials, supplies and equipment used in connection with the performance of the R&D Services.

Utilities and other services used in connection with the performance of the R&D Services.

Any expenses and charges, including without limitation, depreciation and insurance properly chargeable; under generally accepted accounting principles to the R&D Facilities…

Fees due in connection with performance of R&D Services.

External and internal costs incurred for searching, evaluating, filing, maintaining and prosecuting patent rights of other proprietary rights.”

68. A reading of the cited Articles of the Toll Agreement and Research and Development Agreement clearly stipulate that the Appellant was to be reimbursed for all the costs it incurred and that in all its endeavours as pertaining to these contracts it acted on behalf of Syngenta BV and Syngenta SCP, respectively.

69. The Tribunal is guided by the definition of an agent as stated in the Black’s Law Dictionary which defines an Agent as a person authorized by another (principal) to act for or in place of him. The same dictionary defines a principal as someone who authorizes another to act in their place. It further defines a principal-agent relationship as an arrangement in which one entity legally appoints another to act on its behalf.

70. The wording of Article 2 of the Toll Agreement reads, “The Parties agree that producer shall produce in Kenya, in the name and on behalf of Syngenta Netherlands.” This means that the Appellant acts as an agent in the name of and on behalf of its principal towards fulfilling the terms of the Agreement.

71. Further, Article 6. 2 of the Toll Agreement states in part that:-“…upon receipt of a VAT compliant invoice, Syngenta Netherlands shall pay to producer the invoiced amount in accordance with Syngenta treasury instructions for inter-company payments. VAT shall be payable in addition to the actual tolling fee, if any”

72. The Appellant faulted the Tribunal’s findings in the previous Appeal filed by the Appellant in TAT No 311 of 2022. However, it has not adduced any material facts or shown any cause to convince the Tribunal to depart from its said finding.

73. The Appellant stated that it entered into a contract for provision of security services with Brinks Security Services Limited on its own behalf. However, Article 4. 1 of the R&D Agreement provides in part as follows:-“… Syngenta Crop Protection AG shall reimburse service Provider…All costs and expenses incurred by the service provider to contact third parties who have been retained by Service Provider…”

74. In view of the foregoing, the Tribunal has observed that the Appellant acted on behalf of Syngenta BV & Syngenta SCP exclusively and that it was to be reimbursed for all its costs including VAT. The Appellant had equally failed to adduce proof of working for other parties outside that arrangement which would have necessitated a different consideration.

75. The Tribunal is guided by Article 3. 9 of the R&D Agreement and the decision of the High Court in the case of Commissioner of Domestic Services v Dutch Flower Group Kenya where Justice Mabeya held as follows:-“…the net effect of the clauses spells the relationship between the two in an agency relationship. The income of the Respondent is controlled by FRE BV in that the two agree at the beginning of the year on a budget, on the cost for which FRE pays the same to the Respondent plus a 5% thereon as income for the latter. That being the case, allowing the Respondent to claim input VAT would be to allow it to claim a cost belonging to FRE and not itself. The Appellant was right in rejecting the claim. That ground succeeds”

76. In light of the foregoing, the Tribunal finds that the Appellant incurred the costs as an agent of Syngenta BV and Syngenta SCP and the Tribunal to that extent reiterates its decision in TAT No 311 of 2022.

b. Whether the Respondent was justified in rejecting the Appellant’s input VAT refund application. 77. Having determined that the Appellant acted as agent of its principals, the claim for input VAT therefore rightfully belonged to its principals. Consequently, the Tribunal finds that the Respondent was justified in rejecting the Appellant’s input VAT refund application.

Final Decision 78. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following final Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 19th May,2022 be and is hereby upheldc.Each party to bear its own costs

79. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF SEPTEMBER, 2023ERIC NYONGESA WAFULA...........................CHAIRMANDELILAH K. NGALA...................................MEMBERGEORGE KASHINDI..................................MEMBERCHRISTINE A. MUGA................................MEMBERSPENCER S. OLOLCHIKE.........................MEMBERABDULLAHI M.DIRIYE............................MEMBER