Naivas Kenya Ltd (NKLs) is liable to pay KRA KShs.1,794,000,000 in corporation tax, after the Tax Appeals Tribunal (TAT) dismissed an appeal by the firm, against payment of corporation tax accrued from the sale of its 30% minority stake.

Naivas Kenya Ltd had filed an appeal at the TAT on 10th June 2022, against a tax assessment conducted by KRA, subjecting the sale of Naivas International Limited (NIL) to a resident corporation tax of 30%. The TAT however dismissed the appeal in a judgement delivered on 4th August 2023, (agreeing with KRA’s assessment decision amounting to Kshs.
1,794,000,000.00 of unpaid corporation tax).

In a layered and complicated scheme involving holding companies and subsidiaries, KRA unearthed a scheme to avoid payment of corporation tax in Kenya. The assessment emanated from the 2020 sale of a 30% minority stake in Naivas International Limited (Mauritius) (NIL) to Amethis Retail for Kshs. 5.2 Billion by Gakiwawa Family Investments Limited (GFI).

Naivas Kenya Ltd (NKLs) was appointed by the Kenya Revenue Authority as the tax representative of Gakiwawa Family Investments Ltd (GFIL). GFIL was incorporated in Mauritius and holds a Global Business Licence (GBL) issued by the Financial Services Commission (FSC) of Mauritius. GFIL initially held 100% shareholding in Naivas International (NI). In the year 2020, Amethis Retail (Amethis) acquired 31.5% stake in NI from GFIL as a sale price of Kshs 5.2 Billion. NI holds 100% shareholding in Naivas Kenya Ltd (NKL).

In the appeal filed by NKL, the firm objected to the Commissioner’s assessment and stated that they were not the tax representatives of GFI and there was no nexus between themselves and GFI and thus would not legally and practically be able to carry out any obligations as GFI’s tax representative. It was however revealed by KRA and ruled by the Tax Appeals Tribunal that although the GFI is incorporated in Mauritius, the control and management of the holding company that owns Naivas Supermarkets is exercised by its directors who are Kenyan, in Kenya.

After hearing the parties, the honourable Tribunal, held that there exists a nexus between the transaction subject of the assessments and Naivas Kenya Limited as follows; “… In the Tribunal’s view… Gakiwawa Family Investments (GFI) and Naivas International Limited are managed and controlled in Kenya and thus this is a confirmation that they are tax residents in Kenya.In the instant case, the tribunal is of a position that the place of the real business is Kenya and the Kenyan directors and ultimate beneficial owners of Gakiwawa Family Investments.
GFI is managed and controlled from Kenya and that makes GFI resident for tax purposes in Kenya and further therefore the Appellant (Naivas Kenya Limited) is liable to pay corporation tax as assessed by the Respondent (KRA),” said the Tax Tribunal.

Further, the Tribunal observed that for a company to be considered a non-resident company’s tax representative, it must be a person that controls the affairs of a non-resident person’s affairs in Kenya. In the present case, it means Naivas has control of GFI’s affairs in Kenya, was run and controlled by Kenyans in Kenya.

Due to the foregoing, the Tribunal dismissed the appeal by Naivas and upheld KRA’s decision that confirmed the tax assessment. Based on this judgment, Naivas Kenya Limited is therefore liable to pay corporation tax assessment of Kshs. 1,794,000,000.00 inclusive of penalties and interests.

Commissioner,

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