Naivas is liable to pay KRA Sh1.79 billion in corporation tax accrued from the sale of its 30 per cent minority stake.
This is after the Tax Appeals Tribunal dismissed an appeal by the firm, against payment of the taxes.
Naivas Kenya Ltd had filed an appeal at the TAT on June 10, 2022, against a tax assessment conducted by KRA, subjecting the sale of Naivas International Limited (NIL) to a resident corporation tax of 30 per cent.
The TAT, however, dismissed the appeal in a judgement delivered on August 4, agreeing with KRA’s assessment decision amounting to Sh1,794,000,000 of unpaid corporation tax.
In what KRA describes as a "layered and complicated scheme" involving holding companies and subsidiaries, it said it had unearthed a scheme to avoid payment of corporation tax in Kenya.
The assessment emanated from the 2020 sale of a 30 per cent minority stake in Naivas International Limited (Mauritius) (NIL) to Amethis Retail for Sh5.2 billion, by Gakiwawa Family Investments Limited (GFI).
Naivas Kenya Ltd was appointed by KRA 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 per cent shareholding in Naivas International (NI).
In the year 2020, Amethis Retail (Amethis) acquired 31.5 per cent stake in Naivas International from GFIL at a sale price of Sh5.2 billion.
Naivas International holds 100 per cent shareholding in Naivas Kenya Ltd.
In the appeal filed by Naivas Kenya (Ltd), 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.
Hence, they 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 Tribunal held that there exists a nexus between the transaction subject of the assessments and Naivas Kenya Limited.
"In the Tribunal’s view, Gakiwawa Family Investments (GFI) and Naivas InternationalLimited are managed and controlled in Kenya and thus this is a confirmation that they are tax residents in Kenya, "KRA's Commissioner, Legal Services and Board Coordination, said in a statement.
In this 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 FamilyInvestments.
GFI is managed and controlled from Kenya and that makes GFI a resident for tax purposes in the country.
"... 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, which 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.
Naivas Kenya Limited is therefore expected to pay the corporation tax inclusive of penalties and interests.
