Many internet corporations conduct their business in Kenya. Facebook, Twitter, Google, name them, all have a base in Kenya because the country is a leading consumer of the companies’ products.
Their presence is good for the Kenyan people, as well as the government, which pockets millions of shillings from the companies in taxes.
Although the whole tax situation for foreign companies and those that take part in the digital space is complicated, the case does not curtail the benefits of having local offices for global tech institutions.
And while in the past we have seen some tech companies abandon the Kenyan market altogether, perhaps to the ever-increasing rates in taxation, the majority of them have stayed.
Which brings us to a recent legal tussle between the taxman, the KRA, and Google Kenya, where the latter wants a tax refund amounting to KES 58.7 million.
The case was first spotted by Nation.
The refund sources its merit on the ground that the services offered by Google Kenya were not consumed by Kenyans. The respondent, namely KRA, argues that the services were consumed locally.
The facts of the case are as follows: KRA performed a refund audit to establish tax compliance status for Google Kenya between early 2010 and early 2013. After the audit, KRA saw no fault on its side. To this end, Google Kenya appealed the case to the Tax Appeal Tribunal to overturn KRA’s decision.
The Google Kenya case is an interesting one. Specifically, Google Kenya is owned by Google Inc. The case also loops in Google Ireland.
Now, Google Kenya says that its mother company Google Inc. provided R&D services, whereas Google Ireland offered marketing and support services.
Google Kenya adds that the services are related to non-resident entities, and were exported according to VAT’s zero rates.
That’s not all: Google Kenya says that Kenyan customers contract directly with Google Ireland.
The following are Google Kenya’s arguments regarding KRA’s faults:
- KRA assuming that the services offered by Google Inc. and Google Ireland were not consumed outside the country, hence, were not exported.
- KRA not supporting its conclusions that Google Kenya’s services to Google Inc. and Google Ireland were not exported.
- That the services were not zero rated for VAT reasons.
In response to Google Kenya’s points, KRA says ‘R&D services were not consumed in Kenya and that the impact of the R&D services lay on the final consumer of the services who were locals hence no export of services took place.’
KRA also maintains that the ads served by the companies were consumed by Kenyans.
It is not clear how the case will progress in the coming days.
Nevertheless, the major issue that needs to be determined is if the services offered by Google Kenya to Google Inc. and Google Ireland were exported services, and are thusly zero-rated.