BUSINESS

Sale Of 30% Stake Haunts Naivas With Billion-Shilling Tax Bill

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Naivas Supermarket tax
The Tax Appeals Tribunal agreed with KRA’s assessment decision of unpaid corporation tax including penalties and interest. [ Photo: K24 TV ]
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Naivas Kenya Ltd (NKLs) is liable to pay KRA Ksh1.79 billion in corporation tax, after the Tax Appeals Tribunal (TAT) dismissed the retailer’s appeal against payment of corporation tax accrued from the sale of its 30% minority stake.

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Naivas Kenya Ltd had filed an appeal at the TAT on 10th June 2022, opposing 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, in effect agreeing with KRA’s assessment decision amounting to Ksh1,794,000,000.00 of unpaid corporation tax including penalties and interest.

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 Ksh5.2 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 Ksh5.2 Billion. Naivas International holds 100% shareholding in Naivas Kenya Ltd (NKL).

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Naivas Kenya Ltd 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.

Place of real business

After hearing the parties, the 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.

Ït added: “…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.”

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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.

Based on these, the tribunal dismissed the appeal by Naivas and upheld KRA’s decision that confirmed the tax assessment. Consequently, Naivas Kenya Ltd is liable to pay corporation tax of Ksh1,794,000,000.

Written by
BT Reporter -

editor [at] businesstoday.co.ke

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