Newsletter on 18/12/2009

KLR WEEKLY e-NEWSLETTER
 

| Issue 086| Newsletter Archive | Friday 18th December 2009 |

 
   
 
 
CASE OF THE WEEK
 

Bank to pay Withholding Tax on Online Information

Reported by Mukaindo Petronella
Advocate                                   

Stanbic Bank Kenya Limited V Kenya Revenue Authority [2009] eKLR      (www.kenyalaw.org)
Court of Appeal, at Nairobi.
D. K. S. Aganyanya, J.G. Nyamu, A. Visram (JJ.A)
December 18th, 2009.

“Tax law entails strict application…there is no question of the exercise of discretion by the Court when dealing with matters pertaining thereto.”

The Court of Appeal has ordered Stanbic Bank Kenya Limited to pay withholding tax to Kenya Revenue Authority (KRA) for subscription payments made by the bank to a foreign company for the provision of online information. In the majority ruling Judges of Appeal Aganyanya and Nyamu in dismissing the appeal held that KRA was justified in demanding withholding tax from the applicant in respect of the payments made. Judge Visram in dissent was of the opinion that the information was of a generic nature and did not attract withholding tax.

The background to this case is that a contract was entered into between Stanbic Bank Kenya Limited and Reuters (UK); a non-resident company for provision of data and information in respect of which the bank made payments. Reuters was a service provider whose business included supply of on-line information on financial markets, stocks and related matters of interest to banks, financial institutions and others. Under the contract, Reuters (UK) was to supply information and/or materials and support. The bank had over the years continued to access Reuters online services and pay fees as per the agreement.

By a letter sent in September, 2002 to KPMG Kenya (the bank’s tax agents), KRA demanded from the agents payment of withholding tax in the sum of Kshs.7,954,342/= which comprised the principal tax, penalties and interest on Reuters services for the period 1996 to 1999 on the ground that the payments made to Reuters constituted payment made to a non-resident person as consideration for technical services and that the information supplied to the Bank qualified to be taxed under the Income Tax Act.

By a letter sent in January, 2003 KPMG objected to the tax demanded stating that the services paid for were for provision of news and information and that the payments made constituted subscriptionfor publications. Stanbic Bank contended that the payments were not subject to withholding tax as the services were not technical and were available online to all willing users. 

Aggrieved by the KRA’s decision, the bank filed a judicial review application in the High Court against the KRA for an order of certiorari to quash the letter sent in September, an order of prohibition to prevent KRA from demanding the stated sum and from taking any from taking any recovery measures.  

The High Court adopted a purposeful approach in dismissing the application and held that the services rendered by the applicant are technical and consultancy and subject to withholding tax. 

Stanbic Bank thereafter appealed to the Court of appeal. Mr. Gichuhi acting for Stanbic Bank contended that section35(1) of the Income Tax Act lists the payments that are subject to withholding tax when paid to a non resident person but that this did not include payments made for provision of financial information by way of publication.  He argued that under the strict rule of statute interpretation, the payment could not be taxed unless the taxing statute clearly imposed the tax upon it.  He further argued that the information availed was neither technical nor advisory and that the only role Reuters played was availing the information through a web page which was not taxable at that time and that this is what the bank (Stanbic) paid for. Furthermore, the service would be correctly termed as technical if it is the type of skills and knowledge exercised by the provider of the service and not the user, of which the client such as the banks puts the services, it being merely general financial information which is neither advisory nor technical and the payment cannot possibly fall within the definition of “management or professional fee” in section 35(1) (a) of the Income Tax Act.

Mr. Gichuhi referred the court to the case of Republic v. Commissioner Of Income Tax Ex Parte SDV Transami (Kenya) Ltd where KRA demanded withholding tax for online information in respect of royalties and the High Court held that the payments relating to online information on the movement of ships and shipping companies are not taxable under the same provision of Income Tax Act, and the Act did not have clear provision to charge on information offered online and therefore it was incorrect for the services being regarded as technical.

Mr. Matuku representing KRA contended that the information provided was not the kind that Stanbic Bank would ordinarily access through the internet as it was tailored in such a manner that it was of great value to the bank in the making of critical financial decisions. He further contended that the payments upon which the tax liability was pegged were made to Reuters in recognition of the technical services that Reuters offered to the appellant.  The respondents argued that “management or professional fee” meant – a payment made to a person, other than a payment made to an employee by his employer as consideration for managerial, technical or consultancy services however calculated and that this was the state of the law during the relevant period (1996-1999).

The respondent further contended that the above position should be contrasted with the period after 1999, when in the year 2000 the legal position was altered and the scope and the meaning of “management or professional fee” under the Income Tax Cap 470 was expanded to include “agency and contractual services” following the addition of the words “agency” and “contractual” respectively to the definition.

The respondents final contention was that the relevant provisions of the law both before and after the year 2000 covered the payments made to Reuters by the appellant because the services also formed part of the definition in 1999, those services being of the nature of technical or/and consultancy services.
                                 
Justice Anganyanya was not persuaded that the facts in Republic v. Commissioner of Income Tax ex parte SDV Transammi (Kenya) Limited, were similar to the appeal at hand.   

In his judgment Justice Nyamu looked into the ordinary and natural meaning of the two terms “technical” and a “consultancy” and stated that the appellants contention that the services were neither technical or of a specialist nature was not supported by the definition of services as per the contract between the parties. He endorsed the final conclusion of the presiding Judge Aganyanya.

In Justice Visram’s dissenting judgment, he noted that the issue for determination was simply whether payment to a non-resident company who provides on-line subscription service qualifies to attract withholding tax under the Income Tax Act. Referring to the Organization for Economic Co-operation and Development (“OECD”) paper entitled “Tax Treaty Characterization Issues Arising from E-Commerce”, the learned judge adopted the reasoning stated in the paper that the fact that technology was used in providing a service was not indicative of whether a service was of a technical nature; thus, the delivery of the service via technical means did not in itself make the service technical.  The learned judge reasoned that all that Reuters did was to compile news and information from different sources relating to international financial markets under one window, and pass it on electronically to whoever wanted it, and to use it in whatever manner they chose. The fact that Stanbic bank used the information to make financial decisions did not qualify the service provided as ‘technical. He noted that the fee paid by the bank did not amount to a ‘professional or management’ fee as to attract withholding tax. The fact that Reuters’ form contract may have implied so, was immaterial as it was  a standard “form” contract used everywhere in the world, and  that in any event, a tax payer’s liability to tax arises from what is stated clearly in the law, and not from what is stated or implied in forms or documents.
The majority decision carried the day and the bank’s appeal was dismissed.

Download Full Text of This Judicial Opinion

 
SELECTED NOTICES FROM THE KENYA GAZETTE

SPECIAL ISSUE
Vol. CX- No. 104                                                             11th December, 2009

GAZETTE NOTICE NO. 13494
AWARD OF ORDERS, DECORATIONS AND MEDALS

JAMHURI DAY, 12TH DECEMBER, 2009

IN RECOGNITION of outstanding or distinguished services rendered to the nation in various capacities and responsibilities, I, Mwai Kibaki, President and Commander-in-Chief of the Armed Forces of the Republic of Kenya, confer Awards and Honours to the following persons:

Order of the Golden Heart of Kenya

(a) The Second Class: Elder of the Order of the Golden Heart of Kenya (E.G.H.)

  1. Hon. Githae Robinson Njeru, M.P.

(b) The Third Class: Moran of the Order of the Golden Heart of Kenya ( M.G.H.)

  1. Mutwii, Jones Mutuku (Lt. Gen.)
  2. Iteere, Mathew Kirai (Commissioner)
  3. Odinga, Ida Betty
  4. Kalonzo, Pauline Kathini
  5. Awori, Rose Moody

Order of the Burning Spear

(a) The First Class: Chief of the Order of the Burning Spear (C.B.S)

  1. Oyugi, Maurice (Maj. Gen)
  2. Karanja, Simon Nduashey (Maj. Gen.)
  3. Wa-Mwachai, Mohamed Abdalla M.
  4. Bor, Mark Kipkemoi
  5. Ngari, Mary
  6. Waweru, Michael Gitau
  7. Ndung’u, Njuguna (Prof.)
  8. Kobia, Margaret (Dr.)
  9. Osugo, Isaiah Samuel Mosiori (Commissioner)

10.Kipng’etich, Julius Kangogo
11.Otieno, Luke Martin Oduor
12.Okonyo, Francis Omondi (SDCP)

(b) The Second Class: Elder of the Order of the Burning Spear (E.B.S.)

Disciplined Forces Division

  1. Kihalangwa, Gordon Odemo (Brig.)
  2. Mwangangi, David Kambuni (Brig.)
  3. Kameru, Philip Wachira (Brig.)
  4. Njagi, John Njue (DCP)
  5. Mugo, Anthony Kibuchi (DCP)
  6. Osore, Edward Omukuyia (SDD)

Civilian Division

  1. Were, Fredrick Namenya (Prof.)
  2. Wangila, Baraza Cleopas Charles (Prof.)
  3. Owuor, Okeyo Joash Barack (Prof.)
  4. Mwinzi,  Avignon Muusya (Dr.)
  5. Pratt, Kenyatta Kristina Wambui
  6. Awori, David
  7. Kusimba, Makokha Musikiti
  8. Muthoka, Wambua Peter
  9. Tenai, Moses Kipchirchir
  10. Mainda, Steve Omenge Johnson
  11. Narendra, Raval Guru
  12. Kamau, Joseph Kahungu

(c) The Third Class: Set out in the Kenya Gazette

Dated the 9th December, 2009.

                                                                        MWAI KIBAKI
President

VOL.CXI-No.106                                                           18th December, 2009
GAZETTE NOTICE NO. 13510
THE STANDARD ACT(Cap. 496)
APPOINTMENT

IN EXERCISE of the powers conferred by section 13 (1) of the Standards Act, the Minister for Industrialization, appoints-

Zephania Imbaya
James Muiruri
David Kirui
Peter Bosire
Francis Mutune
Lawrence Michubu
Sylvester N. Mungai
Sammy Muli Nzuki
Joseph Keeru
Alex Keter
Michael Nguku
Tobias Ololo
Fredrick Imongi
Anderson Maina
Martin Kedii
Liston Langat
Benjamin S. Ruliakong
Ziphora Nthitu
Nabwire M. Waiswa
Isaac Muriithi
Collins Omondi
Thomas Athoo
Pius Owitti
Bernerd Mukhwana
Wiliam Amwayi
Charles Wachira
Ogallo Onyango

to be inspectors for purposes of the Standards Act.

Dated the 14th December, 2009.

HENRY KOSGEY
Minister for Industrialization


GAZETTE NOTICE NO. 13511
THE STATE CORPORATIONS ACT
(Cap. 446)

APPOINTMENT

IN EXERCISE of the powers conferred by section 5 (3) of the State Corporations Act, the Minister for Industrialization, appoints-

JULIUS OBARE MOKOGI

as the Managing Director of Kenya Industrial Estates, for a period of three (3) years with effect  from the 21st December, 2009.

Dated the 15th December, 2009.

HENRY KOSGEI
Minister for Industrialization


GAZETTE NOTICE NO. 13512
THE AGRICULTURE ACT (Cap. 318)
THE CENTRAL AGRICULTURAL BOARD

APPOINTMENT

IN EXERCISE of the powers conferred by section 35 (6) of the Agriculture Act, the Minister for Agriculture appoints-

GRISHON K. NZUVA

To be the Chairman of the Board of Central Agricultural Board for a period of three (3) years with effect from 14th December, 2009.

Dated the 8th December, 2009.

WILLIAM ARAP RUTO,
Minister for Agriculture


GAZETTE NOTICE NO. 13513
THE HIV AND AIDS PREVENTION AND CONTROL ACT
(No. 14 of 2006)

APPOINTMENT

IN EXERCISE of the powers conferred by section 25 (1) of the HIV and AIDS Prevention and Control Act, the Attorney-General appoints-

Under paragraph (a)-
Ambrose Dickson Otieno Rachier-Chairman

Under paragraph (b)-
Joy K. Asiema
Mohammed Noor Kullow

Under paragraph (c)-
Julius Muasya Kyambi (Prof.)
Ephantus Njagi Chomba (Dr.)

Under paragraph (d)-
Angelina Siparo
Joe Muriuki

to be the members of the HIV and AIDS Tribunal, for a period of three (3) years.

Dated the 15th December, 2009.

S.A. WAKO,
Attorney-General


GAZETTE NOTICE NO. 13514
THE CHILDREN ACT (No. 8 of 2001)

APPOINTMENT

IN EXERCISE of the powers conferred by section 73 (d) (ii) of the Children Act, 2001, the Chief Justice appoints-

BERNARD O. OMWANSA

Resident Magistrate at Ndhiwa, to preside over cases involving children in respect of Nyanza Province, with effect from 1st December, 2009.

Dated the 30th November, 2009.

J.E. GICHERU,
Chief Justice


GAZETTE NOTICE NO. 13515
THE CHILDREN ACT (No. 8 of 2001)

APPOINTMENT

IN EXERCISE of the powers conferred by section 73 (d) (ii) of the Children Act, 2001, the Chief Justice appoints-

JAMES O. ONG’ONDO

Resident Magistrate at Homa Bay, to preside over cases involving children in respect of Nyanza Province, with effect from 1st December, 2009.

Dated the 30th November, 2009.

J.E. GICHERU,
Chief Justice


GAZETTE NOTICE NO. 13516
THE MAGISTRATES’ COURTS ACT(Cap. 10)

INCREASE OF LIMIT OF JURISDICTION

IN EXERCISE of the powers conferred by section 5 (1) of the Magistrates’ Courts Act, the Chief Justice increases the limit of jurisdiction of-

JAMES O. ONG’ONDO

Resident Magistrate to Kenya Shillings Five Hundred Thousand (Ksh. 500,000/-) with effect from 1st December, 2009.

Dated the 30th November, 2009.

J.E. GICHERU
Chief Justice.

GAZETTE NOTICE NO. 13517
THE LAW OF SUCCESSION ACT (Cap. 160)

APPOINTMENT

IN EXERCISE of the powers conferred by section 47 of the Law of Succession Act, the Chief Justice appoints-

JAMES O. ONG’ONDO

Resident Magistrate at Homabay to represent the High Court for the purposes of that section with effect from 1st December, 2009.

Dated the 30th November, 2009.

J.E. GICHERU,
Chief Justice


GAZETTE NOTICE NO. 13455
THE ENVIRONMENTAL MANAGEMENT AND
CO-ORDINATION ACT(No. 8 of 1999)
THE NATIONAL ENVIRONMENT MANAGEMENTAUTHORITY
ENVIRONMENTAL IMPACT ASSESSMENT STUDY
REPORT FOR THE PROPOSED STREAM CANALIZATION REALIGNMENT ON L.R. NO. 3734/549/45 ALONG CHALBI
DRIVE LAVINGTON, NAIROBI

INVITATION OF PUBLIC COMMENTS

PURSUANT to regulation 21 of Environmental (Impact Assessment and Audit) Regulations, the National Environment Management Authority, (NEMA) has received an Environmental Impact Assessment Study Report for the implementation of the Proposed Stream Canalization and Realignment on L.R NO. 3734/549/45 Along Chalbi Drive, Lavington, Nairobi.

The proponent  intends to divert the Katina river channel (which flows in the middle of the plot), through an appropriately designed box channel running parallel to the northern boundary of the plot without disturbing the existing NCC sewer line.

The project anticipates the impacts and mitigation measures set out in the gazette.

The full report of the proposed project is available for inspection during working hours at:

(a).The Director-General, the National Environment Management Authority, Popo Road, off Mombasa Road, P.O. Box 67839-00200, Nairobi

(b).The Permanent Secretary, Ministry of Environment and Mineral Resources, National Hospital Insurance Fund Building, Community, 4th Floor, P.O. Box 30521, Nairobi

(c).Provincial Director of Environment, Nairobi Province

(d).District Environment Office, Nairobi West District

B.M. LANGWEN
For Director General,
National Environment Management Authority

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