This archive report was first published on 4 August 2019.
On August 4, 2019, the tax appeals tribunal ruled in favor of the Kenya Revenue Authority (KRA) in a Sh18 billion tax dispute with Zakhem International Construction, a Cyprus-based firm that built the Mombasa-Nairobi pipeline.
The court found that Zakhem International Construction had misrepresented its revenues due to its complex business structure, which is treated differently from that of a locally incorporated company.
According to the court, the firm's president, Abdallah Zakhem, is the Lebanese Consulate to Kenya, and the company has been operating in Kenya through a branch established specifically for the pipeline contract.
However, the court ruled that the company's operations in Kenya exceeded the 12-month threshold, making it liable for taxation as a local company.
The KRA had argued that the company's profits were taxable in Kenya, citing international conventions that guide cross-border trade and taxation.
Specifically, the OECD guidelines indicate that profits of an enterprise of one state are taxable in the other state only if the enterprise maintains a permanent establishment in the latter state and only to the extent that the profits are attributable to the permanent establishment.
As a result of the ruling, Zakhem International Construction has been directed to pay the Sh18 billion in back taxes, which is less than half of the outstanding taxes demanded.
