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November 16, 2023

Kenya Tax Appeals Tribunal determines key role of management and control in determining residency

  • In this case, a taxpayer was appointed as a tax representative for a corporate tax assessment in Kenya that stemmed from a transaction conducted by an indirect shareholder incorporated in Mauritius.
  • The Tax Appeals Tribunal held that despite being incorporated in Mauritius, the business of the company was managed and controlled from Kenya.
  • The ruling espouses the importance of maintaining management and control in the country of incorporation if that is the intention of the shareholders.

Executive summary

In a recent ruling, the Tax Appeals Tribunal (TAT) held that a company is considered as tax resident based on where management and control is exercised if there is no demonstrable economic substance in the country of incorporation.

The TAT ruled in favor of the Commissioner of Domestic Taxes (Respondent), meaning that the Respondent could demand taxes from the company (Appellant) in relation to a transaction that was conducted by an indirect holding company (HoldingCo) registered in Mauritius.

The decision has been appealed to the High Court of Kenya.

Detailed discussion


HoldingCo is a family investment holding company that was established in Mauritius in 2017. HoldingCo owns Parent, which was incorporated in 2015 in Mauritius, and Parent owns the Appellant, a company that is registered in Kenya.

In 2019, HoldingCo sold 31.5% of its shareholding in Parent in Mauritius to an investor for 5.2 billion Kenyan shilling (KES 5.2b).

The Respondent appointed the Appellant as a tax representative of HoldingCo, which the Appellant objected to in the TAT. The Respondent also issued a corporate tax assessment of KES 1.794b.

Issues for determination

The questions at issue before the TAT were:

  1. Whether HolidingCo is tax resident in Kenya and, if so, whether there is a nexus between the Appellant and the transaction subject to the assessment
  2. Whether the Appellant met the specific requirements of appointment as tax representative of HoldingCo

Appellant's position

A) Regarding whether HoldingCo should be considered to be a Kenyan tax resident:

  • The Appellant stated that HoldingCo was tax resident in Mauritius and Appellant's relationship with HoldingCo was as an indirect holding company.
  • The Appellant also asserted that, based on tests applied elsewhere on management and control, HoldingCo was not tax resident in Kenya.
  • The Appellant asserted that there was no nexus between itself and the transaction subject to the assessment.

B) Regarding the Appellant's appointment as a tax representative:

  • The Appellant asserted that HoldingCo was registered in Mauritius, while Appellant was registered in Kenya, and thus the two entities were subject to different jurisdictional laws as they were separate legal entities.
  • The Appellant noted that its core business was retail business in Kenya and that neither directly nor through a nominee did it exercise management over HoldingCo. The Appellant contended that HoldingCo was an indirect shareholder via Parent.
  • Additionally, the Appellant stated that the Respondent's decision to appoint it as a tax representative contravened the provisions of the Tax Procedures Act, 2015 (TPA) because the Appellant did not hold any of HoldingCo's cash assets.

Respondent's position

A) Regarding considering HoldingCo as Kenyan tax resident:

The Respondent argued that the Appellant was a subsidiary of Parent, which in turn was owned by HoldingCo and, thus, a nexus was established between the Appellant, Parent and HoldingCo.

Further, the Respondent asserted that, upon carrying out independent-entity test on the Appellant and HoldingCo, Respondent established that HoldingCo had limited operations in Mauritius to demonstrate independent going concern. The Respondent observed that the directors who are resident in Kenya had the sole mandate of transferring funds from bank accounts held in Mauritius. Effectively, management and control by the directors was exercised from Kenya.

The Respondent also noted that HoldingCo had no physical location/offices in Mauritius and operated via a management office.

B) Regarding the appointment of Appellant as a tax representative:

The Respondent relied on Section 15(1)(i) of the TPA, which states that a tax representative can be a person or entity that controls a "non-resident person's affairs in Kenya, including a manager of a business of that non-resident person."

The Respondent informed the TAT that HoldingCo was managed and controlled by directors who qualify as tax representatives in Kenya and, thus, the appointment of the Appellant as a tax representative was in line with provisions of Section 15 of the TPA.

TAT's determination

After reviewing the two parties' submissions, the TAT made the following findings:

  • Tax residency position of HoldingCo

In the TAT's view, HoldingCo was managed and controlled in Kenya and thus deemed to be tax resident in Kenya. While referring to a 2009 case involving corporate residence and usurpation of central management and control between companies in the United Kingdom and Ireland (Laerstate BV v. HMRC (2009) UKFTT 209 TC), the TAT held that management and control of a taxpayer resides where the board meetings are held. However, if the management is outside the board, considerations must be made based on who is managing the company by making strategic/high-level decisions.

The TAT also found that De Beers Consolidated Mines Ltd v. Howe (1906) Ac, 455, 5 TC 198, established that a company resides, for tax purposes, where management and control takes place and not where trading operations occur.

The TAT held that the real business of HoldingCo was in Kenya and the Kenyan directors were HoldingCo's beneficial owners.

B) Appointment of Appellant as a tax representative

The TAT held that, based on Section 15 of the TPA and the nature of operations in HoldingCo, the directors of HoldingCo are in Kenya and this qualifies them as well as the Appellant to be appointed as the tax representative. Therefore, the Respondent was within the law to appoint the Appellant as a tax representative.


The ruling highlights the importance of considering the management and control of an entity in determining the residency of a person.

The decision has been appealed at the High Court of Kenya.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor