Kenya’s High Court delivered its ruling regarding the case – Income Tax Appeal E044 of 2021 – Commissioner of Domestic Taxes v Total Kenya Limited. Total Kenya Limited (TKL) is a fully owned subsidiary of French company, Total Outre Mer (TOM). The case addressed whether Kenya can impose a withholding tax on technical management and professional service fees paid by a Kenyan subsidiary to its French oil company.

The High Court ruled that the withholding tax on management and professional fees is not applicable in Kenya under the Kenya-France Double Tax Agreement (DTA). The Court also ruled that it aligns with international best practices regarding the treatment of management and professional fees in a source state with an existing DTA.

As part of its petroleum sales operations, TKL established a technical assistance agreement with TOM to receive technical and general support services. However, an audit conducted by the Commissioner of Domestic Taxes between 2011 and 2015 revealed that TKL failed to withhold taxes on the fees paid to TOM for these technical services.

Subsequently, an assessment was conducted, determining that the payments to TOM were subject to withholding tax as they were classified as “other income” under Article 21(4) of the DTA.

In response to TKL’s objection, the Commissioner upheld the assessment, leading to an appeal to the Tax Appeals Tribunal (TAT).  The TAT determined that management and professional fees fell under the definition of business profits within the DTA. Since TOM lacked a permanent establishment in Kenya, TKL was not required to withhold tax on payments made for the technical services received.

It should be noted the case in question was rejected by TAT, prompting the Revenue Service to appeal the case to the High Court.