M-KOPA LLC (C/O M-KOPA KENYA LIMITED) Case
CASE BRIEF
In Tax Appeal No 65 of 2023, M-KOPA LLC (C/O M-KOPA KENYA LIMITED) appealed against the Commissioner of Domestic Taxes’ tax assessment of Kshs 368,507,926.00 concerning Corporation tax, Pay as You Earn (PAYE), and withholding tax for the year 2017.
M-KOPA LLC, registered in the USA, is the holding company of M-KOPA Kenya Ltd, a digital financial services provider in Kenya.
The main issues for determination were
- Whether M-KOPA LLC was a tax resident in Kenya in 2017.
- Whether the Commissioner was justified in issuing the objection decision dated 6th December 2022 concerning corporation tax, withholding tax, and PAYE.
Regarding the first issue, M-KOPA LLC argued it was a non-resident company since its board meetings were mostly held outside Kenya, and its headquarters were in the UK. The Commissioner contended it was a tax resident based on declarations to the Securities and Exchange Commission and the location of executive directors.
The Tribunal determined that M-KOPA LLC’s place of effective management (POEM) was outside Kenya, given its board composition and decision-making location.
On the second issue, the Tribunal analyzed various assessments made by the Commissioner:
- Tax on grant income: The Tribunal found that grant income wasn’t taxable under the Income Tax Act (ITA), as grants weren’t included in the list of taxable incomes.
- Withholding tax (WHT) on redeemable preference shares: The Tribunal ruled that the repealed Section 35(6) of the ITA, which allowed the Commissioner to collect WHT from non-withholding parties, didn’t apply for the 2017 period.
- WHT on interests from non-resident third-party investor loans: Similarly, the tribunal held that the Commissioner couldn’t demand WHT directly from M-KOPA LLC for interest on loans under the repealed section.
- Taxation of employee stock options: The Tribunal found the Commissioner’s calculation of taxable benefits from stock options to be flawed as it didn’t follow the formula prescribed by the ITA.
Consequently, the Tribunal allowed M-KOPA LLC’s appeal, setting aside the Commissioner’s objection decision.