The Kenya Revenue Authority (KRA) has lost a case against the marketing arm of Coca-Cola, a situation that might see the taxman refund Sh725 million it had disputed.
KRA had refused to pay part of the claims from Coca-Cola Central East and West Africa Ltd, which offered advertising services to Coca-Cola Company’s affiliate in the US - Coca-Cola Export Corporation.
Exported services that are consumed outside of the country do not attract value-added tax (VAT). Coca-Cola Central East and West Africa insisted that the end-consumer of its services was Coca-Cola Export Corporation, a non-Kenyan affiliate of Coca-Cola company. Coca-Cola Company has since transferred the right to use its trademark to Coca-Cola Export.
However, KRA noted that the advertisements were done and prepared for the local market with a local context to make consumers buy more. As a result, said KRA, the services cannot be construed as exported.
The Tax Appeals Tribunal in a March 31 ruled against KRA. “It is clear that the benefit of the said services is accrued by Coca-Cola Export as it increases the sale of manufacture concentrate and at the stage, therefore, falling within the scope of ‘services used and consumed outside Kenya’ as provided by the VAT Act, 2013,” read part of the ruling. The tribunal further ruled that the service agreement (between Coca-Cola Central and Coca-Cola Export) identifies Coca-Cola Export as the customer of the services as provided under the Organisation for Economic Co-operation and Development (OECD) Guidelines.
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The tribunal found that while it is the Kenyan consumers of the beverage that were targeted by the advertising services, the benefit went to Coca-Cola Export, whose business and sales improved as a result.
Unless it appeals the ruling, KRA will have to pay the claim after the objection decision of September 2017 that saw it disallow part of the claims was set aside. It all started in 2017 when Coca-Cola Central East and West Africa claimed a refund on excess input VAT amounting to Sh903 million.
However, when KRA conducted an audit of the company’s returns for between April 2014 and June 2016, it said the firm had undeclared output tax on local sales.