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KRA in another battle with Google, now over taxation

SCI & TECH
By Kamau Muthoni | April 28th 2021
Hands holding an iPad with Google site [Courtesy]

Kenya Revenue Authority (KRA) is embroiled in a tax battle with internet search giant Google.

KRA has appealed the Tax Tribunal’s verdict that it owes Google’s subsidiary, Google Kenya Limited, Sh58 million in tax refunds from 2010 up to 2013.

At the heart of the dispute is Google Kenya Limited which offers marketing and support services to Google Ireland Limited and research and development services to US-based Google Incorporated.

The tribunal found that services offered by Google Kenya to Google Incorporated are consumed globally and cannot attract taxes.

“The final beneficial enjoyment of the products by internet users could be used anywhere in the world. The tribunal, therefore, finds the services in this instant were exported services subject to tax at the rate of zero per cent,” the tribunal ruled.

KRA faulted the tribunal saying that services by Google Kenya are consumed in Kenya and should attract 16 per cent VAT. “Kenya leans more towards the origin principle and not the destination principle,” the taxman argued.

KRA said Google Kenya had not proved any taxes had been paid by either Google Incorporated or Google Ireland. Google Kenya took KRA to the Tax Appeals Tribunal after the taxman canceled the refund without explanation.

The firm explained that in 2015, just before KRA wired the refund, it wrote to them seeking information on what services it offered to Google Incorporated and Google Ireland. KRA, in its letter dated June 29, 2015, disallowed the refund but did not explain the reason for the action.

After Google Kenya objected, KRA explained that it declined to refund the tax on the basis that Google services are consumed in Kenya and attract 16 per cent Value Added Tax. KRA argued the services can be termed as the exported services which attract VAT.

Google Kenya argued that KRA erred by failing to find that its services are consumed outside Kenya and therefore are zero-rated.

Google Kenya said it was contracted by Google Incorporated to provide research and development from Jul 1, 2009. It argues that it is autonomous from the US giant.

“The appellant does not act as an agent for Google Incorporated and does not have power to act or contract on behalf of Google Incorporated.

“In addition, the appellant does not negotiate contracts or licenses on behalf of Google IncorporatedIn addition, the appellant pays for its own personnel and other costs relating to the provision of its research and development services,” Google Kenya argued.

The controversy revolves around whether Google Kenya is a subsidiary of Google Incorporated. It is the second time that Google Kenya is disassociating itself from Google Incorporated. KRA is after tax on adverts Kenyans consume online as they search things online.

In 2018, in a case where the government was pushing for unfettered access to a hacker’s digital life, Google Kenya told the court that it has no relations with the California-based entity.

“Google Kenya has no technical capacity to comply with the order, as Google Kenya has no access to Google LLC servers, services or products,” High Court judge George Odunga was told. “The applicant (Google Kenya) and Google Incorporation are separate limited liability companies and legal entities operating in two separate countries, carrying out different activities.”

The case stemmed a from KRA systems hack by an unidentified hacker who used a Gmail account. Kenyan investigators sought orders to force Google to disclose the contents of an email belonging to [email protected] as they suspected it was the hack account.

According to Mohamed Jillo, an investigator who sought the search orders on behalf of KRA, Google needed to allow him to take the contents relating to the email for investigations because the email holder accessed the computer system and performed tasks which are limited to KRA officers.

“The KRA information security is at stake because of unauthorised access into its computer system,” he said.

In the tax case, Google Kenya says it does marketing for Google Ireland but the Ireland company owns the product. “It is clear that the appellant has been subjected to unfair administrative action by the respondent who did not provide any reasons or basis for the objection decision.”

In the deal, Google Kenya ought to provide translations to African languages. KRA insists that both Google Incorporated and Google Ireland derive benefit from services offered by Google Kenya as Kenyans consume adverts and read translations. 

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