How two words cost KRA Sh900m case against Coca Cola company

Words have meaning. And the Kenya Revenue Authority (KRA) loss of a Sh900 million tax case against global beverages manufacturer Coca-Cola has proved that words can be also expensive. If the words 'user' and 'consumer' can be monetised, each cost KRA at least Sh450 million. However, it is not its fault but that of Parliament as it failed to define the term 'user' and 'consumption' in the Value Added Tax (VAT) Act. This rendered a case filed by KRA null and void. The authority was demanding Sh900 million from Coca-Cola's subsidiary, Cola Central East and West Africa Limited (Coca-Cola Africa) for advertising services. The case is a major blow to the taxman and has an implication on how multinationals advertise their products in Kenya. While faulting KRA, Justice Chacha Mwita found that the adverts that ran in Kenya for consumers to take sodas were export services which are exempt from Value Added Tax. According to him, Coca-Cola is based in the United States of America (USA) and thus ought to pay their VAT tax demanded in their home country. At the heart of the case were Coca-Cola subsidiaries, Coca-Cola Central East and West Africa Limited (Coca-Cola Africa), and Coca-Cola Export, which is based in the USA. "I am unable to find fault in findings and conclusions arrived at by the Tax Appeals Tribunal that Coca-Cola Export was the consumer of the marketing services, that the marketing services were export services, and that the United States of America had the taxing rights. Consequently, this appeal fails and is dismissed. Each party will bear own costs," said Justice Mwita. Coca-Cola Africa entered a deal with Coca-Cola Export for marketing services to enhance the sale of its brands. It follows that Coca-Cola Africa 2017 applied for a tax refund but KRA declined, arguing that it had undeclared VAT tax on locally consumed services and local sales. The firm responded to the decision arguing that the advertisement was an exported service and thus could not attract VAT tax. Aggrieved, Coca-Cola Africa moved to the Tax Appeals Tribunal (TAT) which agreed that Coca-Cola Africa had rendered export services to Coca-Cola Export which were zero-rated. Coca-Cola Africa argued it would amount to double taxation as Coca-Cola Export paid VAT in the USA. In its verdict, TAT held that although marketing and promotion took place in Kenya, there was no proof that every Kenyan who saw the adverts purchased a beverage. After KRA lost, it appealed the verdict before the High Court. In its case, it argued that Coca-Cola Export is a business and is, therefore, incapable of final consumption of advertising and marketing services of soda produced by local bottlers. In its reply, Coca-Cola Africa argued that Kenyan consumers were the target of the advertisement but not the consumers of the marketing and advertisement services. The firm argued that the words "use" or "consumption" are not defined in the VAT Act. Justice Mwita agreed with the company. "Section 2 did not define the word "consumer" or "user." However, one must appreciate the meaning of the word "use" or "consume" as used in the section and not confuse it with the literal meaning of consumption. In determining who the consumer or user of the service was, in the relationship between Coca-Cola Africa and Coca-Cola Export, one must determine for whose benefit the advertising and promotion services were commissioned," he said. jmuthoni@standardmedia.co.ke

How two words cost KRA Sh900m case against Coca Cola company

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How two words cost KRA Sh900m case against Coca Cola company

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