Here's why KRA is demanding Sh3.4 billion from Zuku owners

By Moses Michira | Friday, Nov 11th 2016 at 00:15
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A graphic representation of Richard Bell's ownership of Zuku, the firm at the centre of a Sh3.4 billion tax fraud case.

Kenya Revenue Authority has told Richard Bell, the billionaire owner of Zuku, to take responsibility for his various companies in a Sh3.4 billion tax fraud case.

An affidavit filed in court last week claims the Briton owns a majority stake in Wananchi Group Kenya and three other Mauritius-based ‘virtual’ firms that have been receiving billions of shillings from the Kenyan business.

Mr Bell is fighting his appointment by KRA as the tax representative of his offshore companies, a position that makes him directly answerable on the suspected tax avoidance. “That since the management, control and operations of the three companies are undertaken in Kenya, these companies are tax resident in Kenya even though they are incorporated in a foreign jurisdiction,” reads the affidavit sworn by Patrick Chege, a senior official at KRA.

At the heart of the dispute is whether Mr Bell should be responsible for the taxation for Wananchi Satellite and Wananchi Programming, both based in Mauritius, but the tax authority claims their operations and staff work in Nairobi.

As such, the two offshore companies should pay their taxes in Kenya where they are resident as matter of fact, even though the directors argue that they are Mauritian entities. KRA says in court documents that Wananchi Group Kenya settles all costs incurred by the offshore firms, before the same expenses are reimbursed by the companies whose registered address is a trustee based Mauritian capital, Port Louis.

Mr Bell is the ultimate authorising officer for all the transactions between the four companies, KRA claims, which means that he should also be the tax representative. The agency based its tax claim on the transactions between the related companies where it believes that taxes worth Sh3.4 billion should accrue to Kenya over a five-year period that an audit was done.

Nerve centre

A detailed breakdown of the ownership structure for Bell’s companies indicates he founded East African Capital Partners Ltd, the ultimate owner of the Zuku brand but through several intermediary companies.

Zuku, a pay-television and cable internet provider in Kenya, is a brand of Wananchi Group Kenya where Mr Bell directly holds a 20 per cent stake. Wananchi Group Holding (Mauritius) where Bell is a major shareholder owns the other 80 per cent.

Wananchi Satellite and Wananchi Programming are wholly owned by Wananchi Group Holdings – which is a wholly owned ATMT Wananchi Group, Mauritius. Bell’s East African Capital Partners manage ATMT Fund 1, Mauritius, which is the owner of ATMT Wananchi Group, Mauritius.

In essence, the stake owned by Bell in Zuku is both directly and indirectly through four layers - EACP, ATMT Fund 1, ATMT Wananchi Group Mauritius and Wananchi Group Holdings.

“It is evident that the applicant (Bell) is the nerve centre not only of the four companies in question in this dispute but also the ATMT Fund 1 Mauritius and EACP Ltd Kenya,” says the KRA.

It is through this complex ownership that Mr Chege links Bell’s control of the offshore companies Wananchi Satellite and Wananchi Programming - which in KRA’s view are only resident for tax purposes in Kenya. “That for tax purposes, management and control of a company implies that the top management of the company sits in Kenya, whereas operations imply that the day-to-day activities of a company are carried out in Kenya,” argues KRA in its submission.

United States government, through the Overseas Private Investment Corporation (OPIC), United Kingdom-based Helios and private firms from Belgium and Netherlands are among Bell’s co-investors in Wananchi Group.

At the heart of the conflict is a request made by Wananchi Group Kenya filed seeking to carry forward losses it had made for the purposes of tax computation. Kenyan law allows for a rollover of losses for up to five years, an incentive granted to investors to encourage foreign direct investments and job creation.

KRA’s audit of the company’s books pending the approval of its request to carry over the losses unveiled what is thought to be irregular payments to the offshore firms, considering that their supposed employees including Mr Bell are in Kenya.

Ms Hannelie Baker, who is said to be the principal officer of Wananchi Programming Ltd, draws her salary from Wananchi Group Kenya, and so does the chief officer at Wananchi Satellite Ltd Mohamed Aish Jeneby.

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