Absa loses Supreme Court docket push in bank card royalties tax duel

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Absa loses Supreme Court docket push in bank card royalties tax duel


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Absa head workplace in Westlands, Nairobi. FILE PHOTO | NMG

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Abstract

  • Final yr, the lender misplaced an enchantment after a bench of three judges dominated that the funds made by the financial institution to the bank card corporations had been royalty and, due to this fact, topic to withholding tax.
  • Dissatisfied with the choice, Absa went again to the Appellate courtroom to be allowed to problem the choice earlier than the Supreme Court docket.

Absa Financial institution #ticker:ABSA has misplaced a bid to problem a choice of the Court docket of Attraction permitting the Kenya Income Authority (KRA) to gather a share of billions of shillings paid to multinational bank card corporations akin to Visa and MasterCard as royalties.

Final yr, the lender misplaced an enchantment after a bench of three judges dominated that the funds made by the financial institution to the bank card corporations had been royalty and, due to this fact, topic to withholding tax.

Dissatisfied with the choice, Absa went again to the Appellate courtroom to be allowed to problem the choice earlier than the Supreme Court docket.

Justices Roselyn Nambuye, Patrick Kiage and Jamila Mohammed, nonetheless dismissed the plea, saying there was nothing within the second enchantment by Absa, which is of nice public curiosity or requires constitutional interpretation for Supreme Court docket deal with.

“Within the circumstances, we discover that the problems raised by the applicant within the supposed enchantment to the Supreme Court docket are not more than information which had been in contest between the events and don’t transcend the circumstances of the case,” the Judges stated.

The KRA and the financial institution had been in a nine-year dispute over whether or not the funds made to the multinationals had been royalties, which meant that Absa was required to deduct 20 p.c as tax.

Which means the KRA might push for Absa to pay tax arrears for the 9 years that would run into billions of shillings in a go well with that may have repercussions for Kenya’s banking business.

In 2012, the KRA demanded withholding tax on funds that Absa had made to Visa Worldwide Companies Affiliation, MasterCard Inc, and American Categorical Ltd in addition to these made by Absa to different banks in what is called interchange payment.

The payment is charged by banks for processing and accepting card-based transactions on behalf of their rivals. The taxman in its demand argued the funds to the cardboard corporations had been royalties whereas the charges from rival native banks had been for skilled or administration providers.

Absa maintained the funds to the three card corporations weren’t royalties and that the KRA had no foundation for demanding withholding tax.

Absa challenged the KRA’s transfer in courtroom, arguing that it was unlawful and unreasonable.

Excessive Court docket decide George Odunga in 2015 agreed with the financial institution and quashed the demand, saying it didn’t meet the extent of readability required in tax issues. The decide reckoned that the taxman didn’t clearly determine the class by which the demanded tax fell.

The KRA appealed the choice, arguing that the financial institution was obliged to pay withholding tax arising from its relationship and dealings with the bank card corporations.

The taxman held that the connection between Absa and the cardboard corporations was mirrored within the membership and trademark licence settlement, which granted the financial institution the allow to make use of the cardboard corporations’ marks.

And for that matter, Absa was obliged, as a withholding agent, to retain the 20 p.c tax due from funds made to the multinational card corporations.

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