The Tax Appeals Tribunal has dismissed two appeals by Ecobank Kenya against the Kenya Revenue Authority (KRA), ruling that the lender should have paid tax on fees to international card operators and on the sale of repossessed assets.
- •In its decision, the Tribunal found that payments made by Ecobank to Visa and Mastercard were subject to withholding tax.
- •It added that the card companies provide the electronic infrastructure that allows the bank to process card transactions in Kenya, and that the benefit of those services is clearly enjoyed within the country.
- •The tribunal noted that it was irrelevant that the card operators are based abroad or that the payments pass through global settlement systems; as what mattered was that Ecobank used those platforms to run its card business locally, making the payments taxable income for the foreign companies.
Under the Income Tax Act, companies must withhold tax when payments to non-residents are deemed income derived from Kenya. The panel of judges relied on a Court of Appeal precedent that classified payments to Visa as royalties for the use of intellectual property, setting the basis for similar withholding tax treatment on fees paid to global card operators.
“The Tribunal is of the firm view that the Court of Appeal held that the payment made to Visa Card company under the license Agreement was payment for a royalty. It was payment for the right to use the intellectual property of Visa card and withholding tax was due and payable,” it ruled.
Ecobank had argued that the payments were merely part of interbank settlements between financial institutions, not service fees. The bank said the arrangements were standard across the global card industry and did not involve direct service contracts with Visa or Mastercard.
On the other hand, the tax authority maintained that the card operators supply electronic payment services that directly support Ecobank’s local operations and therefore fall under Kenya’s withholding tax rules for non-resident companies.
The Tribunal agreed, upholding KRA’s assessment of KSh 5.7 million. It also noted that Ecobank failed to provide its service contracts or invoices, leaving it unable to prove that the payments were anything other than royalties.
The second dispute concerned value-added tax on the sale of repossessed property. Ecobank had sold assets seized from defaulting borrowers and argued that it was only recovering loans, not trading in goods. It said the property still belonged to the borrowers and that it was acting as their agent in the sales.
The Tribunal rejected that argument, agreeing with KRA that once the bank repossesses and sells an asset, it exercises control over the transaction and receives payment in the course of its business. That, according to the ruling, meets the legal definition of a taxable supply under the VAT law.
