[2023] KETAT 498 (KLR)

AEE Power Limited v Commissioner of Domestic Taxes (Tax Appeal 709 of 2022) [2023] KETAT 498 (KLR) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 498 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 709 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

October 13, 2023

Between

Aee Power Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya. Its core business is construction specializing in designs, supply and installation in various facilities.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. Vide a letter dated 20th April 2022, the Respondent issued the Appellant with a demand for payment of taxes being the principal amount, penalties and interest of Kshs.1,555,754,914. 00 for the period 2017 to 2020 in respect of Corporation tax and Value Added Tax.

4. On 19th May 2022, the Appellant lodged its objection against the entire assessment of Kshs.1,555,754,914. 00.

5. In response, the Respondent issued the Appellant with its objection decision dated 13th June 2022 confirming the tax assessment of the principal amount, penalties and interest of Kshs. 1,555,754,914. 00.

6. The Appellant being dissatisfied with the decision of the Respondent, filed its Notice of Appeal with the Tribunal on 23rd June 2022.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 29th June 2022 and filed on 4th August 2022:a.That the Respondent erred in law and fact in concluding that the Withholding taxes withheld by the Kenya Power and Lighting Company (KPLC) using the Appellant's KRA PIN were in respect of sales made by the Appellant and yet the Appellant had on several occasions informed the Respondent that the Withholding Tax had been wrongly withheld on the Appellant's PIN and did not in any way relate to its sales.b.That the Respondent erred in law and in fact in using the sales as per the Withholding Tax Schedules to calculate the amount of alleged VAT payable by the Appellant and yet the KPLC in deducting the Withholding Taxes had wrongly used the Appellant's KRA PIN was duly notified to the Respondent.c.That the Respondent erred in law and fact in failing to cancel the Withholding tax certificates wrongly issued to the Appellant despite the Appellant having duly written to the Respondent to the effect that the same had been wrongly withheld in its KRA PIN.

Appellant’s Case 8. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 29th June 2022 and filed on 4th August 2022. b.The Appellant’s witness statement of one Pablo Franco filed on 7th February 2022 and admitted on oath on 16th February 2022. c.The Appellant’s written submissions dated 2nd March 2023 and filed on 7th March 2023.

9. The Appellant submitted that the Respondent erred in its workings as it incorrectly captured the total sales as per the Withholding tax Schedules as Kshs. 3,034,403,231 as opposed to Kshs. 1,343,223,419. 00 for the period 2017 to 2020.

10. That this incorrect computation was occasioned by the mismatch between the date of printing of the Certificates and the actual date of the transaction.

11. That moreover, some of the sales were declared in different accounting periods from which the Withholding Certificates were issued hence the huge discrepancy in the total sales.

12. The Appellant noted that for the period 2017, the Respondent captured transactions including those of the period 2015 and 2016 which were not under review leading to the over estimation of the total amount of sales for the period 2017.

13. That as per the Respondent’s assessment letter and the subsequent objection decision, the same reported that the sales as per the Withholding Tax in the year 2017 was Kshs. 1,846,760,121. 00 whereas the total amount attached to the said period was Kshs. 190,333,792. 00.

14. The Appellant submitted that for the period 2017 and 2020, the Respondent erred in overstating the total sales based on the Withholding tax certificates leading to an overstatement of the alleged tax due from the Appellant for the said periods.

15. The Appellant submitted that the Respondent erred in law and fact in concluding that the withholding taxes withheld by the Kenya Power and Lighting Company using the Appellant's KRA PIN were in respect of sales made by the Appellant and yet the Appellant had on several occasions informed the Respondent that the withholding tax had been wrongly withheld on the Appellant's PIN and did not relate to the sales made by it.

16. The Appellant submitted that AEE Power Limited is a Kenyan entity fully registered in Kenya.

17. That the Appellant was duly assigned the onshore component of the Last Mile Connectivity contracts that had been awarded to AEE Power Spain by the Kenya Power & Lighting Company for procurement of plant, design, supply and installation of facilities in various projects.

18. That based on the Assignment Agreements, the Appellant was assigned the onshore portions as follows: -a)Lot 2- Schedules 2, 3, 4 and 4a; Kshs. 1,609,258,256. 16 Schedule 4a; USD 140,930. 00. b)Lot 4- Schedule 2, 3, 4 and 4a; Kshs. 984,935,732. 17 Schedule 4a; USD 133,792. 00

19. The Appellant noted that based on the Engineering Procurement and Construction (EPC) contract between KPLC and AEE Spain, the same was split into two portions, that is, the offshore and onshore portion. The offshore portion was undertaken by AEE Spain and included the Engineering and Procurement element, whereas the onshore portion was undertaken by AEE Power Limited and consisted of the construction portion of the projects in Kenya.

20. The Appellant noted that based on the said assignment contract, the Appellant was charged with the construction works in respect of the KPLC projects and supplied the construction services to KPLC.

21. That the assignment of the said local portions was duly notified to the KPLC noting that the local portion had duly been assigned to the Appellant.

22. The Appellant submitted that in respect to payments made to AEE Power Spain for the offshore portion of the Last Mile Connectivity contracts, the Kenya Power and Lighting Company wrongly withheld the withholding tax amount thereto using the Appellant's PIN.

23. That consequently, whereas the invoices had been raised by AEE Power Spain and payments thereto made directly to AEE Power Spain, the withholding tax Amount had been wrongly deducted using AEE Power Kenya’s KRA PIN leading to the conclusion by the Respondent that the amounts thereto related to payments made to the Appellant.

24. That once the invoices had been approved by KPLC, the KPLC made specific and separate payments relating to the invoices as raised separately to each of the companies and based on the scope of work undertaken by each.

25. That the assertion by the Respondent that the invoicing of the contract for both the onshore and offshore portion was done by the Appellant herein is incorrect as the Appellant shared invoices with KPLC only in respect of the onshore (local) portion that it was charged with.

26. That from a review of the onshore portion assigned to the Appellant and the invoices raised by the Appellant, the same specifically indicated that they were in respect of the local portions of the contract as assigned to it.

27. That however, for the invoices relating to the offshore portion of the contract undertaken by AEE Power Spain, the said invoices were duly raised by AEE Power Spain and not the Appellant as asserted by the Respondent in its objection decision.

28. That apart from the invoicing aspect being done independently by each of the entities, the payment by KPLC were done separately for both AEE Power Spain and AEE Power Limited.

29. That consequently, the assertion by the Respondent in its objection decision that since the Appellant herein was invoicing for both the onshore and offshore portion, it had a contractual obligation with KPLC, fails as the billings were done separately by each of the entities.

30. That having concluded that each of the companies invoiced separately and proceeded to be paid their respective payments separately, it follows that KPLC was bound to withhold tax for each of the respective entities separately based on the payments made to each of them.

31. That based on the provisions of Section 4 (1) of the Income Tax (Withholding Tax) Rules 2001, the same specifically provides as follows as relates to the deduction of withholding taxes;“A person who makes payment of or on account of, any income which is subject to withholding tax shall deduct tax therefrom in the amount specified-a.under paragraphs 3 and 5 of Head B of the Third Schedule; andb.where the Government of Kenya has double taxation agreement with the Government of another country, in the terms of that agreement·Provided that the rates of tax under this sub-rule shall not exceed the rates specified under paragraph (a).

32. That consequently based on the above legal provisions, it follows that where a person makes a payment which is subject to withholding taxes, the individual shall therefrom be deducted at the stipulated resident or non-resident rate in respect of the specific payments made to each party.

33. That considering that the payments were made separately to both AEE Power Spain and AEE Power Limited based on the portion of works undertaken by each, KPLC ought to have deducted the Withholding Taxes for each of the entities at the stipulated rate.

34. That in respect of the offshore portion, the party for whom Withholding Tax ought to have been accounted for was AEE Power Spain.

35. The Appellant submitted that in respect of the offshore portion undertaken and invoiced by AEE Power Spain, KPLC wrongly withheld the amounts paid to AEE Power Spain using AEE Power Limited’s KRA PIN hence leading to the Appellant being wrongly issued with Withholding Certificates that ought to have been issued to AEE Power Spain.

36. The Appellant stated that due to the existing withholding tax certificates that were wrongly issued under the Appellant's KRA PIN, the Appellant has been unable to file its income tax returns for the period 2017 to 2020 as once it tries to file its income tax returns, the iTax system prompts it to confirm the withholding tax certificates that are on the system which were wrongly issued under AEE Power Limited PIN.

37. That being cognizant of the fact that KPLC was wrongly deducting withholding tax using the Appellant's KRA PIN in respect of payments made to AEE Power Spain, the Appellant duly wrote to the Respondent requesting for the cancellation of the wrongly issued WHT certificates and the issuance thereto to AEE power Spain.

38. That despite the said request and various follow ups with the Respondent as to the cancellation of the said WHT certificates, the Respondent has continued to ignore the said request with the WHT certificates continuing being under the Appellant's iTax account to the detriment of the Appellant as the Respondent continues to issue tax assessments relating to the said WHT Certificates.

39. That in light of the fact that the invoices were raised by AEE Power Spain in respect of the offshore portion and payments subsequently made directly to AEE Power Spain, the rightful Withholdee in respect of the said payments was AEE Power Spain at the stipulated non-resident rates and not the Appellant as concluded by the Respondent.

40. The Appellant submitted that the computation of alleged taxes by the Respondent in reliance of the WHT certificates wrongly issued and for which the Respondent was duly notified was illegal and without justification.

41. The Appellant submitted that the Respondent erred in law and in fact in using the sales as per the withholding tax schedules to calculate the amount of alleged VAT payable by the Appellant and yet KPLC in deducting the Withholding Taxes had wrongly used the Appellant's KRA PIN which was duly notified to the Respondent.

42. The Appellant submitted that through various letters addressed to the Respondent, the Appellant requested for the cancellation of the said WHT Certificates wrongly issued and subsequent re-issue to AEE Power Spain, the rightful Withholdee.

43. The Appellant submitted that in the circumstances, the Respondent could not conclude and demand payment of alleged VAT amounts based on the WHT certificates wrongly issued to the Appellant and yet the right Withholdee was AEE Power Spain.

44. The Appellant further submitted that the Respondent erred in law and fact in failing to cancel the withholding certificates wrongly issued to the Appellant despite the Appellant having duly written to the Respondent to the effect that the same had been wrongly withheld in its KRA PIN.

45. The Appellant submitted that it duly wrote to the Respondent in respect of KPLC having wrongly withheld the offshore amounts using AEE Power Limited’s KRA PIN and yet the rightful Withholdee was AAE Power Spain. That it proceeded to request for the cancellation of the said issued WHT certificates and subsequent re-issuance of the same to the right Withholdee, that is AEE Power Spain.

46. That in light of the above, it was the Appellant's case that the issuance of the assessment notice dated 20th April 2022 and the subsequent issuance of the objection decision dated 13th June 2022 for demand of Corporate and VAT taxes are without basis and illegal.

47. The Appellant further submitted that in the objection decision issued by the Respondent, the Respondent duly considered the overstatement of total sales for the periods 2018 and 2019 but failed to factor in for the periods 2017 and 2020 and yet the objection made by the Appellant had clearly demonstrated the overstatement for the periods under consideration.

48. The Appellant submitted that as per the workings forming part of the list of documentation of the Appellant, the Appellant clearly demonstrated the overstatement of the total sales for the periods under contention.

49. The Appellant submitted that for the Respondent to rely on the said WHT Certificates had the effect of overstating the sales of the Appellant with the amounts extracted from the said Withholding Certificates relating to AEE Power Spain and not the Appellant.

Appellant’s Prayers 50. The Appellant made the following prayers;a.Vacate the assessment together with the confirmation decision issued by the Respondent on 13th June 2022 for Kshs. 859,632,528. 00 with costs to the Appellant.b.Direct the Respondent herein to cancel the withholding tax certificates wrongly issued to the Appellant in respect of the payments made to AEE Power Spain for the contracts with KPLC under LOT 2 and LOT 4.

Respondent’s Case 51. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:a.The Respondent’s Statement of Facts dated 2nd September 2022 and filed on the same date together with the documents attached thereto.b.The Respondent’s written submissions dated 2nd March 2023.

52. The Respondent averred that vide a letter dated 10th December 2021, it wrote to the Appellant requesting information with respect to transactions done with non•resident persons in the period commencing 2017 to 2020.

53. That further, the Respondent requested the Appellant to avail its transfer pricing policy covering the related transactions between January 2016 and December 2020.

54. That the foregoing letter did not elicit any response from the Appellant prompting the Respondent to dispatch a reminder vide a letter dated 3rd February 2022.

55. That in the said letter, the Respondent requested the Appellant to provide the requested documents failure to which the Commissioner would issue assessments pursuant to the provisions of Section 31 of the Tax Procedures Act.

56. That the Appellant did not provide the requested information and their telephone calls went unanswered. That in the circumstances, the Respondent conducted a comprehensive audit on the Appellant for the period between 2017 and 2020.

57. Consequently, the Respondent summarized its audit findings establishing a tax liability of Kshs. 1,155,754,914. 00 in respect of corporation tax and VAT.

58. That a subsequent assessment for Kshs. 1,442,723,166 was issued after the Respondent set off Kshs. 113,031,748. 00 which amount had been withheld at source by the Kenya Power and Lighting Company.

59. That the Appellant lodged its objection against the entire assessment vide a letter dated 19th May 2022.

60. That the Respondent proceeded to consider the notice of objection together with the documents in support. That consequently, the objection was partially accepted with the assessment being amended to Kshs. 859,632,528. 00 exclusive of interest and penalties.

61. That the Appellant preferred an Appeal vide the Memorandum of Appeal dated 4th August 2022.

62. The Respondent averred that the Appellant stated that the Respondent erred in its computation of the total sales as per the withholding schedules leading to an amount of Kshs. 3,034,404,231. 00 as opposed to Kshs. 1,343,223,419. 00.

63. The Respondent stated that the Appellant contended that the incorrect computation was occasioned by the mismatch between the date of printing the certificates and the actual date of the transaction.

64. That in response to the above, the Respondent asserted that the Appellant's computation was in error and misleading. That in fact, the Respondent proceeded to undertake a verification of the withholding tax certificates and further ascertained that all certificates were considered using the transaction values.

65. That no figures for the years 2015 and 2016 were taken into account as posited by the Appellant. That equally, the Respondent verified the withholding tax certificates and satisfied itself that none of them were duplicated.

66. That in light of the foregoing, the sale as per the withholding tax certificates were summarized as follows:

Period Sales as per WHT Certificates Summary of taxes due

2017 1,846,760,121 473,293,897

2018 651,841,549 194,256,524

2019 464,634,247 108,348,562

2020 71,167,314 18,058,535

TOTAL 3,034,403,231 793,957,518 67. That based on the foregoing, the Respondent asserted that the total sales were accurately computed and that was the basis on which Corporate Tax was charged.

68. The Respondent averred that the Appellant contended that the Respondent erred in concluding that the withholding taxes withheld by KPLC using the Appellant's PIN were in respect to sales made by the Appellant.

69. The Respondent requested the Tribunal to take note of the following:a.That KPLC negotiated a contract - KP1/12A-2/PT/2/15/A40 - LOT 2 with AEE POWER S.A, a company incorporated in Spain for the procurement of plant, design, supply and installation of extensions of LV single phase lines and service cables, Last Mile Connectivity Program in Kisumu, Siaya, Vihiga, Busia, Bungoma and Kakamega counties.b.That KPLC negotiated a contract - KP1/12A-2/PT/2/15/A40 - LOT 4 with AEE POWER S.A, a company incorporated in Spain for the procurement of plant, design, supply and installation of extensions of LV single phase lines and service cables, Last Mile Connectivity Program in Narok, Nakuru, Samburu and Nyandarua counties.

70. That the two contracts dated 10th December 2015 were annexed to the Appellant's Appeal.

71. The Respondent submitted that the Appellant contended that the Respondent erred by using the sales captured in the withholding tax schedules to compute the VAT payable. That in light of this, which had been raised in the objection dated 19th May 2021, the Respondent proceeded to verify the VAT returns for the year 2020.

72. That the said verification revealed that the sales for the period were Kshs. 104,943,373. 94. 00 and not Kshs. 47,079,371. 00 as had been captured by the Respondent in the letter dated 20th April 2021.

73. That following the above reconciliation, there were further unresolved variances which were flagged by the Respondent and summarized hereunder:YEAR 2017 2018 2019 2020 TOTAL

Sales as perWHT 1,846,760,121 651,841,549 464,634,247 71,167,314 3,034,403,231

Sales as per VAT 3Returns 555,928,441 1,057,206,236 330,988,849 104,943,374 2,049,066,900

Variance 1,290,831,680 405,364,687 133,645,398 33,776,060 985,336,331

VAT Due 44,291,747. 00 - 21,383,264. 00 - 65,675,011. 00

74. That based on the foregoing, it was Respondent's assertion that the reliance on the withholding tax schedules to ascertain sales was justified and the VAT was therefore due and payable.

75. That the additional assessments were regularly issued and were therefore in compliance with the law.

76. The Respondent reiterated that the burden lay with the Appellant to proof that the objection decision was wrong pursuant to Section 56 of the Tax Procedures Act.

77. That admittedly, the Appellant under paragraph 35 of its Statement of Facts acknowledged that it did not file its income tax returns for the period 2017 to 2020.

78. The Respondent submitted that the following should be the issues for determination by the Tribunal: -a.Whether the assessments by the Commissioner were justifiable, legal and proper in law; andb.Whether the Appellant discharged its burden of proof by providing the requisite documents.

79. The Respondent submitted that it issued default assessments with respect to corporate tax since the Appellant had not filed returns from 2017 to 2020 and further issued additional assessments on VAT where the Appellant had under- declared its sales.

80. The Respondent submitted that in absence of any returns filed by the Appellant, the Respondent was constrained to issue assessments by making the best judgment out of the information available to the Commissioner.

81. That in the instant case, the Respondent proceeded to work backwards using sales as per the withholding tax certificates.

82. The Respondent submitted that since the Appellant admitted that its withholding sales were Kshs. 1,343,223,419, itought to have paid corporate tax due. That in the absence of such a remittance, the provisions of Section 52 (2) of the TPA ought to take effect. That the same provides that:“A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice."

83. That in light of the foregoing, the Respondent prayed that the Tribunal finds the instant appeal defective for failure by the Appellant to remit the tax not in dispute at the time of lodging the Appeal.

84. The Respondent further submitted that it continually requested for financial statements and tax computations which the Appellant failed to provide.

85. That based on the foregoing, the request for cancellation of the withholding tax certificates could not be sustained since the income was correctly assessed on the Appellant.

86. {The Respondent submitted that the Appellant never documented and/or enumerated the alleged duplicated withholding certificates and therefore did not discharge its burden of proof.

Respondent’s Prayers 87. The Respondent prayed that:a.The Appeal be dismissed with costs to the Respondentb.The objection decision dated 13th June 2022 be upheld as the true reflection of the Appellant’s tax liabilities.

Issue For Determination 88. The Tribunal upon due consideration of the pleadings and the written submissions of the parties was of the considered view that the Appeal raises the following issue for determination:Whether the Appellant has discharged its burden of proof.

Analysis And Determination 89. The Tribunal having established the issue for its determination proceeded to analyse the same as hereunder.

90. The genesis of this dispute is the assessment issued on the basis of withholding tax certificates issued by KPLC to AEE Power Limited, which the Appellant contends should have been issued to AEE Power Spain.

91. The Appellant submitted that the Respondent erred in law and fact in concluding that the withholding taxes withheld by Kenya Power and Lighting Company using the Appellant's KRA PIN were in respect of sales made by the Appellant and yet the Appellant had on several occasions informed the Respondent that the Withholding Tax had been wrongly withheld on the Appellant's PIN and did not relate to the sales made by it.

92. The Appellant submitted that AEE Power Limited is a Kenyan entity fully registered in Kenya. Further, that it was assigned the onshore component of the Last Mile Connectivity contracts that had been awarded to AEE Power Spain by the Kenya Power & Lighting Company.

93. That the assignment of the said local portions was notified to the KPLC noting that the local portion had duly been assigned to the Appellant.

94. The Appellant submitted that in respect to payments made to AEE Power Spain for the offshore portion in respect of the Last Mile Connectivity contracts, Kenya Power and Lighting Company wrongly withheld the withholding tax amount thereto using the Appellant's PIN.

95. That consequently whereas the invoices had been raised by AEE Power Spain and payments thereto made directly to AEE Power Spain, the withholding tax amount had been wrongly deducted using AEE Power Limited’s KRA's PIN leading to the conclusion by the Respondent that the amounts thereto related to payments made to the Appellant.

96. On the other hand, the Respondent submitted that vide a letter dated 10th December 2021, it wrote to the Appellant requesting information with respect to transactions done with non•resident persons in the period commencing 2017 to 2020. That this letter did not prompt any response from the Appellant and it wrote a reminder on 3rd February 2022. This reminder letter was also not responded to by the Appellant.

97. The Respondent submitted that the Appellant admitted that it did not file income tax returns for the period commencing 2017 to 2020.

98. The Respondent submitted that in absence of any returns filed by the Appellant, the Respondent was constrained to issue assessments by making the best judgment out of the information available to the Commissioner.

99. The Respondent submitted that it issued default assessments with respect to corporate tax since the Appellant had not filed returns from 2017 to 2020 and further issued additional assessments on VAT where the Appellant had under- declared its sales. That in the instant case, the Respondent proceeded to work backwards using sales as per the withholding tax certificates.

100. The Tribunal notes that Section 24 of the TPA provides the following in relation to submission of tax returns: -“(1)A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.(2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

101. In situations where a taxpayer has not filed returns, the Section 29 of the TPA guides the Commissioner on what to do. The Section states as follows:“29. Default assessment1. Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") of—a.the amount of the deficit in the case of a deficit carried forward under the Income Tax Act (Cap. 470) for the period;b.the amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (No. 35 of 2013), for the period; orc.the tax (including a nil amount) payable by the taxpayer for the period in any other case.”

102. In the instant case the Respondent acted in line with the above statutory guidelines in dealing with the Appellant’s matter.

103. The Tribunal relied on its holding in TAT 460 of 2019 Afzal Industry Supply Limited vs. Commissioner of Domestic Taxes where at paragraph 32 where it held that:-“It is indeed not in contention that the Appellant failed to comply with its statutory obligation of submitting its income tax self -assessment returns, as provided for by Section 52 (b) of the ITA, for the two years of income 2016 and 2017. In view of the Appellant not having filed its self-assessment returns then the Tribunal finds that the Respondent did not err by issuing a default assessment especially considering the fact that the Appellant had submitted VAT returns which showed that it had earned income in the years under review.”

104. In view of the fact that the Appellant admitted to not having filed returns for the period 2017 to 2020, the Respondent had no choice but to resort to what was allowable under the Income Tax Act.

105. The Respondent submitted that the Appellant alleged that the contract was severed into the onshore and offshore portions, which were being undertaken by AEE Power S.A and AEE Power Kenya Limited, respectively.

106. The Respondent submitted that KPLC and AEE POWER Spain entered into the above referenced turnkey contracts. That contrary to the offshore and onshore narrative advanced by the Appellant, the contracts entered into were not tripartite in nature.

107. That there were no valid assignment deeds with KPLC with respect to the local and foreign execution of the contract. That in fact, the supposed assignment agreements attached by the Appellant are internal. That a careful perusal of the contracts dated 10th December 2015, clause 1. 7 captured on page 54 reveals that neither party was empowered to assign the whole or any part of the contract.

108. The Respondent submitted that in the circumstances, it is evident that the assignment contract attached was an afterthought. That equally, the Assignment dated 15th November 2013 attached in the Appellant's bundle concerns another contract for design, supply, installation and commissioning of substations and distribution lines in Maungu and was not applicable in the instant case.

109. That in the absence of an assignment deed, the Appellant should be treated as a permanent establishment.

110. That in the instant case, part of the business of AE POWER Spain is carried on by the permanent establishment in Kenya.

111. That further, the Appellant is considered a permanent establishment of AEE Power Spain since it is dependent on the holding company and continues to habitually exercise an authority to conclude contracts in Kenya that are binding to AEE Power S.A Spain, for issuance of invoices and receipt of contract funds.

112. That accordingly, the Appellant is liable to pay taxes in Kenya with some profit attribution to Spain upon provision of the Functions, Assets and Risk analysis (FAR) to assist the Commissioner delineate the actual financial transaction. That despite requests by the Respondent, the Appellant failed to provide the financial statements and tax computations.

113. That based on the foregoing, the request for cancellation of the withholding tax certificates could not be sustained since the income was correctly assessed on the Appellant.

114. The Tribunal has perused the agreement signed by AEE Spain and KPLC. In that agreement, AEE Power Limited was not part of the agreement and its role did not feature in the said agreement.

115. The Tribunal confirms that the agreement between the parties in clause 1. 7 captured on page 54 reveals that neither party was empowered to assign the whole or any part of the contract except with the express authority of the other.

116. The Appellant did not offer any evidence that KPLC allowed AEE Spain to assign the onshore works to AEE Power Limited or even whether there were elements of onshore and offshore works in the contract.

117. Section 56 of the TPA places the burden of proof in tax cases on the taxpayer. The Section provides as follows:-“In a proceeding before the Tribunal, the appellant has the burden of proving---1. where an appeal relates to an assessment, that the assessment is excessive; or2. in any other case, that the tax decision should not have been made or should have been made differently”

118. The foregoing Section of the law places the burden of proof in tax cases on the taxpayer. The Section is reinforced by Section 30 of the TAT Act which states as thus:-“In a proceeding before the Tribunal, the appellant has the burden of proving---3. where an appeal relates to an assessment, that the assessment is excessive; or4. in any other case, that the tax decision should not have been made or should have been made differently”

119. The Appellant had the responsibility to provide documents that supported its averments in relation to the offshore and onshore aspects. Although it provided the assignment agreement between itself and the parent company, the Tribunal agrees with the Respondent that this was an internal arrangement.

120. Section 23 of the Tax Procedures Act provides that:“(1)A person shall-----a.maintain any document required under a tax law, in either of the official languages;b.maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; andc.subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

121. The law is clear in its requirement for taxpayers to retain information and it goes on to provide that the same is critical as it is used to ascertain the taxpayer’s tax liability.

122. The Tribunal is guided by the holding of the Court in Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR wherein the Court stated that:-“The import of the above provisions is that the party with the obligation of persuasion (what Wigmore termed the risk of non- persuasion) is said to bear the burden of proof.[9]{{^}} The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy.The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency.[10] The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position.”

123. It is a requirement that if a party seeks to rely on a fact, such a party bears the burden of proving that fact. Section 107 (1) of the Evidence Act, Cap 80 laws of Kenya states that;“Whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”

124. Further Section 109 of the Evidence Act provides that:“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person”

125. In view of the above, the Tribunal finds that the Appellant di not discharge its burden of proof.

Final Decision 126. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s decision dated 13th June, 2022 be and is hereby upheld.c.Each Party to bear its own costs.

127. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF OCTOBER, 2023ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER