[2024] KETAT 1240 (KLR)

Bluejay Limited v Commissioner of Legal Services and Board Co-ordination (Tax Appeal E555 of 2023) [2024] KETAT 1240 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1240 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E555 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

August 23, 2024

Between

Bluejay Limited

Appellant

and

Commissioner of Legal Services and Board Co-ordination

Respondent

Judgment

Background 1. The Appellant has been operating as a licensee of the “Betway” global brand owned by Merryvale Limited (Merryvale), an intellectual property (IP) holding company, which is ultimately owned by Super Group (SGHC) Ltd (SGHC), a company incorporated in Guernsey and listed on the New York Stock Exchange

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Respondent carried out an audit of the Appellant’s affairs and issued it with an assessment dated 12th April 2023 for Corporation income tax (CIT), Withholding tax WHT on winnings, Excise tax Betting and Gaming tax amounting to Kshs 5,272,752,325. 00 being the total outstanding principal tax, penalties and interest broken down as follows:Tax Head Principal (KES) Penalty (KES) Interest (KES) Total (KES)

WHT on Winnings 3,253,060,698 162,653,035 717,672,385 4,133,386,118

Excise 11,870,572 593,529 3,903,556 16,367,656

Betting and Gaming Tax 17,817,070 890,853 5,750,060 24,457,283

Total 4,122,169,452 206,108,473 944,474,400 5,272,752,325

4. The Appellant objected to the said assessment vide a letter dated 12th May 2023 and the Respondent issued its Objection decision vide a letter dated 10th July 2023 confirming the assessment.

5. The Appellant dissatisfied with the objection decision lodged a Notice of Appeal to the Tribunal on 4th September 2023.

The Appeal 6. The Appellant in its Memorandum of Appeal dated 24th August 2023 and filed on 4th September 2023 has set out the following grounds of Appeal:a.The Respondent erred in law and fact in issuing amended assessments beyond the Five (5) year statutory time limit under Section 31 of the Tax Procedures Ac, 2015 (the TPA);b.The objection decision lacks any evidence of due consideration given to the Appellant’s grounds of objection and supporting documentation contrary to Section 51(8) and (10) of the TPA;c.The Respondent erred in law and fact by violating the Appellant’s right to fair administrative action in the computation of withholding Tax (WHT) on winnings;d.The Respondent erred in law by applying WHT on the stakes contrary to the well-settle interpretation that “winnings” are exclusive of the stake;e.The Respondent erred in law and fact by disregarding the rule on different treatment on the application of WHT on casino games;f.The Respondent’s demand for penalties in relation to WHT amounting to Kshs 162,653,035. 00 is excessive and contrary to the law;g.The Respondent erred in law and fact by violating the Appellant’s right to fair administrative action in the computation of Gross Gaming Revenue (GGR);h.The Respondent erred in law and fact by disallowing betting and gaming tax expenses based on a misunderstanding of the Appellant’s records and disregarding the Appellant’s explanations and records provided;i.The Respondent erred in fact by disallowing various expenses on the false claim that the same were double-claimed expenses;j.The Respondent erred in law and fact in the computation of Excise duty by relying on speculative figures and failing to justify the basis of the findings;k.The Respondent erred in fact in issuing an additional assessment about betting and gaming tax based on a misunderstanding of the Appellant’s record and disregarding the explanations and records provided;l.The Respondent erred in law and in fact by disallowing expenses incurred by the Appellant in respect of transactions with six (6) entities on the basis that the transactions were not at arm’s length;m.The Respondent erred in law and fact by concluding thsat the loan received by the Appellant from Rosehall Global was chargeable to tax.

The Appellant’s Case 7. The Appellant relied on the following to argue its Appeal;a.Statement of facts dated 24th August 2023 and filed on 4th September 2023. b.List and bundle of documents filed on 4th September 2023. c.List of authorities filed on 23rd March 2024. d.Written submissions dated 26th March 2024 and filed on the even date.

8. The Appellant argued its Appeal under various heads as follows:

i.he Respondent erred in law and fact in issuing an amended assessment beyond the five (5) year statutory time limit under the TPA 9. The Appellant stated that the Respondent had surreptitiously amended the Appellant’s original tax return for 2016 without providing it with an assessment notice for this period.

10. That this action effectively amended its original tax assessments for the period between 2016 and 2021 and not between 2017 and 2021 as indicated in the notice of assessment.

11. The Appellant stated that Section 31(4)(a) of the TPA provides for an exception as to when the Respondent is permitted to amend an assessment beyond five (5) years unless it is guilty of gross or wilful neglect, evasion, or fraud. That the Respondent has not demonstrated any gross or wilful neglect, evasion, or fraud on its part, to justify the issuance of an amended assessment beyond the stipulated period of five (5) years.

ii. The objection decision lacks any evidence of due consideration given to the Appellant’s objection contrary to the TPA. 12. The Appellant argued that the objection decision amounted to a rehash of the notice of assessment as it did not contain any evidence or respond to the specific grounds of objection and corresponding attachments that it had provided. That the Appellant had thus been deprived of fair administrative action as it has not been informed of the reasons for the Respondent’s decision on each specific ground of objection to enable it address those responses in this Appeal.

13. That Section 51 (10) of the TPA provides that: “An objection decision shall include a statement of findings on the material facts and reasons for the decision.” That further, the Constitution of Kenya (CoK) at Article 47 (1) provides that, “Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”

14. The Appellant also averred that the Respondent’s action of confirming the assessment through the Objection decision without giving rationale reasons for the same and by only copying and pasting its position in the notice of assessment is ultra-vires, arbitrary, in bad faith and goes against basic principles of a good taxation system, fairness, the principles of natural justice and procedural fairness.

iii.The Respondent erred in law and in fact by violating the Appellant's right to fair administrative action in the Computation of WHT on winnings. 15. The Appellant averred that the Respondent relied on abstract information and data in the computation of WHT on winnings which the Appellant is not aware of and therefore the Respondent’s assessment in relation to WHT on winnings is ambiguous and lacks clarity.

16. That the Respondent computed WHT on figures that the Appellant could not trace in the system because there was no explanation provided by the Respondent in the Objection decision except that the data extracted and analyzed showed the odds, gross winnings and stakes related to the winnings. That moreover, the Respondent also failed to provide data extracted from the Appellant’s system, the reasons for its assessment and the reasons it departed from the information provided.

17. The Appellant stated that it has the right to be given full information on the case against it, which includes the information relied upon and the reasons for the assessment, and to be given a reasonable opportunity to respond to it. That failure by the Respondent to provide this information relied on, is procedurally improper and in violation of the Appellant’s constitutional right to fair and reasonable administrative action.

iv.The Respondent erred in law by applying wht on the stakes contrary to the well-settled interpretation that “Winnings” is exclusive of the stake. 18. The Appellant averred that the Respondent applied WHT on the stakes in relation to bet games, jackpot, virtual and lucky numbers contrary to the principle laid out by this Honourable Tribunal which position was affirmed by the High Court in Tax Appeal No. 304 of 2019, Pevans East Africa Limited v The Commissioner of Domestic taxes and Others and in Tax Appeal No. 169 of 2020, Resort Kenya Limited v Commissioner of Domestic taxes.

19. The Appellant averred that the term “winnings” was exclusive of the stake placed by punters and that the Respondent was wrong to have assessed WHT on the gross payouts made to punters, which was inclusive of the stake.

20. The Appellant stated that these authorities settled the question of what constitutes winnings by clearly stating that “winnings does not include amount staked” which is contrary to the position taken by the Respondent in the Objection Decision.

v.The Respondent erred in law and fact by disregarding the rule on differential treatment on the application of WHT on casino games. 21. The Appellant averred that the taxation of casino games is subject to differential treatment which is based on guidance that was given to taxpayers in the gaming sector, and which guidance was disregarded by the Respondent.

22. That the preferential treatment of WHT tax on winnings from casino games was canvassed in the Resort Kenya case (supra) where it was submitted that computation of WHT would be through setting the total value of earnings “winning minus 20% before applying the WHT rate of 20% on the result. That in the circumstances the Tribunal ought to determine that the taxpayer’s tax obligation ought to have been determined in accordance with the Commissioner’s letter dated 29TH April 2014.

23. The Appellant averred that the Respondent’s action was a violation of its legitimate expectation that the Respondent would apply a differential treatment of WHT payable in relation to casino business to arrive at a demand for WHT that was fair and based on the existing principles which have been affirmed by the Tribunal in case of Resort Kenya (supra).

vi.The Respondent’s demand for penalties in relation to WHT amounting to kshs 162,653,035 is excessive and contrary to the law. 24. The Appellant posited that Rule 14A of the WHT Rules provides that a penalty may be imposed of 10% of the amount of tax involved in relation to WHT subject to a maximum penalty of Kshs 1 million. That in the present case, the assessed penalty for WHT significantly exceeded the penalty cap of Kshs 1 million and was thus unlawful and should be vacated.

vii. The Respondent erred in law and in fact by volating the Appellant’s right to fair administrative action in the computation of GGR 25. The Appellant averred that the Respondent failed to provide written reasons for its findings, and particularly its reasons for departing from the data provided by the Appellant in its Audited Financial Statements (AFS) and thereby violating its right to fair administrative action contrary to Section 51 (10) of the TPA and Article 47(1) of the Constitution of Kenya(CoK).

26. The Appellant stated that it had the right to be given full information on the case against it, which includes the information relied upon and the reasons for the assessment, and to be given a reasonable opportunity to respond to the same. That the Respondent’s failure to adhere to this right was procedurally improper and amounted to a violation of its Constitutional right to fair and reasonable administrative action.

27. The Appellant affirmed that the CIT assessment applicable at the rate of 30% arising from the alleged under-declared GGR of Kshs 361,561,420. 00 has not been issued in accordance with the law and lacks merit.

viii. The Respondent erred in law and fact, by disallowing Betting and Gaming tax expenses based on a misunderstanding of the Appellant’s records and disregarding the explanations and records provided. 28. The Appellant averred that it was entitled to claim a full deduction of all expenses wholly incurred for purpose of generating its business income including the gross payouts paid which were excluded from WHT applicable on winnings.

29. That the interpretation of the Respondent was that the net payouts to winning customers and the WHT on winnings which together referred to as “gross payouts” were claimed as deductible expenses.

30. It was also its argument that there was a variance between the Betting and the Gaming tax paid by the Appellant under the provisions of the BLGA and the Betting and Gaming tax that was reported in the Appellant’s AFS as “betting and gaming taxation”. That the outcome of this was that its gross payouts in the AFS as “betting and gaming taxation” were higher than those extracted from its system as having been paid under the BLGA resulting in a reduction of its taxable income.

31. Regarding the issue of Digital Service tax (DST), the Appellant stated that a DST of Kshs 10,299,164. 00 that it had paid was included in the “betting and gaming taxation” item. That this had increased the amount in the AFS which resulted in the variance referred to by the Respondent which had been excluded in the tax computation and was therefore not claimed as a deductible expense.

32. The Appellant averred that in the same way that the Respondent had disregarded the DST that was included in the “betting and gaming taxation” line item in the AFS, is the same way it should have disregarded the WHT amount on winnings. That this would have led it to find that there was no variance between the tax already paid by the Appellant and the records contained in its AFS.

33. The Appellant concluded under this head, by stating that the assessment applicable at the CIT rate of 30% arising from the alleged under-declared betting and gaming tax was misdirected, based on a misunderstanding of the facts and thus lacked merit.

ix. The Respondent erred in fact by disallowing various expenses on the false claim that the same were double-claimed expenses. 34. The Appellant predicated that each of its expenses was claimed as either “direct costs” or other expenses” and not as both, and thus there was no double claim on these expenses.

35. The Appellant stated that it had the right to be given full information on the case against it, including the reasons for the assessment and the reasons it departed from the information provided, and to be given a reasonable opportunity to respond to the same. That failure to adhere to this right was procedurally improper and a violation of its constitutional right and reasonable administrative action.

36. That the consequence of the Respondent's breach of its rights was that it issued a CIT assessment disallowing expenses of Kshs 19,079,320. 00 which was ambiguous, unclear, unlawful and lacked merit.

x. The Respondent erred in law and in fact in the computation of excise duty by relying on speculative figures and failing to justify the basis of its findings. 37. The Appellant averred that the Respondent erred in the computation of Excise duty on stakes and sports betting activities by relying on speculative figures which the Appellant is not aware of, and therefore the Respondent’s assessment is ambiguous and lacks clarity.

38. Further, the Appellant set forth that the Respondent had failed to justify the basis of its findings in the final computation and also failed to explain why it was departing from the data provided by the Appellant contrary to Section 51(10) of the TPA and Article 47 (1) of the CoK.

39. That moreover, the Respondent did not clarify the methodology used and information source extracted in computing the Excise duty resulting in an unlawful Excise duty demand of Kshs 16,367,656. 00 inclusive of penalties and interest.

xi. The Respondent erred in fact in issuing an additional assessment in relation to Betting and Gaming tax on a misunderstanding of the appellant’s records and disregarding the explanations and records provided. 40. The Appellant reiterated that the reason for the variance was that the "betting and gaming taxation” expense that was recorded in the AFS was a general term referring to taxes applicable on the betting and gaming activities and was therefore inclusive of WHT on winnings, and not only betting and gaming tax, hence the reason for the higher expenses amounts than the betting tax and gaming tax that was paid under the provisions of the BLGA at 15% each.

41. The Appellant also stated that the Respondent relied on abstract information and data in the computation of the Gross Gaming Revenue (GGR) and there was no way for the Appellant to verify the information from the Respondent that led to the additional assessment. That for example, the Respondent expressly admitted to using speculative data in computing WHT in the notice of assessment under Part 2. 1 (Withholding tax on Winnings) in Paragraph (ii) in relation to “bet games, jackpot, virtual and lucky numbers” and under Paragraph (iii) in relation to “online casino”.

42. The Appellant postulated that the Respondent’s additional assessment lacked clarity, was unverifiable and ambiguous.

43. That it had discharged its tax burden by paying the correct amount of Betting and Gaming tax for the period under review and the additional assessment of Kshs 24,457,983. 00 should be vacated in its entirety.

xii. The Respondent erred in law and in fact by disallowing expenses incurred by the Appellant in respect of transactions with six (6) entities on the basis that the transactions were not at arm's length.a.On the disallowed expenses.

44. That the expenses disallowed by the Respondent were incurred wholly and exclusively in the production of income as is provided for in Section 15(1) of the Income Tax Act in respect of transactions entered by the Appellant with the following entities:a.Tailby Limitedb.Gazelle Management Holdings Limitedc.Head square (Pty) Limited andd.Osiris Trading (Pty) Limitede.Napier Limitedf.Nowell Marketing Limited is collectively referred to as “Service Providers” in this appeal.

45. That as a licensee of the “Betway” brand it had undertaken business with all the different service providers at arm’s length as shown in the following examples:a.Benchmarking report for gaming and general administrative supported services offered to the Appellant by Osiris Trading for the period 2017 to 2019 (as prepared by ENS Africa)b.Benchmarking report for digital Marketing supported the services offered to the Appellant by Osiris Trading for the period 2017 to 2019 to identify and compare independent providers of digital marketing services with those provided by Osiris Trading to the Appellant.c.White label services agreement between Boylesports and Seaniemac Limited was a comparable uncontrolled transaction like the agreement entered between the Appellant and Tailby for the provision of the “Betway” systems software. In this arrangement, Boylesports provides e-gaming options including casino, sports betting, sports books, and bingo as well as hosting and customer support services, among others. On the other hand, Seaniemac provided its branding and undertook marketing activities to acquire customers for the platform.d.The license agreement between Playboy Enterprises International and Gaming Technologies Inc. supported the arm’s length charge of 14% of net gaming revenue and minimum advertising commitment of 2% of net gaming revenue.e.Sample fee structure extracted from third-party agreements indicated significant discounts linked to increasing gross gaming revenues.

46. The Appellant postulated that whereas the Respondent stated that it conducted tests in line with Chapter VII of the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2017 (the OECD TP Guidelines) to determine whether inter-company services were rendered. That the Respondent did not however demonstrate in its objection decision that:a.The services were duplicative and that the parties rendered similar services;b.The third-party costs such as those recharged by Head-square do not warrant an additional remuneration over and above, the actual third-party costs; andc.Verifiable documentary evidence was provided to support the fees charged.b.On the allegation that the service is duplicative since the parties render similar services

47. Regarding duplication of software charges, the Appellant averred that pursuant to Paragraph 7. 12 of the OECD TP Guidelines an argument on duplication cannot be advanced in a situation where the costs relate to activities that are different, complementary or additional to each other.

48. That in its case, the utilization of various software was necessary as it operated its business purely on-line relying on the licensor’s brand-building relationships with sports teams and leagues worldwide, advertisers, casinos and other third parties to generate visibility and attract and retain customers to its offerings.

49. That relationships with providers of on-line services, search engines, social media, directories and other websites and e-commerce businesses are all critical for directing a large volume of consumers to its website which cannot be achieved solely through its Kenyan operation due to the scale and complexity involved.

50. The Appellant argued that considering that it is involved in the sports betting and gaming industry, it usually utilizes various casino and gaming offerings from third parties to support the diverse needs of its clientèle. That these third-party providers assist it in generating new or enhanced offerings which are required by the Appellant to continually engage its customers.

c. Third-party costs such as recharged costs do not warrant an additional remuneration over and above actual third-party costs 51. The Appellant stated that it provided a benchmarking report for gaming and general administrative support services to support the argument that a service provider undertaking content aggression is entitled to a mark-up on costs for services rendered in negotiating discounts and contracting with the several third-party providers in addition to other value-added services to the Appellant.

d. No verifiable documentary evidence was provided to support the fees charged. 52. The Appellant reiterated that the Respondent has not accorded it a fair hearing as it has failed to give due consideration to the explanations and supporting documents it had provided which dealt with each of these allegations. That for example:a.The Respondent concluded that Talby was incorporated in 2019 based on the information allegedly obtained from the Guernsey registry. That it provided a certificate of incorporation indicating that Tailby was incorporated in Belize on 22nd July 2009 and subsequently re-domiciled to Guernsey where it was registered on 21st May 2020. b.The Respondent failed to consider its explanations and documents annexed to the notice of objection regarding the incorporation dates of Rosehall Global and Tailby.c.The Respondent failed to fulfil its obligation to provide written explanations for its decision, including providing information allegedly from the Guernsey registry countering the Appellant’s evidence provided in its objection in contravention of Section 51 (10) of the TPA and Article 47(1) of the CoK.d.It provided uncontroverted evidence regarding the registration of Tailby which rebutted the assertion by the Respondent that Tailby was non-existent at the time the transactions took place.e.It provided an industry value chain analysis in its notice of objection which explained why the company incurred losses in the first few years of operation.

53. Based on the foregoing, the Appellant averred that its marketing costs were incurred for customer acquisition and retention, which is a fundamental aspect of building a business in the gaming and sports betting industry.

54. That the Respondent made factually incorrect conclusions in its objection decision under “ Intra-Group License Fees” regarding the treatment of its license fees as well as advertising, marketing and promotional expenses.

55. The Appellant averred that there is no relationship between its license of sports betting software from Tailby and the costs incurred in marketing and promotional activities through the “Betway” brand and that in the circumstances the Respondent erred in considering Tailby as the brand owner and recipient of brand license fees.

56. The Appellant averred that the owner and licensor of the “Betway” brand is Merryvale and that the Appellant pays Merryvale a license fee of 7. 5% of net gaming revenue. Its view, was that the Respondent still erroneously concluded that the brand license has a relation to Tailby and to the use of the software.

57. That Paragraph 6. 32 of the OECD TP Guidelines permits members of a Group to be remunerated for functions performed, assets used and risks assumed.

58. The Appellant urged that the following three (3) factors ought to have been considered when determining who is performing what functions including control, funding and risk to be combined in a (development, enhancement, maintenance and exploitation functions (DEMPE) analysis.i.That the Appellant has provided the Respondent with information about the office operation involving twenty (20) staff of whom the majority are utilized in the customer care function where the marketing function had four (4) staff with a head of marketing supported by three (3) staff including a marketing lead, a marketing assistant and social media manager. That this skeleton marketing staff had very limited capacity to handle the local marketing requirements of the Appellant.ii.That the Appellant does not have in place a highly trained marketing team capable of carrying out the entire spectrum of marketing activities without the involvement of external service providers and/or third-party marketers.iii.That SGHC has a global workforce of three thousand and five hundred (3,500) staff working in seventeen (17) countries and supported by an array of third -party marketers.iv.That the Respondent did not undertake any credible functional analysis that would form the basis for the conclusion that the Appellant's activities created a local marketing intangible in Kenya.

59. The Appellant argued that the Respondent erred in lumping up the matter of marketing expenditure and the amounts paid to Tailby in respect of sports betting software as these are two separate entities. That Tailby does not own any marketing intangible or brand because the licensing of the “Betway” brand is covered by a separate arrangement between the Appellant and the licensor, Merryvale.

60. The Appellant stated that players in the sports betting industry incur extensive marketing spend with respect to customer acquisition, strategies, marketing, advertisement, utilization of media partners and paid social media campaigns.

61. The Appellant averred that the Respondent’s argument that the software charges are duplicated is erroneous because the OECD TP Guidelines stipulate that an argument on duplication cannot be advanced in a situation where the costs relate to activities that are different, complementary or additional to each other.

62. The Appellant postulated that the trend in the industry is that on-line platforms provide and operate sports betting and gaming platforms for a third party while using the third party’s branding. That this mix of product offerings is referred to as white labelling.

63. The Appellant posited that the arrangement between the Appellant and Tailby was a vessel of profit shifting from Kenya to Belize on the basis that Tailby was non-existent at the time the transactions took place was unfounded and misleading.

xiii. The Respondent erred in law and fact by concluding that the loan received by the appellant from Rosehall Global was chargeable to tax 64. The Appellant took the view that the Respondent misdirected itself when it concluded that Rosehall Global was incorporated after the Appellant entered into loan agreements. That the correct position is that Rosehall Global was incorporated in British Virgin Islands (BVI) on 21st August 2001 and not in 2019.

65. That Rosehall Global was incorporated in the BVI on 21st August 2001 and subsequently migrated to Guernsey where it was registered on 17th July 2019.

66. The Appellant stated that the loan was part of its equity in the AFS.

xiv. Whether the Objection decision is vitiated for failure to comply with Section 51(8) and 51(10) of the TPA. 67. That Appellant stated that the Respondent had breached Section 51 (10) of the TPA because its objection did not contain a statement of findings and the reasons for the Respondent’s decision. It supported this position with the case of Equity Group Holdings Limited v Commissioner of Domestic Taxes, Civil Appeal No. E069 & E025 of 2020.

68. The Appellant submitted that Section 51(10) of the TPA was couched in mandatory terms which required the Respondent's total compliance as stated in the cases of:-a.Total Kenya Limited v Kenya Revenue Authority, Barclays Bank of Kenya Limited & 2 others (interested parties) 2020 eKLR.b.Kenya Revenue Authority v Maluki Kitili Mwendwa (2021) eKLR.c.Pz Cussons East Africa Limited v Kenya Revenue Authority (2013) eKLR.d.Usafi Services Limited v Commissioner of Domestic Taxes, Tax Appeal No. 1094 of 2022xv.Whether the Respondent erred in law and in fact in issuing amended assessment beyond the five (5) year statutory time limit under the TPA.

69. The Appellant submitted that the assessment herein was illegal as it was not within the exemption prescribed in Section 31 (4) (a) of the TPA as was previously held in Evans Kidero v Speaker of Nairobi City County Assembly& Another (2018) eKLR and Commissioner of Domestic Taxes v Airtel Kenya Limited, Income Tax Appeal No. E062 of 2011 where fraud and willful neglect by or on behalf of the taxpayer were discussed.

xvi. Whether the Respondent erred in law by applying WHT on the stakes contrary to the well settled interpretation of “Winnings” 70. The Appellant posited that the definition of ‘winnings’ was explained by the Tribunal in ResortKenya Limited v Commissioner of Domestic Taxes, Tax Appeal No. 169 of 2020 and Pevans East Africa Limited v The Commissioner of Domestic Taxes and others, Tax Appeal No. 304 of 2019, where it was held as follows:“74. The Tribunal notes that at no time before this case did the legislature explicitly or implicitly intimate that winnings either in the ITA or the BLGA should include stakes to have the same meaning as gross payout. Furthermore, if the intention was to include stakes in the definition of winnings, the legislature, which has never fallen short of words, would have specifically stated so…”75. In view of the foregoing, the Tribunal makes a finding that winnings as stipulated in the ITA refers to pay-outs by the licensee but does not include amounts staked by the better.”

xvii. Whether the Respondent's demand for penalties in relation WHT is excessive and contrary to the law 71. The Appellant relied on the case of Republic v Kenya Revenue Authority & another ex-Parte Kenya Nut Company Limited (2014) eKLR to argue that the Respondent was not justified to impose a penalty of 20% as opposed to 10% or a maximum of Kshs 1 Million as required under Rule 14A of the WHT Rules.

Appellant’s Prayers 72. The Appellant’s prayer to this Tribunal were for orders that:a.The decision of the Respondent contained in the Objection decision dated 10th July 2023 demanding payment for Corporation tax, WHT on winnings, Excise duty, Betting and Gaming tax be set aside;b.The Appeal be allowed with costs to the Appellant; andc.Any other orders that the Tribunal may deem fit.

Respondent’s Case 73. The Respondent’s case was premised on its Statement of Facts dated 28th September 2023.

74. The Respondent itemised its response to the Appeal under the following heads:i.That the Respondent erred in law and fact in issuing amended assessments beyond the 5-year statutory limit under Section 31 of the Tax Procedures Act.

75. The Respondent averred that all the tax heads were issued in time. That the self-assessment for the year 2017 was due by the 30th June 2018 and was filed by the Appellant and the additional assessment was issued on 12th April 2023 and received by the Appellant’s tax agent on 13th April 2023.

76. The Respondent stated that the notice of assessment mentioned expenses for the year 2016 but the same was not brought to charge as alleged by the Appellant.

ii. The Objection decision lacks any evidence of due consideration to the Appellant’s ground of objection and supporting documentation contrary to Sections 51 (8) and 51 (10) of the Tax Procedures Act. 77. The Respondent stated that its objection decision complied with Section 51(8) of the TPA because it was explicit that the objection had been disallowed as stated in Paragraph 4. 0 of page 19, whereupon it confirmed the assessment in full.

78. The Respondent posited that whereas the Appellant shared documents via the web transfer file platform, the documents shared were not sufficient to support the grounds of objection. That the documents shared on transfer pricing as per the Memorandum of Appeal had not been shared earlier and were thus not used at the point of review and issuance of the objection decision.

79. That the excel workbook provided contained only one sheet and not the entire log of the betting and gaming transactions that formed the basis of the underlying GGR for the period under review as alleged by the Appellant. That the shared excel workbook only contained statements without any figures. That it was thus not possible to determine and support the Appellant's assertions as contained in its financial statements.

80. The Respondent stated that it extracted its own data from the Appellant’s system to arrive at the conclusion that its audit findings were not erroneous.

81. That Section 24(2) of the TPA allows the Respondent not to be bound by the self-assessment returns in cases where the Appellant has failed to provide documents.

82. The Respondent asserted that it extracted the data for the assessment from the Appellant’s system and thus its assessment could not be erroneous.

83. That its assessment and the subsequent objection decision considered the documents availed by the Appellant and issued in accordance with Section 51(10) of the TPA.

84. The Respondent averred that in the Resort Kenya Ltd Judgement(supra), the Respondent was requested to re-issue a decision and consider net winnings in line with the Pevans case. That it correctly applied this principle and issued its assessment based on net payments as established during the systems audit process.

85. That moreover, the Appellant did not provide transactional data in line with the Judgment of the Resort Kenya case and an assessment was thus issued based on the available data.

86. The Respondent stated that the Appellant did not demonstrate how the data that the Respondent had extracted from the Appellant’s information technology platform was different from the stakes declared in the assessment.

87. That the information extracted from the Appellant’s information technology platform with information as declared in the tax returns and supported with financial statements as source documents, revealed a variance. That it is this variance that was subjected to additional tax because the Appellant did not provide an explanation and documentary evidence.

iii. Transfer pricing issues on expenses are disallowed. 88. The Respondent stated that the Appellant did not provide documentary evidence as to whether this transaction was a controlled transaction or not. That the Appellant only provided invoices, without providing mapped bank statements to demonstrate what the invoices were paid for and that the price paid was at arm’s length.

89. That based on the documents available it had established prima facie case that the parties providing the services were related to the Appellant.

iv. That the Respondent erred in law and fact by violating the Appellant’s right to fair administrative action in the computation of Withholding tax on winnings. 90. The Respondent averred that it did not violate the Appellant’s right, as the notice of assessment computed the Withholding tax in accordance with the definition of winnings as per the decision in the Pevans case.

iv. That the Respondent erred in law and fact by applying WHT on the stakes contrary to the well-settled interpretation that ‘winnings’ is inclusive of the stake. 91. The Respondent averred that it did not violate the Appellant's right, as it computed the WHT in accordance with the definition of winnings in the Pevans case.

vi. That the Respondent erred in law and fact by disregarding the rule of differential treatment on the application of WHT on casino games. 92. The Respondent averred that the Appellant failed to provide verifiable and primary documents that it used to prepare the excel workbook containing winning (losing) days to help the Respondent compute the withholding tax on casino games. That it did not have a way of verifying the figures as tabulated in the excel named “Casino Summary of losing days 2020”.

vii. That the Respondent’s demand for penalties in relation to WHT amounting to Kshs. 162,653,035. 00 is excessive and contrary to the law. 93. The penalties and interest were assessed in accordance with the law where a penalty of 5% and interest of 1% per month was computed on the principal tax.

viii. That the Respondent erred in law and fact by violating its right to fair administrative action in the computation of GGR. 94. The Respondent averred that it did not violate the Appellant's right by computing the GGR using the data extracted from the Appellant's system upon a system audit review.

ix. That the Respondent erred fact by disallowing expenses on the false claim that the same were double claimed expenses. 95. The Respondent stated that it informed the Appellant of double claims in its notice of assessment. That it was thus the duty of the Appellant to provide the following:a.The ledger expenses for direct costs as claimed in the self-assessment returns.b.The ledger expenses for other expenses.c.The invoices to support the entries in the ledgersd.Mapped bank statements to prove the expense was incurred and paid for.

96. That the Appellant only provided explanations at the objection stage without providing documents, in which case it could not verify the explanation provided due to lack of documentation and therefore the objection was disallowed.

x. That the Respondent erred in law and fact in the computation of Excise duty by relying on speculative figures and failing to justify the basis of its findings. 97. The Respondent posited that the figures used to compute the taxes were extracted from the Appellant’s information technology platform and thus they are not speculative.

xi. That the Respondent erred in law and fact in issuing an additional assessment in relation to Betting and Gaming tax based on misunderstanding its records and disregarding the explanations and records provided. 98. The Respondent averred that the figures used to compute the taxes were extracted from the Appellant’s information technology platform and thus they are not speculative.

xii. That the Respondent erred in law and fact by disallowing expenses incurred by the Appellant with respect to transactions with six (6) entities on the basis that the transactions were not at arm’s length. 99. The Respondent stated that the Appellant failed to provide documentary proof that transactions were at arm’s length when it failed to provide the mapped bank statements to prove that the expense were actually incurred and paid for.

xiii. That the Respondent erred in law and fact by concluding that the loan received by the Appellant from Rosehall Global Limited was chargeable to tax. 100. The Respondent stated that the Appellant failed to provide documentary evidence to prove that the transaction did not attract taxes and that the Appellant was not related to the Rosehall Global.

Issues for Determination 101. The Tribunal having considered the pleadings, documents and the Appellant’s submissions is of the view that the Appeal distils into the following issues for determination:a.Whether the objection decision complies with Section 51(8) and (10) of the TPA.b.Whether the Assessment is time barred under Section 29(5) of the TPA.c.Whether the Appellant and 6 other entities were related parties.d.Whether the loan received by the Appellant from Rosehall Global Limited was taxablee.Whether related entities provided inter-company servicesf.Whether the Respondent erred in:i.Computation of WHTii.Failing to apply a ‘differential treatment’ on the computation of WHT on Casino games.iii.Computing GGRiv.Computing Excise duty on casino games.v.Disallowing Betting and Gaming tax expenses.vi.Disallowing expenses on the basis that they were double-claimedvii.In demanding penalties on WHT.

Analysis and Determination 102. The Tribunal proceeds to determine the issues separately as hereunder.

a. Whether the objection decision complies with Section 51(8) and (10) of the TPA. 103. Section 51(8) provides as follows regarding objection decisions:“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part or disallow it, and the Commissioner's decision shall be referred to as an "objection decision".

104. The Tribunal has looked at the objection decision dated 10th July 2023 and it is clear that it is titled as an ‘objection decision’ and it is also clear on what has been allowed and that which has been disallowed.

105. Section 51(10) of the TPA further provides as follows regarding the ingredients of an objection decision:“An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

106. The Tribunal has again looked at the impugned objection decision and it does indeed contain statements of findings on the material facts and the reasons for the decision.

107. The Appellant’s contention that the said objection decision did not meet the minimum threshold set under Section 51(8) and (10) of the TPA does not therefore amount to much and is thus dismissed.

b. Whether the Assessment is time barred under Section 29(5) of the TPA. 108. Section 31(4) (b) of the TPA provides as follows regarding cases where the Respondent may issue assessments beyond 5 years;“The Commissioner may amend an assessment—a.in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; orb.in any other case, within five years of—i.For a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; orii.for any other assessment, the date the Commissioner notified the taxpayer of the assessment” (Emphasis added)

109. Section 29(5) of the Tax Procedures Act provides as follows regarding the timelines for assessments: -“Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates.”

110. The assessment in this Appeal related to Corporation tax, WHT, Excise duty and Betting and Gaming taxes for the period January 2016 to December 2021. the Notice of assessment was dated 12th April 2023. Considering that the reporting period for the year 2022 was due in June 2023, the five-year period under which an assessment is allowed under Section 29(5) of the TPA would be for the period 2017 to 2021.

111. On the face of it, the assessments for 2016 fell outside the 5-year limit period and were thus prima facie illegal unless they could be salvaged by the provision of Section 31(4) (b) of the TPA.

112. The Tribunal was not provided with any tangible evidence of fraud that the Appellant had allegedly engaged in, in the course of its transaction under review. Section 97 of the TPA provides as follows regarding fraud concerning tax matters:“Fraud in relation to taxAny person who, in relation to a tax period, knowingly—(a)omits from his or her return any amount which should have been included; or(b)claims any relief or refund to which he or she is not entitled; or(c)makes any incorrect statement which affects his or her liability to tax; or(d)prepares false books of account or other records relating to that other person or falsifies any such books of account or other records; or(e)deliberately defaults on any obligation imposed under a tax law,”

113. Given that the allegations or fraud were not particularized and or exhibited with certainty and given further that there was no evidence that any criminal proceedings had been commenced against the Appellant for its alleged fraudulent activities. In the present Appeal, whereas the burden of proof is always on the Appellant to prove that the assessment was wrong, in cases of allegation of fraud the Respondent should at the very least provide bare evidence to exhibit the basis of its averments or the finer reasons why it is alleging that the Appellant was involved in fraud. It is not enough to merely allege or state that the Appellant was involved in fraud. The provision of such bare evidence, information and particulars of the said allegation of fraud would thereafter allow the Appellant the opportunity to discharge its burden of proof to show that it was not involved in fraud.

114. Moreover, the Respondent has powers under Section 96 of the TPA to recommend and or commence criminal prosecution against a taxpayer who has been involved in fraud. There was no evidence of any prosecution carried out in relation to any offence committed on the part of the Appellant in this case.

115. In the circumstances, the Tribunal finds and holds that the allegation of fraud was just that. Mere allegations. Accordingly, the Tribunal finds that the confirmed assessment relating to income tax for the year 2016 was time barred and hence unlawful under Section 29(5) of the TPA.

c. Whether the Appellant and 6 other entities were related parties. 116. The contention under this issue is whether the Appellant was involved in transfer pricing with 6 other entities.

117. Section 18 (6) of the ITA provides as follows regarding related parties:“(6)For the purposes of subsection (3), a person is related to another if—a.either person participates directly or indirectly in the management, control or capital of the business of the other;b.a third person participates directly or indirectly in the management, control or capital of the business of both; orc.an individual, who participates in the management, control or capital of the business of one, is associated by marriage, consanguinity or affinity to an individual who participates in the management, control or capital of the business of the other”

118. Paragraph 2 of the Transfer Pricing Rules 2006 provides as follows:“related enterprises mean one or more enterprises whereby-a.one of the enterprises participates directly or indirectly in the management, control or capital of the other; orb.a third person participates directly or indirectly in the management, control or capital of both.”

119. A plain reading of the above provisions of the law implies that the question for the determination by the Tribunal herein is whether one of the enterprises participated directly or indirectly in the management, control or capital of the business of the other.

On relations with Rose-hall 120. A review of the record shows that the Appellant arrived at its conclusion that the Rose-hall had a 70% stake in the Appellant thus making it a direct participant in the affairs of the Appellant.

121. The Respondent also asserted that the documents that the Appellant was relying on to counter this argument were never attached to the objection letter and were thus not sighted in the lead-up to the issuance of the objection decision.

122. The Appellant did not counter this assertion of failure to provide documents nor, did it provide evidence that these documents were indeed provided.

123. The burden of proof in tax cases is placed on the Appellant under Section 30 of the TAT Act which provides thus:“In a proceeding before the Tribunal, the appellant has the burden of proving—a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

124. The Appellant thus failed to discharge its burden of proof to show that it was not related to Rosehall who owned 70% of stake in it.

125. The loan agreement dated 24th September 2019 between the Appellant and Rose-hall also confirms that the two parties were indeed related and that Rose-hall participated in providing the Appellant with capital as envisaged in Section 18(6) of the TPA.

126. The relationship between the Appellant and Rose-hall has been proved, the fact that Rose-hall controls 70% of the Appellant has been proved and the fact that Rose-hall directly supplies the Appellant with capital has also been proved. Rose-hall and the Appellant therefore qualify as related parties.

On relations with Nowell** 127. The argument for relations under this head is that Nowell shares the same address with Rosehall and Gazelle. The address shared is 2nd-floor O’Neal Marketing associate building Wickhams Cay II, of Postal address 3174, Road Town Tortola, British Virgin Islands.

128. It is not every day, nor is it common for two separate and unrelated entities to share an office building on the same floor. At the very least the Appellant was behoved to explain or clarify this coincidence.

129. The absence of an explanation, as it was in this case, would leave any reasonable person to conclude that the two entities are operating from the same premise and could thus be participating in the control or the management of each other.

130. This clarification that would have extinguished this assumption was to be provided by the Appellant, and it was not done. The Respondent thus did not fall into error in deeming that Nowell qualified as a related party to the Appellant.

On relation to Tailby 131. The premise of the assessment here was that the loan agreement between the Appellant and Rose-hall was signed by Beverly Hope-Smith and Andrew Lawrence. That Andrew Lawrence also signed the agreement between the Appellant and Tailby.

132. The only reason why Tailby and Rose-hall would have the same person signing their separate agreements was that the said person was involved in the control and management of both entities.

133. The Appellant did not provide any reason why Andrew Lawrence signed the agreement for both Rose-hall and Tailby. This explanation would have provided clarity on the cause of this coincidence.

134. Having held that Rose-hall was related to the Appellant, it follows that Tailby which was under the control and management of Rose-hall qualifies as a related party to the Appellant.

On relations with Gazelle 135. The said Andrew Lawrence also signed the agreement between the Appellant and Gazelle. The Appellant did not provide any explanation as to why the same person who had signed agreements for Rose-hall and Tailby was also signing an agreement on its behalf.

136. In the absence of an explanation from the Appellant, and having held that the Appellant is related to Rosehall and Tailby, it follows that Gazelle which was under the direct control and management of the same director as Rose-hall and Tailby qualify as a related party to the Appellant.

On relations with Napier 137. Andrew Lawrence also signed the agreement between the Appellant and Napier. The Appellant did not provide any explanation why the same person who had signed agreements for Rose-hall, Tailby and Gazelle was also signing an agreement on its behalf.

138. Having held that the Appellant is related to Rosehall, Tailby and Gazelle. It follows that Napier which was under the direct control and management of the same director as Rose-hall, Gazelle and Tailby, and also who coincidentally signed an agreement with the Appellant qualifies as a party that is related to the Appellant.

On relations with Osiris 139. The Appellant admitted that Osiris and itself are members of a larger entity called Super Group Limited. Instructively, Jason Bradley Kramer who is one of the Appellant’s directors is also a director of Osiris.

140. This cross-cutting directorship between the two entities confirms that a third person, Jason Bradley, is directly participating in the management and control of both entities, thereby making all the entities related parties who are subject to transfer pricing.

141. The fact of this relationship was not disputed by the Appellant who bore the burden of proof in this Appeal means that the test of relations stood uncontroverted and proved.

Conclusion on relations 142. It is settled law that international law is not applicable in cases and or issues that are sufficiently covered by municipal law. This view was enunciated in the Judgment in Tat No. 65 Of 2023 M-Kopa LLC (C/O M-Kopa Kenya Limited) Vs. Commissioner of Domestic Taxes where the Tribunal stated as thus:-“The Tribunal is cautious that whereas it can use the OECD Guidelines to help it determine the residency of the Appellant, it shall only apply those guidelines in cases where there are gaps in Kenyan tax statutes.”

143. In this case, Section 18 of the ITA sufficiently provided the test to be applied in determining whether two or more entities are related to each other. The 6 entities identified by the Respondent namely: Tailby, Gazelle, Osiris, Napier, Nowel and head-square met the tests provided in Section 18(6) of the ITA. They are thus related parties.

144. Accordingly, the Respondent did not fall into error when it held that these 6 entities were related parties

d. Whether the loan received by the Appellant from Rosehall Global Limited was taxable 145. The premise upon which this loan was charged to tax was that Rose-hall was a non-existent entity at the time the loan was advanced. That it could thus not have entered into a loan agreement before its existence.

146. This issue would have been sorted out by the provision of the relevant registration documents, but this was not done.

147. Under such circumstances, it is now settled that the assessment that was issued by the Respondent is presumed to be correct as was held in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR where the court stated thus:“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. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer”

148. The Appellant’s failure to provide evidence at the objection stage to dislodge this claim meant that the Respondent’s assessment remained unchallenged and thus presumptively correct.

e. Whether related entities provided inter-company services 149. The issue here was whether the Respondent was correct in disallowing expenses incurred by the Appellant regarding transactions entered by the Appellant with the 6 related companies.

150. The test to be applied in resolving this contention on whether inter-company services were rendered is contained in Chapter VII of the OECD Transfer Pricing Guidelines Multinational Enterprises and the Tax Administration, 2017(OECD TP Guidelines), these include:a.Benefit testb.Shareholder activities.c.Duplication.d.Test of renditione.Incidental benefits

151. The Appellant argued that the Respondent did not show how its activities and those of its related entities fit within these tests.

152. Whereas the burden of proof in tax cases lies with the Appellant, the Respondent is still required to provide a basis for its assessment. Exaltation cannot be based on whim and caprice. The Respondent in this case disallowed the expenses incurred by the Appellant in relation to transactions with the 6 identified entities without providing a basis upon which this decision was premised. Its assessment and objection decision also did not proffer an explanation of how these transactions fell within the ambit of the 5 tests prescribed in Chapter VII of the OECD TP Guidelines.

153. The fact that the Appellant and the 6 entities were related is not of itself a justifiable ground for disallowing expenses incurred by the Appellant regarding transactions entered into with the 6 related companies. This decision to disallow the expenses can only be justified by showing that it was not done at arm's length by applying the tests prescribed in Chapter VII of the OECD TP Guidelines.

154. These infirmities have led the Tribunal to the conclusion that the decision by the Respondent to disallow the expenses incurred by the Appellant with respect to transactions with the 6 related entities was not justified. This conclusion is similar to that of the superior court in the Consolidated Judgement Nrb. HC Income Tax Appeals Nos E 043,044,046 and 051 of 2020, the Commissioner of Domestic Taxes v Sigona Golf Club and 3 others where the court stated thus regarding assessment of taxes“While this court as the tax court will facilitate legitimate collection of tax for the economy, it has the same time, the responsibility to guard against overzealousness in tax collection. While taxes are an inevitable and legitimate source of government revenue, we cannot tax everything and anything. There must be and exist a legal-rational basis for each tax or tax stream. Hence taxation cannot be by sheer caprice, or whim, for the mere sake of taxing, or no reason at all. “

155. The Respondent’s decision to disallow the Appellant’s expenses based on nothing other than its assertion reeked of overzealousness and issuing of tax assessments based on whim, caprice or for no reason at all. This cannot be sustained by the Tribunal.

156. It is for this reason that the Tribunal finds that the Respondent fell into error when it disallowed expenses incurred by the Appellant regarding transactions with the 6 related entities without subjecting those transactions to the tests provided in Chapter VII of the OECD TP guidelines.

f. Whether the Respondent erred in the computation of WHT 157. The Appellant argued that the Respondent applied WHT on stakes contrary to Section 35 of the ITA and the decision of the High Court in the Pevan case which stated that WHT can only be imposed on winnings.

158. The Respondent on its part argued that it charged WHT based on the bet slips provided by the Appellant and data extracted from the Appellant’s betting and gaming platform.

159. The Appellant did not however provide evidence of the actual betting slips nor did it refer the Tribunal to the data obtained from its platform to support its arguments that the Respondent applied WHT on stakes.

160. Considering that the burden to show that the assessment was erroneous lay with the Appellant under Section 30 of the TAT Act. Nothing would have been easier than for the Appellant to prove its assertion by providing this data as it is in its betting and gaming platform.

161. The standard under which the Appellant was required to discharge its burden of proof was discussed by the Court of Appeal in Mbuthia Macharia v Annah Mutua Ndwiga & another Civil Appeal No. 297 of 2015 [20171 eKLR when it stated as thus:“The legal burden is discharged by way of evidence, with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes an evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the Appellant, the evidential burden may shift in the course of the trial, depending on the evidence adduced. As the weight of evidence given by either side during the trial varies, so will the evidential burden shift to the patty who would fail without further evidence.”

162. In this case, the taxpayer was required to present a minimum amount of information necessary to support its position. It did not however adduce any or sufficient evidence to justify the need to shift the evidential burden requiring the Respondent to justify or support its assessment. Its assertion that the Respondent levied WHT on stakes instead of winnings must therefore fail.

g. Whether the Respondent failed to apply a ‘differential treatment’ on the Computation of WHT on Casino games. 163. The Appellant stated under this head that taxation of winnings is subject to ‘differential treatment’ on a transaction-by-transaction basis to cater for losses for each ‘losing day’. it premised this argument on a letter dated 29th April 2014 that was stated to have been issued by the Respondent.

164. The said letter dated 29th April 2014 that was referred to in the Appellant’s Statement of Facts and submissions was not included in its list of documents. It was thus difficult for the Tribunal to make a decision under this issue in the absence of this letter as it cannot make a decision based on hearsay and documents it has not sighted. This ground of appeal fails on grounds that it has not been substantiated or supported by evidence.

h. Whether the Respondent erred in Computing Gross Gaming Revenue (GGR) 165. The Appellant stated under this head that the Respondent had disallowed its betting and gaming tax expenses because it had misunderstood the records that had been provided.

166. It was its position that the digital service tax that was paid in 2021 was erroneously included in the betting and gaming taxation. That the Respondent also misunderstood the terms ‘betting and gaming tax paid’ and ‘gaming and betting taxation’ contained in the AFS which all referred to taxes applicable in betting and gaming which was inclusive of WHT on winnings. It further stated that net payout on winnings and WHT on winnings were claimed as deductible expenses.

167. The Respondent on its part averred that it extracted raw data on stakes and payouts from the Appellant’s platform in its computation of the data used to apply the gaming and betting tax. That credit was given for tax already paid before the assessment was done.

168. Section 29A of the Betting, Lotteries & Gaming Act, 1966 provides as thus on betting tax:-“There shall be a tax to be known as betting tax chargeable at the rate of fifteen per cent of the gaming revenue.”

169. Section 55A provides as follows regarding gaming tax:“There shall be a tax to be known as gaming tax chargeable at the rate of fifteen per cent of the gaming revenue.”

170. It is clear from the above citations that a betting tax is chargeable on the gross gaming revenue (GGR) of a bookmaker at the rate of 15% as provided by Section 29A of the Betting, Lotteries & Gaming Act, 1966. Therefore, gross gaming revenue means gross turnover less the amount paid out to the customers as winnings.

171. It is also trite that books of accounts of entities like the Appellant are prepared by accountants who are guided by the Accountants Act No. 15 of 2008 and the IFRS standards in preparation of the books of accounts. It is thus illogical that such professionals would have failed to carry out a simple exercise of removing or weaning winnings from the Appellant’s gross income and yet the value of what constitutes winnings can be easily discerned from the platform operated by the Appellant.

172. It is also difficult to fathom how the Appellant could title a tax item as ‘betting and gaming tax paid’ or ‘gaming and betting taxation’ and yet still argue that this term could have a different meaning because the tax falling under this heading included WHT on winnings.

173. The Appellant has also not explained why it opted to use these terms like betting and gaming tax paid’ and ‘gaming and betting taxation’ which are similar to what is contained in 29A of the Betting, Lotteries & Gaming Act, 1966, and yet cry wolf when the Respondent opted to scrutinize whether it had applied this law appropriately in charging the gaming tax.

174. Furthermore, no explanation has also been proffered by the Appellant to counter the Respondent’s assertion that it obtained the Appellant’s gross revenue from its platform and deducted the winnings thereof before arriving at the appropriate net figure which it subjected to gaming and betting tax.

175. If the Appellant’s explanation that the Respondent had misunderstood the terms it had applied in its books of accounts was true, then the Respondent would have easily arrived at the same tax figure like itself after an examination of the raw data of its gross revenue less wining from its platform.

176. Its failure to provide a reasonable or logical explanation as to why an examination of raw records led the Respondent to a different value for its gaming and betting tax means that it has failed to discharge its evidential burden. It is for this reason that the Tribunal has concluded that the Respondent did not err in its assessment of the Appellant’s betting and gaming tax.

i. Whether the Respondent erred in computing Excise duty on casino games and Corporation tax. 177. The Appellant stated that the Respondent relied on speculative figures that were different from the data provided in arriving at its Excise duty payable. That the methodology used by the Respondent to extract and apply data obtained from its platform was not explained.

178. That the assessment of Corporation tax did not consider the expenses incurred in the course of its business and that it was also full of arithmetic errors.

179. The Respondent averred that it allowed all expenses prescribed under Section 15 of the ITA and that it had also corrected all arithmetic errors and adjusted its figures to reflect the correct Corporation tax payable.

180. Regarding Excise duty, it was its position that the same was taxed as provided in the law.

181. The Tribunal takes judicial notice of the fact that parties are required to reconcile the date obtained from a betting platform before that data can be used by the Respondent to assess tax. The Appellant has not asserted that it raised the issue of accuracy or authenticity of data obtained from its platform with the Respondent at the point of extraction and reconciliation.

182. The Appellant did not also specify the exact expenses incurred in the course of its business which the Respondent failed to consider in its assessment of Corporation tax. It also did not contest that the data used by the Respondent was obtained from its platform. Its only contention was the methodology used and its interpretation. The error in the interpretation was also not explained.

183. Nothing under the Excise Duty Act compels the Respondent to explain the methodology it would apply in extracting data from the Appellant’s platform and or to explain its interpretation of that data.

184. The Objection by the Appellant dated 11th May 2023 did not also specifically request the Respondent to share its methodology for data extraction or to explain how it interpreted the data.

185. The argument on the methodology used to extract the data and failure to explain how the said data was interpreted is thus a latter argument that has been raised at this Appeal level. The same should have been raised at the objection level if the Appellant required this information to help it discharge its evidential burden.

186. Its failure to do so has also incapacitated it in discharging both its burden of proof and evidential to show that the Respondent erred in its assessment. Accordingly, the Tribunal holds that the objections raised regarding Excise duty and Corporation tax were merely speculative and intended to vex.

j. Whether the Respondent erred in disallowing expenses on the basis that they were double-claimed 187. The Appellant explained that the expenses under contention were claimed either as direct costs or other expenses and not as both. That there were thus not double claimed and no reason was provided on why its contention was declined.

188. The Respondent’s response to this contention in its impugned objection decision was as follows:“.. upon review of the documents provided and review of the self-assessment return, we could not establish any evidence supporting your arguments. Therefore, the commissioner’s position remains”

189. The Respondent is required under Section 51(10) of the TPA to provide a statement of finding on the material facts and reasons for its decision. It provides thus:“An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

190. The Respondent’s decision to the Appellant’s objection contained a statement of finding. It was however bereft of the reason for the decision. This infirmity made it to the extent of this issue, invalid as was previously held by the Tribunal in Judgment – Tat Appeal No. 246 Of 2023 St. Theresa Industrial Ltd Vs. Commissioner of Domestic Taxes where it was stated as follows:-“The Tribunal finds and holds that in as much as the Objection Decision was made in time, it was inadequate for not providing the statement of findings and written reasons for the decision as contemplated under Section 51 (10) of the TPA, hence it is null and void and consequently invalid.”

191. The Respondent thus acted whimsically and also erred in disallowing the Appellant’s alleged double-claimed expenses without providing a reason for its decision.

k. Whether the Respondent erred in demanding penalties on WHT. 192. The Appellant stated that the penalty applied by the Respondent on its WHT liability was at 5% amounting to Kshs 162,653,035. 00 which was excessive under Rule 14 A of the WHT Rules.

193. The Tribunal has confirmed from the objection decision that the WHT penalty was indeed assessed at 5% of the WHT on winnings. Section 14A of the Income Tax (Withholding Tax) Rules, 2001 provides as follows regarding penalties on WHT.“14A.For the purposes of section 35(6) of the Act, where a person, when under obligation to do so, fails-a.to make a deduction described in section 35(6)(a) of the Act, in accordance with Rule 4; orb.to remit an amount of tax deducted, as described in section 35(6)(b) of the Act, in accordance with Rule 8, the Commissioner may impose a penalty equal to ten per cent of the amount of the tax involved, subject to a maximum penalty of one million shillings.”

194. It is clear from the above citation that the maximum penalty payable by a person who fails to pay the tax that is due is one million shillings.

195. The Respondent’s decision to levy a penalty of Kshs 162,653,035 thus contravened Section 14A of the Income Tax (Withholding Tax) Rules, 2001 and is hence illegal and invalid.

Final Decision 196. The upshot of the foregoing analysis is that the Appeal is partially merited. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby partially allowed.b.The Respondent’s Objection decision dated 10th July 2023 be and is hereby varied in the following manner:i.The Assessment for the year 2016 be and is hereby set aside.ii.The Respondent’s decision to disallow expenses incurred by the Appellant on transactions with the 6 related companies be and is hereby set aside.iii.Respondent’s decision to disallow Appellant’s alleged double claimed expenses be and is hereby set aside.iv.Respondent’s decision to charge a WHT penalty of Kshs 162,653,035. 00 be and is hereby set aside.v.The Respondent’s decision to subject the transactions between the Appellant and the 6 related companies to transfer pricing be and is hereby upheld.vi.The Respondent’s decision to tax the loan received by the Appellant from Rosehall Global be and is hereby upheld.vii.Respondent’s assessment on WHT be and is hereby upheld.viii.Respondent’s assessment of Gross Gaming Revenue be and is hereby upheld.ix.Respondent’s assessment on Excise duty be and is hereby upheld.x.Respondent’s assessment on Corporation tax be and is hereby upheld.xi.The Respondent is at liberty to issue a decision on penalty and interests payable by the Appellant on outstanding tax in consonance with Section 14A of the Income Tax (Withholding Tax) Rules, 2001. c.The Respondent is hereby directed to recompute the tax assessment based on the Tribunal’s findings under (ii) above within Sixty (60) days of the date of delivery of this Judgment.d.Each Party is to bear its own costs.

197. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERDR. TIMOTHY B. VIKIRU - MEMBER