[2024] KETAT 1572 (KLR)

Stanbic Bank Kenya Limited v Commissioner for Domestic Taxes (Tax Appeal E084 of 2024) [2024] KETAT 1572 (KLR) (Commercial and Tax) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1572 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E084 of 2024

Grace Mukuha, Chair, B Gitari, GA Kashindi, E Komolo & AM Diriye, Members

November 22, 2024

Between

Stanbic Bank Kenya Limited

Appellant

and

Commissioner for Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and is licensed and regulated by the Central Bank of Kenya ("CBK") and is engaged in the banking business and related services in Kenya.

2. The Respondent is appointed pursuant to Section 13 of the Kenya Revenue Authority Act, (Cap. 469 of the Laws of Kenya) and is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule to the KRA Act, among them, the Income Tax Act (Cap 470 of the Laws of Kenya)

3. The Respondent conducted a tax audit on the Appellant for the tax period November 2021 to December 2022. Subsequently on 20th January 2023, the Respondent sent the Appellant a request for information pursuant to Section 59 of the Tax Procedures Act, 2015.

4. The Appellant, through its tax agents, shared the requested information via email on 10 February 2023. Thereafter, the Respondent requested for more information from the Appellant via an email dated 12th May 2023 which the Appellant provided via an email dated 26th May 2023.

5. After the Respondent had reviewed the information provided by the Appellant, the Respondent issued its preliminary findings vide its letter dated 31 May 2023 expressing their intention to issue an assessment in relation to withholding tax ("WHT") and value added tax ("VAT") liabilities for the tax period November 2021 to December 2022 amounting to KES 136,588,935. 00 inclusive of penalties and interest.

6. The Appellant responded to the pre-assessment letter vide a letter dated 23rd June 2023 sent via email on the same date.

7. Subsequently and vide a letter dated 29th September 2023, the Respondent revised the assessment and issued the Appellant with a Notice of Assessment demanding additional WHT amounting to KES 87,357,383. 00 for the tax period November 2021 to December 2022 in relation to payments made out to Card Companies as interchange fees and management and professional fees.

8. The Appellant lodged a Notice of Objection challenging the assessment on 27th October 2023 and in response, the Respondent issued its Objection Decision dated 13th December 2023.

9. Dissatisfied with the Respondent’s Objection Decision, the Appellant lodged an Appeal to the Tribunal on 11th January 2024

The Appeal 10. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed on 26th January 2024;a.That the Respondent erred in law and in fact by assessing the Appellant for withholding tax on the erroneous basis that the payments it made to non-resident Card Companies qualified as royalties as defined in the Income Tax Actb.That the Respondent erred in law and in fact by assessing the Appellant for withholding tax, yet interchange services do not qualify as management or professional services as defined in the Income Tax Act.

The Appellant’s Case 11. The Appellant’s case is premised on the following: -a)Statement of Facts dated and filed on 26 January 2024 together with the bundle of documents attached theretob)Written Submissions dated and filed on 26th April 2024 and filed on the same date together with the authorities attached thereto

12. That the assessments arose out of the fees earned by the Appellant as stated in the agreements and in the conduct of its card business. The Appellant provided a detailed explanation of the process of card transactions as follows:a.The Appellant's customer who requires a credit/debit card goes to its Branch and gets issued with a credit/debit card which is VISA or MasterCard enabled. In this case, the Appellant is referred to as the Issuing Bank.b.In the event that the Appellant's customer wants to make a purchase using this VISA/Master Card enabled credit/debit card at the point of sale ("PoS"), the PoS machine is issued to the Merchant by an Acquiring Bank.c.The Acquiring Bank enables Merchants to accept cashless payments by acting as a link between the Cardholder, Issuing Banks, and payment networks. The role of an Acquiring Bank is to enroll merchants who will accept payments made through the use of debit and credit cards.

13. The Appellant provided the following an example of the transaction;I.The customer inserts his/her VISA/Master Card enabled card in the PoS;II.The customer keys in their Personal Identification Number (PIN) and the network then seeks authorization from the Issuing Bank;III.The Appellant as the issuing bank verifies the following details:a.checks the account of the customer who is the cardholder to verify whether it is the correct customer;b.that the PIN details as keyed in are correct;c.that the account has sufficient funds to satisfy payment, in the case of a debit card or that the purchase is within the customer's credit limit in the case of a credit card. The verification process is carried out to enable the Appellant's customer to make a purchase using his or her debit or credit card.The verification process above is carried out to enable the Appellant’s customer to make a purchase using his or her debit card or credit card.

14. The Appellant stated that the above verification process is akin to that of a cardholder who walks into a banking hall to undertake an over the counter (OTC) transaction. In the OTC transaction the following is the customer verification process that –I.The customer's identity by examining their identification documents,II.The customer account details are correct;III.The bank customer has sufficient funds to complete the requested transaction whether it may be a transfer of funds or a cash/cheque withdrawal.

15. The Appellant stated that this verification process in the OTC transaction described above is essentially the same verification process undertaken in a card transaction where the customer seeks to pay for goods or services purchased via a PoS at a merchant's premises as follows;i.Once the Appellant verifies/confirms that the cardholder details are accurate in the card transaction process, the Appellant as the Issuing Bank sends this confirmation to the VISA/MasterCard network;ii.The Card Payment Network relays this message to the Acquiring Bank;iii.The Acquiring bank forwards the response to the merchant;iv.The merchant receives the response and completes the transaction by generating two transaction slips- a merchant's copy and customer's copy. The customer thereafter takes possession of the goods/services and leaves with the customer's copy of the slip.v.The settlement and clearing between the cardholder and the merchant is done within 48 hours and is carried out by the Card Payment Networks. Upon settlement and clearing, the merchant receives the amount spent by the cardholder less an amount known as 'Merchant Charge.' This Merchant Charge has three components, i.e. the interchange fee, the dues and settlements fee and the Acquirer processing fee.vi.The card company network allocates the interchange fee to the Appellant as the Issuing Bank, the network retains the fee referred to as the 'dues and settlement fee' and passes the remaining amount to the Acquiring bank.

16. The Appellant provided a schematic diagram in the statement of facts to explain the transactions as described above.

17. The Appellant stated that in the objection decision the Respondent sought to levy taxes on two tax heads that is;a.WHT tax on payments to non-resident card companies amounting to Kshs KES 63,688,055. 00 on the basis that these payments constituted a royalty/ right of use which is subject to WHT as provided under Section 35 of the Income Tax Act (ITA).b.WHT on interchange fees made to issuing banks amounting to Kshs 5,779,065. 00 on the basis that the fees constituted professional/ management fees which are subject to WHT pursuant to section 35 of the Income Tax Act.

18. The Appellant stated that it refuted the Respondent’s levying of principal WHT on the payments made by the Appellant to Card Companies during the 2021 to 2022 tax periods amounting to KES 63,688,055. 00 while purporting that the same constituted payment for the right to use the non-resident card company's intellectual property such as trademarks and logos hence the same amount to payment of a royalty subject to WHT as per Section 35 (1) of the ITA.

19. The Appellant posited that the payments made to the non-resident Card Companies do not qualify as royalty and as such the Respondent was wrong in seeking to demand WHT as the payments by the Appellant to non-resident Card Companies do not qualify as royalty as defined in the ITA.

20. The Appellant stated that the Card Companies own elaborate and distinct card payment networks which link Merchants, Acquiring Banks, Issuing Banks and Cardholders. These card payment networks allow the customers to make payments electronically for the purchases they make from Merchants and to access this network, a customer requires a card linked to the specific Card Company's payment network. In order to utilise the network, a customer would visit the Issuing Bank, in this case, the Appellant, and request for a credit/debit card, which will bear the name and logo of the Card Company.

21. The Appellant stated that it had entered into Agreements with three Card Companies; Visa International Service Association("VISA"), MasterCard International Incorporated ("MasterCard") and Union Pay International Co. Ltd ("UPI") which set out the terms of the relationship between the Appellant and the Card Companies.

22. That pursuant to the Agreements, the Appellant as an Issuing Bank is granted a non-exclusive and royalty free license to emboss the name of the Card Companies and their marks on the credit/debit cards issued by the Appellant and is in accordance with Clause 2 of the VISA Agreement, Clause 2 of the MasterCard Agreement and Clause 4. 1.2 of UPI Agreement.

23. That pursuant to Clause 3 of the VISA Agreement, Clause 1 of the MasterCard Agreement and Clause 5 of the UPI Agreement, there is no transfer of ownership of the marks pursuant to the agreements.

24. The Appellant cited Section 10(1)(c) of the Income Tax Act “ITA”, which provides that:“where a resident person or a person having a permanent establishment in Kenya makes payment to any other person in respect of a royalty or natural resource income, the income thereof shall be deemed to be income which accrued in or was derived from Kenya…”

25. Further the Appellant also cited Section 35(1) of the ITA which provides that:“(1)A person shall, upon payment of an amount to a non-resident person not having a permanent establishment in Kenya in respect of-(b)a royalty or natural resource income;"which is chargeable to tax, deduct therefrom tax at the appropriate non-resident rate."

26. In addition, the Appellant referred to Section 2 of the ITA which defines a royalty to mean:“...a payment made as a consideration for the use of or the right to use-a)the copyright of a literary, artistic or scientific work; or(b)a cinematograph film, including film or tape for radio or television broadcasting; or(c)a patent, trademark, design or model, plan, formula or process; or(d)any industrial, commercial or scientific equipment"

27. The Appellant asserted that in accordance with the foregoing definition, the payment must, among others, be made "as a consideration for the right to use... the trademark..." for it to qualify as a royalty, WHT is only applicable under Section 10 and 35 of the ITA should the said consideration qualify as a royalty.

28. The Appellant further asserted that contrary to the Respondent's assertions, the Appellant's payments to the non-resident Card Companies, are not consideration for use of trademark or marks belonging to the non-resident Card Companies rather, they are the payments for the clearing and settlement functions and the only reason the Appellant issues its customers with debit or credit cards branded with the Card Company's trademark is simply for identification purposes.

29. The Appellant averred that the above position is illustrated under Clause 2 of the Master Card License Agreement, which sets out the various marks and ownership of the marks which are embedded on the cards for identification purposes. Further the marks visible on the cards are for the benefit of the Cardholder and not the Appellant as in the absence of the said marks, the Cardholders would have to chance upon every ATM or PoS until they find one for which the card issued to them works.

30. The Appellant added that its customers are more concerned with settlement of payments that is efficient, seamless, and smooth and whether they are issued with a MasterCard, VISA or UPI card by the Appellant is a secondary concern. The Appellant posited that neither VISA nor MasterCard's brands or trademarks influence its customer base.

31. That typically, if the Appellant was making a payment for the use of the brand as asserted by the Respondent (rather than payments for settlement and clearance functions) the following typical behaviors and outcomes relating to use of brands would be expected that:a.customers would have been selective on which of the Card Payment Systems they would want to be enrolled in (e.g., a preference of VISA over Mastercard); andb.the Appellant's revenues would have been influenced significantly by the choice of the Card Payment System they opt to use.

32. The Appellant asserted that it does not attract/obtain clients or customers based on their preference of one Card Company over the other as its customers do not have a choice of the Card Company that is embossed on their debit/credit cards as this is a decision that the Appellant makes. The Appellant does not select the Card Company that it would enter arrangements with based on the brand.

33. The Appellant posited that all it seeks is a clearing and settlement system that would serve any of its customers at a reasonable fee contrary to a retail franchise and outlet whose market share and price premium that it can command are dependent on the brand it chooses.

34. That moreover, of the various Appellant’s payments to Card Companies that the Respondent sought to impose WHT on, the said payments include various components such as transaction processing, connectivity, back office which have nothing to do with use of trademarks and royalties as alleged by the Respondent. The Appellant averred that the said payments to Card Companies are not for their trademark rather for relaying the inquiries and responses by the various players in a card transaction.

35. The Appellant cited the decision of the High Court in Republic vs Commissioner of Income Tax, ex-parte SDV Transami (Kenya)Limited [2005] eKLR to state that for a payment to qualify as a royalty;a.it should have been made as a consideration;b.it should relate to the use of or the right to use a property; andc.the property should be within those identified under Section 2 (a) to (d) in the definition provided in the ITA.

36. The Appellant posited that the payments made as a consideration do not relate to the use or the right to use a property i.e., trademarks belonging to the Card Companies but they constitute consideration made for "clearing and settlement functions" performed by the Card Companies. Clearing and settlement functions do not fall under the property identified under Section 2(a) to (d) in the definition provided under the ITA.

37. That taking the foregoing into consideration, the Appellant asserted that its payments to Card Companies do not qualify as royalty under Section 2 of the ITA and therefore the Respondent erred in fact and in law by demanding principal WHT of Kshs. 63,688,055. 00 from the Appellant charged on payments made to Card Companies.

38. On the issue of additional assessments for WHT on management and professional fees amounting to Kshs 5,779,065. 00 the Appellant refuted the Respondent’s assessment stating that according to the Appellant, the Respondent in Paragraph 3. 2 on Page 5 of the Objection Decision which asserted that the Issuing Bank's role in the card payment transaction i.e., the authorization of a clearing service, are of a technical nature and therefore fall within the meaning of management or professional services and as such subject to WHT at the rate of 20%.

39. In refuting the above, the Appellant cited Section 10 of the ITA which provides that where a resident or a permanent establishment of a non-resident makes a payment in respect of a management or professional fee or training fee, then the amount will be deemed to be income which accrued or was derived from Kenya. The Appellant referred the Tribunal to Section 35(3) of the ITA which also provides that:“Subject to subsection (3A) a person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of-(f)management or professional fee or training fee the aggregate value of which is twenty-four thousand shillings or more in a month:Provided that for the purposes of this paragraph, contractual fee within the meaning of "management or professional fee" shall mean payment for work done in respect of building, civil or engineering works."

40. Further the Appellant cited Section 2 of the ITA which defines a management or professional fee to mean:-“a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated.”

41. That the Appellant maintained that the verification, authorization, and settlement it provides as an issuing Bank under the card network in any card transaction do not constitute a management or professional services in accordance with definition availed under Section 2 of the ITA. That the service provided by the Appellant is synonymous with a bank customer walking into a Bank's banking hall or teller to confirm their bank account balance only that it is being done electronically by the Issuer Bank.

42. That the Appellant asserted that for a payment to be deemed as one that is made in consideration of the provision of a management or professional service, there has to be an expertise, skill or professionalism that has been acquired either through training or apprenticeship. Further the Appellant stated that the Respondent has not detailed the nature of professional service, skill or expertise obtained by the Appellant in verification, authorization, and settlement by Issuer Banks.

43. That under similar provisions relating to management or professional services in India, the Courts have taken the view that there must be a human interface for the said service to qualify as a management or professional service. The Appellant cited the case of Income Tax Omicer (Koikata) v Right Fiorisis Pvt Ltd,I.T.A.No.1336/ Kol.J2011 where the Court in India was tasked with determining whether payments to Google qualified as a management or professional fees, the Court took the view that as long as words are used together in a statutory provision, they take colour from each other and restrict its meaning to the genus of these words. This is in accordance with the doctrine of "noscitur asociis" ,which mandates that the meaning of questionable words or phrases in a statute be ascertained by reference to the meanings of words or phrases associated with it.

44. The Appellant stated that in respect of the genus of the words managerial, technical and consultancy, the court asserted as follows:“...[The] genus of these words should be clearly discernible from the lowest common factor in those words. The lowest common factor in 'managerial, technical and consultancy services' seems to be the human intervention, because while these three words are of wide scope and are in varied field, the only common thread in these words seems to be that the services, which are essentially professional services in nature, can be rendered with human interface....A managerial or consultancy service can only be rendered with human interface, while a technical service can be rendered with human interface as also without human interface...However, when we try to restrict the meaning of technical services to the services which are covered by managerial and technical services as well, services without human interface will have to be taken out of its ambit...as long as there is no human intervention in a technical service, it cannot be treated as a technical service...For the reason that there is no human touch involved in the whole process of actual advertising service provided by Google, in the light of the legal position that any services rendered without human touch, even if it be a technical service... the receipts for online advertisement by the search engines cannot be treated as fees for technical services"

45. The Appellant stated that the foregoing position was equally adopted by the Supreme Court of India in the cases of Siemens Limited-vs-Commissioner of Income Tax, ITA No.4356/MUM/2010 and Kotak Securities Limited, Civil Appeal No.3141 of 2016.

46. The Appellant stated that the above case is similar to its case as there is no human intervention involved in authorization, clearing and settlement services in the card payment network and as such the interchange fees paid to the Appellant as consideration for the authorization, clearing and settlement service does not qualify as a management or professional service.

47. The Appellant further asserted that the Tax Appeals Tribunal in TAT Appeal No. 821 of 2022 Stanbic Bank Kenya Limited Versus Commissioner of Domestic Taxes upon review of the abovementioned facts and evidence, held that interchange services do not qualify as management or professional services as defined in the ITA stating at paragraph 68 that:“From the foregoing the Tribunal finds that the services rendered by the Appellant do not qualify as management or professional services and therefore do not qualify for withholding tax."

48. The Appellant also cited the case of Republic -vs- Commissioner of Domestic Taxes ex parte Barclays Bank of Kenya Limited [2012] eKLR where Justice Odunga was categorical that:“Section 2 of the Income Tax Act defines what is a "professional and management fee" and in making its decision the taxing authority must sufficiently define or point to the transaction and payment that falls within the definition of the statute. So that the question for consideration would be whether these payments sufficiently defined constitute consideration for management, technical, consultancy or agency services"

49. That further, Justice Ojwang' in the case of Republic -vs- Commissioner of Income Tax ex-parte SDV Transami (Kenya) Limited HC Misc. App. No.212 of 2004 (Unreported) equally held as follows:“It may well be that there is a heading under which the Commissioner of Income Tax may demand tax broadly falling in that category, but it must be expressly stated to be under a different name consistent with the Act. In the Commissioner's present demand, he has not achieved the clarity required”

50. From the foregoing, the Appellant asserted that the Respondent's claim for WHT on interchange fees has not achieved the foregoing level of clarity and in summary, the Appellant requested that this Honorable Tribunal vacate the WHT charge on interchange fees to the tune of KES 5,779,065. 00 in its entirety with the attendant penalties and interest.

51. In its submissions the Appellant identified the following as issues for determinationa.Whether the payments made by the Appellant to international card companies qualified as royalties as defined in the Income Tax Act.b.Whether interchange services rendered by the Appellant qualify as management or professional services as defined in the Income Tax Actc.Whether the Appellant is the recipient of the service and thus had an obligation to Withhold Tax on the interchange fee.

52. The Appellant submitted on the identified issues as follows:

Whether the payments made by the Appellant to international card companies qualified as royalties as defined in the ITA. 53. The Appellant submitted that in the Respondent quest for additional taxes, it resorted to rewriting the Agreements by characterizing payments made therein as royalty contrary to the express stipulations of the Agreement and in its submissions the Appellant relied on the judgment of the Court of Appeal in Fidelity Commercial Bank Limited -vs- Kenya Grange Vehicle Industries Limited [2017] eKLR and Honorable Tribunal’s decision in Kenya Bureau of Standardsvs Commissioner of Investigations & Enforcement, Tax Appeals Tribunal, Appeal No. 136 of 2019 to emphasize the doctrine of freedom of contract

54. The Appellant submitted that the payments it made to Card Companies do not qualify as royalties as defined in the ITA and that WHT is only applicable under Section 10 and 35 of the ITA where the consideration in question qualifies as a royalty as defined under Section 2 of the ITA, and it reiterated that contrary to Respondent's assertions, the Appellant's payments to the Card Companies, are not consideration for use of trademark or marks belonging to the Card Companies rather payments for access to the card payment systems and the clearing and settlement functions it offers to the cardholders. The Appellant’s role as an Issuing Bank, is to issue customers with debit or credit cards branded with the Card Company's logos to enable them to easily identify the specific automated teller machines("ATM") or Point of Sale ("PoS") which the Cardholder can use.

55. The Appellant also submitted that the Respondent has failed to appreciate that as an Acquiring Bank, the Appellant, still has to make payments to the Card Companies for access to their networks, which facilitate acceptance of payments made through the use of debit and credit cards by merchants and that the payments are not for the trademarks and that the trademarks have nothing to do with access to the Card Companies network.

56. In view of the foregoing, the Appellant submitted that the WHT assessed on payments made to the card companies should be vacated in its entirety due to the fact that the payments made are clearly not for the use or the right to use a property i.e., trademarks belonging to the Card Companies but rather, to allow the Appellant access to the card payment networks owned by the card companies for use by the card holders.

Whether interchange services rendered by the Appellant qualify as management or professional services as defined in the Income Tax Act 57. The Appellant cited Section 2 of the ITA, which defines a management or professional fee as follows: -“a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated"

58. The Appellant submitted that the verification, authorization, and settlement services provided by issuers Banks under the card network in any card transaction do not constitute a management or professional services in accordance with definition availed under Section 2 of the ITA. In this connection the Appellant referred the Tribunal to the High Court decision in Commissioner of Domestic Taxes v Bank of Africa Limited (Civil Appeal E127of 2020)[2023]KEHC 1036 where it was held as follows as to the nature of interchange fees:“Interchange fee is, thus, a form of insurance intended to cover costs that may be incurred by the issuer in the process of verifying the cardholder's identity and eligibility for purposes of completing purchase of goods or services using credit/debit cards."

59. The Appellant also cited Barclays Bank of Kenya Limited -vs- Commissioner of Domestic Taxes [2020] eKLR where court also held:“...I find and hold that the interchange fee by the issuing bank is not for any service rendered by the issuing bank to the acquiring bank."

60. The Appellant submitted that from the foregoing jurisprudence, it is clear that the interchange fee earned by the Issuer Bank under the card payment network for verification, authorization and settlement activities in any card transaction do not constitute a management or professional fee as defined in Section 2 of the ITA.

61. Further the Appellant submitted that given that the ITA does not define managerial, technical, agency, contractual, professional or consultancy services, the Appellant relied on other provisions of the ITA and international guidelines to demonstrate that the verification, authorization and settlement activities it undertakes as an Issuing Bank do not fall into any category of services provided for under section 2 of the ITA.

62. That "Professional services" are not defined in the ITA however the Fifth Schedule to the ITA provides for scheduled professions and qualifications and that the activities undertaken by the Appellant as an Issuing Bank are not a profession listed in the Fifth Schedule and as such they cannot qualify as a professional service.

63. The Appellant drew the attention of this Honourable Tribunal to the definition of "Fees for Technical Services" under Article 12A of the UN Model Tax Convention which is similar to the definition of professional and management fee" under Section 2 of the ITA as it also encompasses managerial, technical and consultancy services.

64. Further the Appellant referred to the High Court in Seven Sess Technologies Limited -vs- Commissioner of Domestic Taxes (Income Tax Appeal 8 of 2017)[2021] KEHC 358 (KLR) and relied on the OECD Model Tax Convention in determining a matter involving the taxation of software payments and endorsed the reliance, stating: "The International guidelines are part of the law in respective countries but are international best practices that guide in interpretation of laws and regulate the international business transactions.".

65. The Appellant sought to rely on the definition of "Fees for Technical Services "under the UN Model Tax Convention and its commentaries to aid the Tribunal to interpret the definition of "professional and management fee" under Section 2 of the ITA.

66. The Appellant stated that Article 12A of the UN Model Tax Convention provides as follows:a.Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.b.The term "fees for technical services" as used in this Article means any payment inconsideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational institution or for teaching by an educational institution; or (c) by an individual for services for the personal use of an individual.

67. The Appellant stated that the fees for technical services are defined to mean payments for services "of a managerial, technical or consultancy nature". That "The ordinary meaning of the term "technical" involves the application of specialized knowledge, skill, or expertise with respect to a particular art, science, profession, or occupation". That the ordinary meaning of "consultancy "involves the provision of advice or services of a specialized nature."

68. That in summary, the Commentaries suggest that:c.Managerial services involve services relating to how a business is to be run;d.Technical services require technical skills or knowledge in relation to a particular technical field i.e., art, science, or profession; ande.Consultancy services require the provision of advice, which arguably involves human interaction.

69. The Appellant asserted that the Respondent has failed to demonstrate how the role of a lssuer bank providing verification, authorization and settlement services to enable its customers to effect payments through debit cards and credit cards falls under the foregoing definition of managerial, technical or consultancy services.

70. The Appellant surmised by submitting that financial services such as those offered by the Appellant do not fall, in principle, within the definition of technical services if limited to payment and transmission services, bankers' drafts, foreign exchange, debt and credit card services and negotiable instruments.

71. The Appellant further submitted that in interpreting the concept of "fees for technical services" (like the concept of professional and management fees under section 2 of the ITA) under Double Taxation Agreements("DTAS") modelled after the UN Model Tax Convention, have taken the view that key to the interpretation of technical services is the fact that it requires interaction on a human level, and purely automated processes would not apply. The Appellant reiterated the findings of Income Tax Officer(Kolkata)v Right Florists Pvt Ltd.I.T.A. No. 1336/Kol./2011

72. That in respect of the genus of the words managerial, technical and consultancy, the court asserted as follows:“...[The] genus of these words should be clearly discernible from the lowest common factor in those words. The lowest common factor in 'managerial, technical and consultancy services' seems to be the human intervention, because while these three words are of wide scope and are invaried field, the only common thread in these words seems to be that the services, which are essentially professional services in nature, can be rendered with human interface....A managerial or consultancy service can only be rendered with human interface, while a technical service can be rendered with human interface as also without human interface...However, when we try to restrict the meaning of technical services to the services which are covered by managerial and technical services as well, services without human interface will have to be taken out of its ambit....as long as there is no human intervention in a technical service, it cannot be treated as a technical service... For the reason that there is no human touch involved in the whole process of actual advertising service provided by Google, in the light of the legal position that any services rendered without human touch, even if it be a technical service... the receipts for online advertisement by the search engines cannot be treated as feesfor technical services"

73. The Appellant also relied on the following other decisions which clearly establish there must be an element of human intervention:a.The Supreme Court of India's decisions in Comm of Income Tax v Bharti Cellular Ltd (2011)330 ITR 239 and Com of Income Tax v Kotak Securities Ltd [2016] 383 ITR 1. b.Honourable Madras High Court Judgment in the case of Skycell Communications Ltd v Deputy Comr of Income Tax [2001] 251 ITR 53 (page 146 of the Appellant's Bundle of Authorities)where it was held that the provision of facility for use of an electronic exchange, which had mobile communication network with a switching centre did not constitute technical services.

74. That like the cases cited above, there is no human intervention involved in authorization, clearing and settlement services in the card payment network given the process is fully automated to allow customers to make payments electronically and instantaneously. As such, the interchange fees paid to the Appellant as consideration for the authorization, clearing and settlement service does not qualify as management or professional fees.

75. The Appellant further submitted that the Tax Appeals Tribunal in TAT Appeal No. 821 of 2022 Stanbic Bank Kenya Limited Versus Commissioner of Domestic Taxes upon review of the abovementioned facts and evidence held that interchange services do not qualify as management or professional services as defined in the ITA stating at paragraph 68 that:“From the foregoing the Tribunal finds that the services rendered by the Appellant do not qualify as management or professional services and therefore do not quality for withholding tax."

Whether the Appellant is the recipient of the service and thus had an obligation to withhold tax on the interchange fee 76. The Appellant submitted that the recipient of the said service to which interchange fees are payable is the customer not the Appellant as alleged by the Respondent. The verification process which gives rise to interchange fees is akin to that of a cardholder who walks into a banking hall to undertake an over the counter ("OTC") transaction. In the OTC transaction, the bank will verify the customer's identity by examining their identification documents, verify that the account details are correct; and verify that the bank customer has sufficient funds to complete the requested transaction whether it may be a transfer of funds or a cash/cheque withdrawal and that interchange fees are paid by the Appellant on behalf of its customers who are in receipt of the verification service from issuing Banks.

77. The Appellant referred to the following casesa)Commissioner of Domestic Taxes v Bank of Africa Limited (Civil Appeal E127 of 2020) [2023] KEHC 1036 (KLR) held as follows:"In the circumstances, we agree with the TAT that Bank of Africa rendered a financial service to cardholders when verifying their identities and eligibility to use the cards when purchasing goods or services and eventually deducted money from their accounts which was a financial service..."b)TAT Appeal No. 361 of 2018-NIC Group and NIC Bank Kenya PLC v Commissioner of Domestic Taxes (page 151 of the Appellant’s Bundle of Authorities) took the view that the recipient of the verification service by an Issuer Bank is the customer not the acquiring bank ("the Appellant" in this case) by holding as follows:“...the service provided by the Appellant is to its customers and not to the acquiring bank, it involves a money transaction, and it is not considered as a service subject to the Value Added Tax. In fact, the service of money transfer is exempt from value added tax under the provisions of the paragraphs 1 of Part Il of the First Schedule to theValue Added Tax Act2013. " [Emphasis added]c)Barclays Bank of Kenya Limited v Commissioner of Domestic Taxes [20201 eKLR where Kasango J held that:“...I find and hold that the interchange fee by the issuing bank is not for any service rendered by the issuing bank to the acquiring bank."Therefore, the Appellant submitted that the Respondent ought to have demanded WHT from the specific customers, not the Appellant which is only acting as an agent.d)Kenya Revenue Authority &another v Republic (Ex parte) Kenya Nut Company Limited [2020]eKLR wherein it was held that it matters not the arrangement entered into by an individual, they have an obligation to account for any tax due.e)Appeal No.269 of 2018 Maersk Kenye Limited y The Commissioner of Investigations and Enforcement where it was held that the consignee has the responsibility to withhold when making payment of the principal. The Tribunal in this case stated as follows:“Additionally, by claiming that the Appellant is the payer, the Respondent is creating an agency/representative relationship between the importer and the Appellant which does not exist.The payment is not made by the Appellant to the non-resident on behalf of the local importer. In fact, the payment is received by the Appellant on behalf of the non-resident shipping line. It would be unjust to place the responsibility of the payer on the agent of the payee...The Tribunal thus concurs with the Appellant's submission on this front and finds that the responsibility to withhold lies entirely with the importer."(Emphasis added)

78. That in any case, on a without prejudice basis to the foregoing, the ITA restricts management or professional fees subject to WHT to amounts whose aggregate value is in excess of twenty-four thousand shillings or more in a month and that the Respondent did not undertake an analysis of the individual customer transactions to ascertain which of the specific payments met this threshold.

79. Taking the foregoing into account, the Appellant asserted that the Objection Decision assessing the Appellant for WHT on interchange fees rather than the recipient of the service is erroneous and should be vacated in its entirety with the attendant penalties and interest in full.

Appellant Prayers 80. The Appellant urged the Tribunal to:a.Allow the appeal;b.Annul and set aside the Respondent's objection decision dated 13th December 2023 ;c.Vacate the principal tax and attendant penalties and interest demanded by the Respondent relating to WHT amounting to KES 88,452,909 forthwith in its entirety;d.Award the costs of and incidental to this Appeal to the Appellant; ande.Give any other orders that the Tax Appeals Tribunal may deem fit

The Respondent’s Case 81. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 23rd February 2024b.Written submissions dated and filed on 22nd May 2024.

82. The Respondent’s statement of facts reiterated the process of card payments as enumerated by the Appellant statement of facts and it sought to identify the various players in the card transactions as follows;a.WHT payments made to non-resident Card Companiesb.WHT on interchange services offered by the Appellant

83. The Respondent stated that it charged WHT on the basis that the Appellant had entered into various trademark and license agreements and the payments arising from it constituted a royalty/ right of use subject to WHT as provided under Section 35 of the Income Tax Act (ITA). It also sought to assess WHT on interchange fees made to issuing banks on the basis that the fees constituted professional/ management fees which are subject to WHT pursuant to section 35 of the Income Tax Act.

84. The Respondent averred that it made the following observations on review of the agreements with card companies;a."Membership and Trademark License Agreement" with VISA – The agreement specifies that the Appellant is licensed to use the programmes and corresponding Visa - Owned marks in connection with the programme.b."MasterCard License Agreement" with MasterCard - The agreement describes MasterCard as the owner of various service marks and trademarks intended to be used in whole or in part for the identification of services and goods. By the agreement, MasterCard grants the Appellant a license to use the marks in connection with such aspects of the charge card and debit business.c."Member Service and Trademark License Agreement with UPI- By the agreement, UPI grants Stanbic Bank Kenya Limited a non-exclusive, non-transferable, royalty-free license to use the UPI licensed marks.

85. The Respondent posited that the totality of the above agreements provides for payment of a fee in exchange for accessing the card networks and the issuance of cards that bear the logos of the respective companies. Therefore, the Appellant is obliged to pay withholding tax arising from its relationship and dealings with the credit card companies. The contractual relationship in the card schemes involving the Appellant gave rise to contractual rights and obligations which attracted WHT tax.

86. The Respondent posited that the first relationship is that of the Appellant and the card companies which is embodied in the membership and trademark license agreement which granted the Appellant the license to use the card companies' marks. This relationship included a guarantee of payment by the card companies and their members in the event of default. The second relationship is that of the issuing bank and the acquiring bank regarding payment for purchases, which is governed by the card companies' rules.

87. In its assessment of WHT the Respondent relied on section 3(1) as read together with section 4(a) of ITA which provides that all income made in Kenya, whether by a resident or a non-resident was taxable, to argue that the Appellant as a withholding agent, was obligated to withhold tax due from payments that it paid to the non-resident card companies.

88. The Respondent further relied on section 10(a) and (b) of the ITA, which provides that where a person resident in Kenya makes payment for royalty or pays management or professional fees to another person who is a non-resident, such amount is deemed to be income accrued or derived from Kenya and the person making the payment is obligated to deduct tax at the appropriate non-resident rate.

89. The Respondent averred that the services described by the agreements with card companies fall within the ambit of 'royalty' as defined by the ITA. The payments made by the Appellant to the card companies comprised payments for use of logo. software license fees, Trademark licensing and service fees which were payments for the right to use the global network services for purposes of linking the services to the users. The payments were therefore for the right to use trademarks, patents and licenses, which are intellectual property rights and therefore fell within the definition of royalty.

90. The Respondent stated that it does not matter whether the use entails transfer of information through software or transfer of digital information as is the case in this matter. The payments made by the Appellant to the card companies were for royalty and therefore constituted income derived from Kenya, for which income tax was chargeable under the Act.

91. The Respondent placed reliance on the Court of Appeal case of Commissioner of Domestic Taxes (Large Taxpayer Office) -vs- Barclays Bank Of Kenya Ltd (No. 195 Of 2017) wherein the Court held that:-'Without the use of credit and debit cards bearing those specific trademarks and logos from the authorizing card company, the respondent cannot access or use the networks. In these circumstances we cannot see how the respondent can contend that the transaction payments, whatever else they cover, exclude payment of royalty to the credit card companies for use of their trademarks and logos. We are satisfied that, in the circumstances of the case giving rise to this appeal, the appellant was able to identify with clarity the basis upon which it was claiming withholding tax from the respondent based on payment of royalty, however, disguised. The appellant was able to demonstrate that the transaction fee constituted, in the circumstances we have explained above, payment for the right to use the card companies' trademarks and logos. The payment constituted royalty for trade mark under section 2(c) of the Act, royalty tor trade mark under section 2(c) of the Act.”

92. The Respondent stated that the above judgment is a binding precedent from the Court of Appeal that has not been stayed and /or set aside and is therefore binding upon the Tax Appeals Tribunal.

93. The Respondent further averred that the payment by the bank to card companies is for the right to or license to use the card company's intellectual property such as trademarks and logos and hence royalty subject to withholding tax at 20% pursuant to section 35(1) of the Income Tax Act.

94. The Respondent stated that from the description of services given by the Appellant in its notice of objection, the Respondent notes that the fees earned by them as the issuing bank are of a technical nature falling within the meaning of management/professional fee as defined by section 2 of the Income Tax Act reproduced below: -“management or professional fee" means a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated;

95. That the services issued by the issuer for which the interchange fee is paid with regard to card schemes are basically the authorization of transactions and the processing and settlement of authorized transactions.

96. The Respondent averred that in the instances where the Appellant was the acquirer, it received services from the issuing Banks and for those services, the interchange fees was paid and the services provided by the issuer to Acquiring banks are Authorization, Settlement and Clearing service and that these services are completed when the Issuer settles the account with the acquiring bank. The Respondent's audit established that services being offered by the Issuer for which the interchange fees is charged is management and professional services as defined under section 2 of the Income Tax Act.

97. The Respondent relied on the Court of Appeal case of Commissioner Of Domestic Taxes (Large Taxpayer Office) -vs- Barclays Bank Of Kenya Ltd (No. 195 of 2017) wherein the court stated:“We are persuaded that the management and professional fee does not have to fall within only one of the services defined in section 2; it can cover one or more. In our view, what is critical is whether looking at the totality of the evidence on record, there is a clear explanation of what the appellant alleges to constitute management or professional fees, and whether that payment made by the respondent reasonably falls within the terms of the statute."

98. In its submissions the Respondent submitted that the following issues fall for its determination:-a.Whether the Respondent erred in law and in fact by assessing the Appellant for withholding tax on the basis that the payments it made to non-resident Card Companies qualifies as royalties as defined in the Income Tax Act.b.Whether the Respondent erred in law and in fact by assessing the Appellant for withholding tax for interchange services and characterizing them as management/professional services as defined in the Income Tax Act.c.Whether the respondent erred in law and in fact by assessing the appellant for withholding tax on the basis that the payments it made to non-resident card companies qualifies as royalties as defined in the income tax act

99. On issue (i) the Respondent submitted that the Appellant is obligated to pay withholding tax arising from its relationship and dealings with the credit card companies. The contractual relationship in the card schemes involving the Appellant gave rise to contractual rights and obligations which attracted Withholding tax.

100. That the first relationship is that of the Appellant and the card companies which is embodied in the membership and trademark license agreement which granted the Appellant the license to use the card companies' marks. This relationship included a guarantee of payment by the card companies and their members in the event of default. The second relationship is that of the issuing bank and the acquiring bank regarding payment for purchases, which is governed by the card companies' rules.

101. The Respondent submitted that the payments made by the Appellant to the card companies were for royalty and therefore constituted income derived from Kenya for which income tax was chargeable under the Act.

102. On the second issue of determination whether the respondent erred in law and in fact by assessing the appellant for withholding tax for interchange services and characterizing them as management/professional services as defined in Income Tax Act, the Respondent submitted that from the description of services given by the Appellant in its Notice of Objection, the Respondent notes that the fees earned by them as the issuing bank are of a technical nature falling within the meaning of management/professional fee as defined by Section 2 of the Income Tax Act. These services as issued by the issuer for which the interchange fee is paid with regard to card schemes are basically the authorization of transactions and the processing and settlement of authorized transactions.

103. The Respondent submitted that in the instances where the Appellant was the acquirer, it received services from the issuing Banks and for those services, the interchange fees was paid. The services provided by the issuer to Acquiring Banks are Authorization, Settlement and Clearing services.

104. The Respondent submitted that the above subsets of services comprise a composite service in form of Authorization, Clearing and Settlement service and that it begins when an authorization request is sent to Issuer and is completed when the Issuer settles the account with the acquiring bank. The Respondent's audit established that services being offered by the Issuer for which the interchange fees is charged is management and professional services as defined under section 2 of the Income Tax Act.

105. The Respondent relied on the Court of Appeal case of Commissioner of Domestic Taxes (Large Taxpayer Office) -vs- Barclays Bank of Kenya Ltd (No. 195 Of 2017) wherein the court stated:“We are persuaded that the management and professional fee does not have to fall within only one of the services defined in section 2; it can cover one or more. In our view, what is critical is whether looking at the totality of the evidence on record, there is a clear explanation of what the appellant alleges to constitute management or professional fees, and whether that payment made by the respondent reasonably falls within the terms of the statute.”

106. That this position was also affirmed in Equity Bank Kenya Limited Vs Commissioner of Domestic Taxes (Tat No.314 Of 2021)where the Tribunal agreed that interchange fees are fees for provision of management or professional fees which are subject to Withholding tax under Section 10 and 35 of the Income Tax Act. The Tribunal held that the payments made by the Appellant to card companies were royalties.

107. The Respondent also relied on Article 163(7) of the Constitution which establishes the binding nature of precedent from superior courts unless it is distinguishable.

108. Further the Respondent also referred to the Supreme Court decision in Chris Munga N. Bichage V Richard Nyagaka Tong'i & 2 Others [2016] eKLR which held,“what it boils down to, according to the authors, is certainty, predictability, reliability, equality, uniformity, convenience: these are the principal advantages to be gained by a legal system from the principle of stare decisis. Observance of the doctrine has been insisted upon, both by this Court and the Supreme Court of Appeal. And I believe rightly so. The doctrine of precedent not only binds lower courts but also binds courts of final jurisdiction to their own decisions. These courts can depart from a previous decision of their own decisions. These courts can depart from a previous decision of their own only when satisfied that that decision is clearly wrong. Stare decisis is therefore not simply a matter of respect for courts of higher authority. It is a manifestation of the rule of law itself, which in turn is a founding value of our Constitution." founding value of our Constitution."

109. The Respondent submitted that they have sufficiently demonstrated the basis upon which withholding tax has been charged upon royalties and interchange fees paid.

Respondent’s Prayers 110. The Respondent prayed that this Honorable Tribunal finds:a.That the Objection Decision dated 13th December, 2023 be upheld.b.That this Appeal be dismissed with costs to the Respondent as the same is without merit

Issues For Determination 111. After perusing the Memorandum of Appeal and the parties' Statements of Facts together with their submissions, documentation and authorities attached thereto, the Tribunal is of the considered view that the following are the issues for determination:a.Whether the payments made by the Appellant to various non-resident card companies are royalties to be subjected to withholding tax deductions as per Income Tax Act.b.Whether interchange services fees qualify as professional/management services as per Income Tax Act.

Analysis And Findings 112. The Tribunal wishes to analyze the issues as hereinunder.

Whether the payments made by the Appellant to various non-resident card companies are royalties to be subjected to withholding tax deductions as per Income Tax Act. 113. The Tribunal notes that the parties are of diametrically opposite views on the question as to whether the payments made by the Appellant to non-resident card companies constitute royalties as per Income Tax Act.

114. The Appellant’s position is that the Respondent erred in fact and in law in assessing the Appellant for WHT on the basis that payments made to the card companies are royalties while the Respondent maintained that its interpretation was within Income Tax Act.

115. According to the Income Tax Act, royalties are defined by section 2 of Income Tax Act as follows:“royalty" means a payment made as a consideration for the use of or the right to use—(a)any copyright of a literary, artistic or scientific work; or(b)any cinematograph film, including film or tape for radio or television broadcasting; or(c)any patent, trade mark, design or model, plan, formula or process; or(d)any industrial, commercial or scientific equipment,or for information concerning industrial, commercial or scientific equipment or experience, and any gains derived from the sale or exchange of any right or property giving rise to that royalty;

116. The Tribunal notes that the central question to enable it to decide this issue is analysis of contractual agreements between the parties to determine if the payments made to the card companies included a fee for use of their trademarks or purely for the services offered by these companies.

117. According to the Appellant, the payments made are not for the use of the trademarks and logos of the card companies but for their clearing and settlement functions.

118. The Appellant stated that pursuant to the Agreements with card companies, the Appellant as an Issuing Bank is granted a non-exclusive and royalty free license to emboss the names of the Card Companies and their marks on the credit/debit cards issued by Stanbic Bank Kenya Limited. This is in accordance with Clause 2 of the VISA Agreement, Clause 2 of the MasterCard Agreement and Clause 4. 1.2 of UPI.

119. The Tribunal notes that clause 2 of the Agreement between the Appellant and VISA states that the Appellant is granted royalty free license to use the marks of VISA and the same is the position in clause 4. 1.2 of the Agreement between the Appellant and UPI. The Agreement with Mastercard is silent on whether it is royalty free.

120. The Respondent averred that the totality of the above agreements provides for payment of a fee in exchange for accessing the card networks and issuance of cards that bear the logos of the respective companies. Therefore, the Appellant is obliged to pay withholding tax arising from its relationship and dealings with the credit card companies. The contractual relationship in the card schemes involving the Appellant gave rise to contractual rights and obligations which attracted WHT tax.

121. The crux of the appeal is to determine whether the fact that the fee is described as royalty free means that the payments made by the Appellant to the card companies are exclusive of fees to use trademarks and logos of the companies

122. The Tribunal notes that the Court of Appeal case of Commissioner of Domestic Taxes (Large Tax Payer Office) -vs- Barclays Bank of Kenya Ltd [2020] eKLR finding, the 3 judge bench held as follows as to whether the payments made by the issuing banks to card companies being exclusive of royalty,” in this case, it is patently clear that for the respondent to access and participate in any of the networks set up by the card companies, it must use the particular company’s cards bearing that company’s trademarks and logos, which are distinct and distinguish one card company from the other. The agreements between the respondent and the banks are clear that the trademarks are intended for use in the identification of services and goods. The debit and credit cards issued by the respondent to its customers bear the distinct logos and trade marks of the respective card companies, and in our view, from the trademark agreements we have referred to, this is a precondition for the appellant to access and use the card networks. Thus for example, in the Amex agreement, “Card” is defined as follows: “‘Card’ means (i) a card bearing an AMEX trademark or logo and issued by an Insurer or (ii) an account number issued by an issuer, which may be used to purchase goods or services as S/Es (service establishments) on the American Express Network and to obtain financial services.”Without the use of credit and debit cards bearing those specific trademarks and logos from the authorising card company, the respondent cannot access or use the networks. In these circumstances we cannot see how the respondent can contend that the transaction payments, whatever else they cover, exclude payment of royalty to the credit card companies for use of their trademarks and logos.”

123. As much as the payments can be said to be for the clearing and settlement, it is not possible to exclude fees for use of the trademarks and logos from the payments.

124. The Tribunal finds therefore that the payments made by the Appellant to the card companies consist of royalty for use of their trademarks and logos and further, it also consists of payments to access card payment systems and to access clearing and settlement functions in the card. The royalty(s) in issue is subject to WHT.

Whether interchange services qualify as professional/management services as per Income Tax Act 125. The Appellant impugns the decision of the Respondent to assess withholding tax on the interchange fees and contends that its role of authorization, verification and settlement in the tripartite arrangement cannot be said to be managerial/professional services as per the definition given by the Income Tax Act.

126. The Respondent on the other hand relied on the fact that Appellant in its notice of objection, argued that the fees earned by the Appellant as the issuing bank is of a technical nature falling within the meaning of management/professional fee as defined by section 2 of the Income Tax Act

127. The Income Tax Act defines managerial/professional services as:“Management or professional fee" means any payment made to any person, other than a payment made to an employee by his employer, as consideration for any managerial, technical, agency, contractual, professional or consultancy services however calculated.”Therefore, the management or professional fee is only payable to any person who is not an employee who offers any managerial, technical, agency, contractual, professional or consultancy services.

128. The Tribunal notes that the question that calls for determination is whether the Appellant’s role in the tripartite arrangement with the issuer, acquirer and card companies can be said to be technical, agency, contractual, managerial, professional or consultancy service.

129. Both the Appellant and the Respondent agree that the role of the Appellant as the issuing bank is authorization of transactions and processing and settlement of the cleared transactions. Can the same be said to amount to professional or management services?

130. The Appellant referred the Tribunal to Tax Appeals Tribunal in TAT Appeal No. 821 of 2022 Stanbic Bank Kenya Limited -vs- Commissioner of Domestic Taxes where upon review of the facts and evidence submitted held that interchange services do not qualify as management or professional services as defined in the ITA stating at paragraph 68 that:“From the foregoing the Tribunal finds that the services rendered by the Appellant do not qualify as management or professional services and therefore do not qualify for withholding tax."

131. However, the Tribunal notes that the decision of the Court of Appeal in Commissioner of Domestic Taxes (Large Tax Payer Office) -vs- Barclays Bank of Kenya Ltd [2020] eKLR, went against the decision of the Tribunal by stating the Court reiterated that where there is ambiguity in the legislation, the same must be construed in favour of the taxpayer. Conversely, where the meaning of legislation is clear, courts will give effect to the law. In this appeal we have come to the conclusion that there is no ambiguity in the law and that the appellant sufficiently demonstrated that the payments made by the appellant to the card companies are “royalty” under the Act and further that the interchange fees made by the respondent in its capacity as acquirer to issuer banks were for management and professional services within the meaning of the Act. The confusion or lack of clarity that was obvious on the part of the tax authority regarding what it claimed constituted royalty and management or professional fees in Republic -vs- Commissioner of Income Tax ex parte SDV Transami (K) Ltd. (supra) and in the first case between the parties in this appeal (before Majanja, J.), is not evident in the present appeal.

132. The Tribunal is guided by the Court of Appeal decision cited above wherein the court further pronounced itself as follows on the issue of role of the issuing banks; “we are persuaded that the management and professional fee does not have to fall within only one of the services defined in section 2; it can cover one or more. In our view, what is critical is whether looking at the totality of the evidence on record, there is clear explanation of what the appellant alleges to constitute management or professional fees, and whether that payment made by the respondent reasonably falls within the terms of the statute. That question cannot be answered by considering only how the parties have described or rationalized the payment. The appellant contends that the services for which the respondent as acquirer pays the issuer include facilitation fee for facilitating a medium of communication between the issuers, acquirers, and merchants, and for confirmation of the creditworthiness of the cardholders. The respondent however argues that these are its own duties which it does not have to pay for.In our view part of the confusion arises from failure to clarify that while paying the interchange fee, the respondent, who is both an issuer and an acquirer, is actually acting in his latter capacity. In the transactions we have described above, there are clear co-ordination, managerial, professional, and contractual services rendered by the issuer to the acquirer, for which the latter pays. In our view, the appellant proved that those payments by the respondent in its capacity as acquirer to the issuer banks, satisfy the definition of management and professional fees as defined in section 2 of the Act.”

133. The Tribunal is in agreement with the holding of the Court of Appeal that the role of the Appellant in the tripartite arrangement constitutes management or professional services hence WHT ought to be levied on the interchange fees.

Final Decision 134. The upshot to the foregoing is that the Appeal is unmerited and the Tribunal consequently makes the following orders: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s Objection Decision dated 13th December 2023 be and is hereby upheld.iii.Each party to bear its own costs.

135. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER 2024GRACE MUKUHA - CHAIRPERSONBERNADETTE GITARI - MEMBERGEORGE KASHINDI - MEMBERDR. ERICK KOMOLO - MEMBERBDULLAHI DIRIYE - MEMBER