Ola Energy Kenya Limited is a Kenyan oil marketing company formerly known as Libya Oil Kenya Limited. It is engaged in the wholesale, retail and commercial sale of petroleum products and lubricants.
On 13 June 2023, the Kenya Revenue Authority (KRA) issued corporation tax assessments for the years of income from 2011 to 2016.
An appeal was filed where Ola Energy Kenya Limited asked the Tribunal to set aside the assessment.
Judgment
The Tribunal determined that the statutory basis lacked due to breach of statutes of limitations and set aside the assessment.
Although the merits were rendered moot, the judgment records the disputed heads of assessment.
Regarding the alleged management and corporate services received by Ola from related parties, the Kenya Revenue Authority (KRA) had demanded Kshs 265,176,021. The KRA also asserted that other corporate or management functions within the Eastern Cluster should have been recharged to affiliates with a five percent markup, as these were considered to be low-value services. The Appellant maintained that the services were performed at group level and that the nature of its business had been misunderstood.
Regarding the procurement of petroleum products through OLA Energy Supply DMCC (OESD), the KRA claimed corporation tax of Kshs 264,119,643 and questioned the capacity of OESD, treating its markups and commissions as non-deductible. OLA responded that OESD’s average margin from 2014 to 2016 was 2.8 per cent, and that if it had procured independently under the Open Tender System, it would have incurred financing costs of 3 per cent of the shipment value, administration costs of 0.5 per cent of the cost, insurance and freight (CIF) costs, and letter of credit charges of 1.2 per cent of the cost and freight (C&F), totalling 4.7 per cent. This would have resulted in a net benefit from central procurement.
Regarding the sale of aviation fuel to the related party, OLA Aviation Fuel Supply DMCC, KRA alleged an additional tax of KES 396,847,451, based on third-party information indicating that Ola had earned KES 0.5 per litre instead of the arm’s-length price of KES 7.5 per litre. Ola responded with its own data showing that the volume-adjusted margin was KES 2.04 per litre, which was within the full range for independent customers. Ola also explained the role of OAFS in tendering, pricing and credit risk for international airlines, as well as the use of Platts-based pricing.
Regarding the interest charged on outstanding intra-group balances, the KRA computed the corporation tax at a rate of 15.5%. Ola relied on its credit policy, which grants standard terms of 60 days to both related and independent customers and does not charge interest on overdue accounts. Ola argued that KRA had no basis to impute interest at 15.5 percent.