Kenya vs Stefanutti Stocks Kenya Limited, March 2025, Tax Appeal Tribunal, Case No [2025] KETAT 185 (KLR)

Posted on | By Courts of Kenya
Category: Burden of Proof, Disallowed Deduction, Services and Fees | Tag: , , , , , , , , , , ,
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In FY 2013, Stefanutti Stocks Kenya Limited, a Kenyan subsidiary of a South African company, had deducted salary costs amounting to Kshs 46,391,512.00 in respect of expatriates provided by its South African affiliated company due to lack of local resources.

According to the tax authorities, the salary costs were not sufficiently substantiated to qualify as expenses wholly and exclusively incurred in the production of income and, on this basis, disallowed deductions for the reported costs.

On appeal, the Tax Appeal Tribunal initially upheld the position of the tax authorities in a 2021 decision. However, Stefanutti Stocks Kenya Limited appealed to the High Court, which ruled in 2023 that the Tribunal had failed to determine whether the salary expenses were allowable under section 15. The High Court remitted the matter back to the Tribunal to deal specifically with this issue.

Judgment of the Tribunal

On re-examination of the matter, the Tribunal found that although Stefanutti Stocks Kenya Limited claimed that the salary costs were for expatriates provided by its South African subsidiary due to a lack of local resources, it failed to provide any substantiating evidence.

The only documents provided were intercompany invoices and a credit note, which were insufficient to demonstrate that the claimed expenses were wholly and exclusively incurred in the production of income. Key supporting documents – such as employment contracts, expatriate assignments or work permits – were not provided either at the objection stage or at the hearing. Furthermore, the transfer pricing documentation submitted was dated 2016, which was after the relevant tax period and therefore irrelevant.

The Tribunal emphasised that tax law places the burden of proof on the taxpayer and reiterated that the evidence must be both competent and relevant. As Stefanutti Stocks Kenya Limited had failed to meet this standard, the Tribunal concluded that the tax authorities had been justified in disallowing the salary expenses. The Tribunal dismissed the appeal and upheld the tax assessment.

 

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