Kenya: Private ruling allowing capital gains tax on sale of land revoked; corporation tax assessed

Kenya: Private ruling on capital gains tax

The Tax Appeals Tribunal upheld the tax authority’s revocation of a private ruling issued to the taxpayer concerning the nature of income realized on the sale of land because the taxpayer had failed to include all relevant details and documents and was found not to have made complete and accurate disclosures in the ruling application.


Thus, the tribunal upheld the assessment of corporation tax (instead of capital gains tax that had been allowed under the private ruling) on the taxpayer’s sale of land.

The case is: Ruaraka Diversified Investments Ltd. v. Commissioner of Domestic Taxes


The taxpayer (a branch of a Mauritius company) was registered in Kenya to invest in real estate. Prior to the Kenyan branch’s registration, the Mauritius company had undergone multiple changes to its name.

The taxpayer purchased approximately 34 acres of land for KES 1.2 billion for use in the development of a real estate project. Between 2013 and 2015, the taxpayer subdivided and sold 29.5 acres to three entities (two of which were related entities) for KES 2.7 billion. The taxpayer (using the name Actis Properties East Africa Ltd.) requested a private ruling from the tax authority regarding the applicability of capital gains tax on amount realized from the land’s sale. The tax authority granted the ruling and confirmed that the amount realized from the sale was subject to capital gains tax. Thus, the taxpayer paid KES 43.9 million as capital gains tax.

The tax authority in 2018 revoked its private ruling, citing substantive misrepresentations by the taxpayer and assessed corporation tax of KES 672.2 million on the sale of the land. The taxpayer then in 2019 filed the instant judicial action in which it contested the tax authority’s assessment.

The tribunal held that the tax authority had not issued a private ruling within the context of Section 65 (which requires the tribunal to test whether the taxpayer had included all relevant details and documents, had specified the question for interpretation by the tax authority, and had made complete and accurate disclosure about the sale of land).

Specifically, the tribunal agreed with the tax authority that the taxpayer had made certain substantive misrepresentation of facts (including using the name Actis Properties as the party requesting the ruling application and also portraying the transaction as a one-off, unanticipated transaction rather than one within the nature of the taxpayer’s business of land development and sale).

KPMG observation

This case demonstrates that taxpayers cannot rely on private rulings if they do not make complete and accurate disclosures and provide all relevant details and documents when applying to the tax authority for the ruling. Material non-disclosure and substantive misrepresentation can render a private ruling void—and thus allow for retroactive assessments.

The case also reflects the distinction between business profits and capital gains—an issue that may be significant for those in the real estate sector. The tribunal distinguished between investment-holding and trading activities using the badges-of-trade concept to determine the nature of the taxpayer’s income.

Thus, this shows why it is important for taxpayers to be consistent in describing their principal activities (in this case, the taxpayer consistently in its financial statements described its business activities as that of land development and sale, which undermined the taxpayer’s claim that the land was held for investment.

Read an April 2021 report [PDF 497 KB] prepared by the KPMG member firm in Kenya

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