Kenya: Marketing support services for non-resident entities, zero-rated for VAT purposes (tribunal decision)

A tribunal decision concerning marketing support services provided to non-resident related entities

A case concerning marketing support services provided to non-resident related entities

The Tax Appeals Tribunal held that marketing support services provided to non-resident related entities were consumed outside of Kenya and, as such, were exported services and zero-rated for value added tax (VAT) purposes.

The case is: 3M Kenya Ltd. v. Kenya Revenue Authority


The taxpayer (a company incorporated in Kenya) signed a service agreement to provide marketing and liaison services to non-resident related entities in the UAE and South Africa.

Under the agreements, the taxpayer was to be compensated on a cost-plus mark-up basis. The non-resident related entities executed separate agreements with distributors of their products, that they then invoiced directly for products imported directly from entities in the UAE and in South Africa.

The Kenya Revenue Authority, on auditing the taxpayer for years 2010 through 2015, determined that the taxpayer had wrongly classified the market support services that it provided as zero-rated for VAT purposes. Rather, the tax authority contended that the effect of the services was to create product awareness among the Kenyan population with the objective of enhancing domestic sales and that the companies that imported and distributed products on behalf of the non-resident entities were the ultimate beneficiaries of the marketing services. Thus, it was asserted that the services were consumed domestically and therefore were subject to VAT at a rate of 16%.  

The taxpayer countered that the marketing support services enhanced brand awareness of the products sold by the non-resident entities in Kenya. On this basis, it was asserted that the services were exported because it was the non-resident entities—instead of the Kenya resident distributors—that consumed the services.

The tribunal held that the marketing support services provided by the taxpayer were consumed outside Kenya by the two non-resident related entities, hence constituting exported services that would be zero-rated for VAT purposes. The tribunal relied on the “destination principle” under OECD guidelines—that is, the jurisdiction where a customer is located has the taxing rights over internationally traded services.

The tribunal distinguished between “marketing support services” and “products” in holding that the support services were provided to the non-resident related entities while the products were provided by Kenyan distributors to Kenyan customers. As such, while the products were consumed domestically, the “marketing support services” were consumed outside Kenya. The tribunal agreed that while it was possible for a benefit to accrue to Kenyan distributors and customers from the marketing services, they were not contractual parties and accordingly any such benefits were secondary.

Read an April 2021 report [PDF 336 KB] prepared by the KPMG member firm in Kenya



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