The High Court in Nairobi has dealt a major blow to AEE Power Limited after dismissing it’s appeal against a tax assessment over Ksh 800 million issued by KRA.
The appeal, filed before Milimani Commercial courts, sought to overturn an earlier ruling by the Tax Appeals Tribunal that upheld the tax assessment of Ksh 859,632,528 for corporate tax and VAT for the years 2017 to 2020.
In the judgment delivered on December 20, 2024, the High Court found that the Tax Appeals Tribunal had correctly upheld the assessment and that the Appellant, AEE Power Limited, had failed to discharge its burden of proof to demonstrate that the tax assessment was incorrect.
The case arose from a dispute between AEE Power Limited, a construction company specializing in electrical infrastructure, and the Kenya Revenue Authority (KRA) over unpaid taxes linked to its transactions with non-resident persons and its failure to file tax returns for the years in question.
The facts of the case revealed that AEE Power Limited was awarded contracts by the Kenya Power and Lighting Company (KPLC) to supply and install electrical infrastructure in various counties.
It is engaged in construction business specialising in design, supply, and installation in various facilities. The Kenya Power and Lighting Company (KPLC) awarded contract KP1/12A-2/PT/2/15/A40 – LOT 2 Last Mile Connectivity Kisumu, Siaya, Vihiga, Busia, Bungoma and Kakamega counties and KP1/12A-2/PT/2/15/A40 – LOT 4 in Narok, Nakuru, Samburu and Nyandarua counties to AEE Power Spain.
In the court papers the company claimed that it was assigned the onshore component of the contracts for the procurement of plant, design, supply and installation of facilities in various projects.
However, the company faced difficulties when KPLC withheld payments using the company’s Kenya Revenue Authority (KRA) PIN, an issue that led to AEE Power Limited not filing its income tax returns for the period 2017-2020.
The company claimed that the withholding taxes were incorrectly attributed to its KRA PIN, despite the actual payments being made to its parent company, AEE Power Spain.
The tax dispute began when the Commissioner of Domestic Taxes sent a letter to AEE Power Limited in December 2021, requesting information on transactions conducted with non-resident persons during the period 2017-2020.
Despite multiple reminders, AEE Power Limited failed to provide the requested information, prompting KRA to conduct an audit.
The audit revealed a tax liability of over Ksh 1.1 billion, later adjusted to Ksh 859 million after an appeal from the company.
However, the company continued to dispute the assessment, arguing that KRA had incorrectly used withholding tax schedules in calculating VAT and corporate tax.
In her judgment, Justice Freda Mugambi emphasized that the burden of proof in tax disputes lies with the taxpayer.
“It is clear that the Appellant failed to provide the necessary evidence to support its claims,” Justice Mugambi stated, referencing AEE Power Limited’s failure to submit critical documents to the tax authority.
The court also addressed the Appellant’s argument regarding the withholding tax certificates, asserting that AEE Power Limited had not produced sufficient evidence to show that the tax certificates issued by KPLC were incorrect.
The company had argued that it was only responsible for the onshore components of the contract, while AEE Power Spain was responsible for the offshore portions.
However, the court found that there was no proof that KPLC had consented to this division of responsibility.
“The absence of the assignment agreement meant that the Appellant was considered a permanent establishment of AEE Power Spain,” the judge explained.
“In such cases, the taxpayer is liable to pay taxes in Kenya, and the Respondent rightly issued the assessments based on available information.”
The judgment also addressed the procedural aspects of the appeal, noting that the Appellant had failed to comply with the statutory requirement to file tax returns for the years under audit.
This non-compliance led to the issuance of a default assessment by KRA, which the court found to be in accordance with Section 29 of the Tax Procedures Act.
Ultimately, the High Court upheld the Tribunal’s decision and dismissed the appeal.
“The appeal lacks merit,” Justice Mugambi concluded. “The Appellant has not demonstrated that the tax assessments were erroneous or excessive.”
