Stefanutti Stocks Kenya Limited VS KRA

#StefanuttiStocksKenyaLimitedVS KRA

SSK is a subsidiary of SS International Holdings.(SSP)????????????????????

SSK principal activity is Construction and Civil Engineering

SSK was audited by KRA for the year ended Feb 2013 in the year 2019.

KRA raised an additional assessment for corporate tax worth KES 158.44m

Upon unsuccessful objection, SSK appealed to TAT on 17/01/2020 on the following grounds:

·????????KRA had treated deposits received?in advance of performance ie deferred revenue as??income?contrary to IAS and GAAP

·????????KRA had treated staff compensation as disallowed expenses contrary to?section 15 of Income tax

·????????KRA had treated the related party dealings with ?Stefanutti stocks South Africa(SSM) as ?disallowed costs

SSK argued that the advance payments were meant to facilitate mobilization with the actual billing for work done being done according to certificates of works issued.

SSK averred that to attract the right personnel it had to offer competitive benefits

SSK stated that the related party transactions with SSM were according to SSP group transfer pricing policy. SSK had leased equipment from SSM as per the said group transfer pricing policy.

SSK argued that the deferred income for 2013 was fully recognized in the year 2014

KRA stated that the deferred revenue should have been recognized in the year 2013.

KRA stated that SSK could not reconcile the difference between salaries declared for corporate tax and salaries declared for PAYE purposes. Under this cost, KRA had disallowed benefits extended to foreign personnel that included rent, cable TV subscriptions etc since they ?were personal expenses not business expenses.

KRA stated that SSK could not provide Transfer pricing policy covering SSK-SSM transactions. SSK could also not provide invoices issued by SSM for the lease of equipment. SSK had admitted that no formal agreement existed between SSM and SSK

In its analysis, the tribunal observed the following:

·????????KRA erred in demanding tax on ?2013 deferred revenue

·????????SSK did not recognize income in the year 2013 and therefore the costs for that specific year should be disallowed. Expenses should only be recognized if wholly incurred to produce an income.

·?????????Personnel costs were personal costs. Expenses for personal maintenance should be disallowed.

·????????The transfer pricing policy provided did not cover the transactions between SSM and SSK.As such in absence of??a formal agreement and purchase invoices, KRA was right to disallow the said expenses.

The Tribunal issued the below final orders

·????????Assessment?on 2013 deferred revenue ?was set aside

·????????Claim of 2013 expenses?was disallowed

·????????Personnel expenses be disallowed

·????????Related party transactions disallowed

As such the appeal partially succeeded

The ruling was issued on 18/06/2021