VAT Status of Exported Services

On 18/12/2020, the tax appeal tribunal made an int ruling in the case between 3m Kenya Limited and KRA. 3M Kenya is a subsidiary of 3m company based in USA. 3M Kenya conducts marketing support services on behalf of 3m Gulf .

3m Gulf delivers and invoices local distributors directly for its products ,3m kenya subsequently invoices 3m gulf for a markup on the goods for its marketing services.

3m kenya treats the markup as zero rated exported services. KRA disagreed with this and assessed 3m kenya for KEs 78m in VAT.KRA argued that the marketing services conducted by 3m Kenya in Kenya are consumed by the local distributors/consumers.

Upon the case reaching the tribunal,3m Kenya supported its case well and managed to convince the Tribunal that its marketing services are consumed outside Kenya since it has a contract with 3m Gulf and not the Kenyan consumer.

The tribunal therefore ruled that marketing services provided by 3m Kenya to 3m Gulf are exported services and therefore should be zero rated.3m won .

There has been significant changes since then, The Finance Act 2021 moved exported services from zero rate to exempt, implying that companies such as 3M, Cocacola and many other multinationals with such arrangements will no longer enjoy VAT refunds resulting from this structure.?