Commissioner of Domestic Taxes v Sendy Limited Income Tax Appeal E137 of 2024
Background
- Sendy Limited operates a digital marketplace connecting third-party transporters with customers who need delivery services earning commission income from transporters using its platform.
- Sendy won an appeal against an additional KRA VAT assessment at the Tax Appeals Tribunal finding that Sendy is a platform provider and not a transport service provider.
- KRA being dissatisfied with the Tribunal’s decision appealed the Tribunal’s decision to the High Court.
- The key matter in question is, Who is the taxable supplier when a digital platform facilitates service delivery, the platform or the underlying service provider?
KRA’s Argument
- KRA argued on economic reality over contractual form stating that Sendy exercises decisive control over the entire transaction, making it the principal supplier.
- KRA argued of single composite supply mentioning that the arrangement is one taxable supply of transport services made by Sendy to end customers.
- KRA mentioned that the Requests for Payments function as tax invoices arguing that they represent demands for payment for the supply under section 42 of the VAT Act.
- KRA averred that Sendy failed to provide enough documentation to reconcile the gap between declared turnover and actual bankings.
Sendy’s Argument
- Sendy argued that Appeals from the Tribunal are limited to questions of law only and KRA’s grounds challenged factual findings.
- Sendy argued on its business model characterization stating that it is a technology company providing a digital marketplace and not a transport provider.
- Sendy argued on its asset-light structure of owning no vehicles as transporters own the assets and provide the actual service.
- Sendy argued that on VAT accountability, only commission income is taxable to Sendy and transporters are liable for VAT on transport services.
- Sendy mentioned of a binding private ruling that KRA issued on 30 June 2020 confirming this tax treatment, which is binding under section 65(4) of the Tax Procedures Act.
- Sendy upheld a legitimate expectation mentioning that KRA cannot unilaterally walk away from its own binding representations.
High Court’s Decision
The High Court allowed the appeal and set aside the Tribunal’s decision, upholding KRA’s VAT assessment.
Key Legal Findings
- The Court confirmed that appeals must concern questions of law, and determining who supplies the service involves legal interpretation of contractual roles, which is a matter of law.
- The Court on VAT liability adopted the “substance over form” doctrine, drawing heavily on EU VAT jurisprudence to analyze platform economy transactions.
- The Court concluded that Sendy does not just introduce a customer to a driver, it sets the rules of engagement, controls the allocation of the job, determines the price, and most critically, takes responsibility for the entire billing and payment process.
- While noting KRA’s “questionable conduct” in disregarding its own binding ruling, the Court held that administrative opinions cannot override correct statutory interpretation.
- The Court found that a private ruling creates legitimate expectations against the administrator but does not bind the court’s determination of law.
- The Court held that the Tribunal’s focus on Sendy’s lack of vehicle ownership was “misplaced in the context of the digital economy.”
Conclusion
- This landmark decision fundamentally reshapes VAT treatment for Kenya’s digital platform economy. The implications are immediate and wide-reaching.
- Expanded VAT liability is now the default for digital platforms if your do any of the following:
- Controls pricing or pricing methodology;
- Dispatches service providers algorithmically;
- Issues payment demands or invoices in its own name;
- Collects full transaction value (not just commission); and
- Sets service terms and quality standards; You are likely the principal supplier for VAT purposes. Meaning full VAT liability on the full transaction value, not just your commission.
- Binding rulings from KRA will not shield taxpayers if a court later determines the law was misapplied.
- Rulings create administrative expectations but do not freeze legal interpretation.
- Economic substance beats legal form. How you structure contracts and describe your role matters less than how you actually operate.
- Calling yourself a technology company or marketplace will not work. Courts will analyze your actual degree of control over the underlying service.
Recommendations
- This decision highlights an urgent review of your VAT position if you operate any form of digital marketplace or platform business in Kenya.
- The platform economy’s rapid growth has outpaced traditional tax frameworks having courts and revenue authorities globally to adapt by focusing on economic substance over legal form.
- Platforms with meaningful control will increasingly be treated as principals, not agents.
- The Sendy decision also makes clear that the “we’re just a tech company” argument is finished, what matters is functional control over the transaction.
- Do not rely on private rulings as they bind KRA administratively, but they won’t stop a court from correcting what it sees as a legal error.
The Sendy ruling isn’t just a court decision. It’s a warning shot.
KRA now has High Court backing to reclassify digital platforms as principal suppliers and pursue full VAT on gross transaction values, not just commissions.
This is not routine tax compliance.
Platform economy disputes sit at the intersection of corporate structuring, contract law, international tax precedent, and emerging digital economy regulations.
Our team at Intelpoint Consulting, Your Tax Lawyers with a Personal Touch has represented clients through every stage of tax disputes.
We offer immediate exposure quantification, proactive dispute prevention, strategic litigation judgement and an end-to-end resolution.
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Disclaimer: This alert is for informational purposes only and does not constitute legal or tax advice. Please contact us to discuss your specific circumstances.