Stanbic Bank Kenya, the country’s seventh-largest commercial bank by assets, is embroiled in a tax dispute with the Kenya Revenue Authority (KRA). On November 3, the bank won a KES 450.27 million ($3.5 million) tax case against the Ministry of Finance over excise duty but was unable to replicate that victory in another withholding tax case. Stanbic Kenya lost its appeal against a KES 88.4 million ($678,500) tax claim brought by the KRA.
A tax audit conducted by the Ministry of Finance against Stanbic Kenya between November 2021 and December 2022 found that the bank had defaulted on tax on payments to international credit card companies (Visa, MasterCard and UnionPay) and had failed to collect and pay withholding tax. The tax will be transferred to the state.
Stanbic used these card payment providers to enable cashless transactions for its merchants by providing services such as payment settlement, billing and access to card network systems.
KRA argued that these payments qualified as royalties for the use of the card networks’ trademarks and logos, as well as administrative services for accessing the payment system, and were therefore subject to withholding tax. KRA said that since the income was from transactions initiated from Kenya, the banks were legally required to withhold tax from it.
Stanbic Kenya responded that the card companies had only provided professional services to the banks. It also argued that the payments did not involve the use of intellectual property, as KRA had argued.
The Tax Appeals Tribunal ruled that the payments to the card companies were not solely for technical services or transaction processing. It also covered fees paid by the bank for the use of the company’s logos and trademarks (for licensing and marketing purposes) and for access to systems needed to approve and process transactions.
Because these payments related to the use of the trademarks, the court classified them as royalties. In Kenya, royalties are taxable under the Income Tax Act.
