Barclays bank used credit and debit cards from credit card companies namely VISA, Master card and American express. KRA demanded withholding tax on the amounts payable by the bank to credit card companies and on management fees for the service charges to other banks (Interbank charges). The demand was made under section 35 of the Income Tax Act (the Act) on the basis that the payments to the card companies were royalty and those to the other banks (issuers) were for professional or management services. The bank contested the position that the amounts in question were royalties and professional or management services subject to withholding tax
The court of appeal established that the use of credit card facility by banks is subject to trademark licensing agreement and payments thereof are royalties. On management or professional fee on interbank services, the court held there are clear co-ordination, managerial,
professional, and contractual services rendered by the issuer to the acquirer, for which the latter pays.
The court of appeal overturned the high court’s decision ruling that royalties and management fees applied and that KRA had the right to demand withholding taxes.
Read the full case –
http://kenyalaw.org/caselaw/cases/view/203234/