Stanbic Bank Kenya, the country’s seventh-largest commercial bank by asset base, has been locked in tax fights with the Kenya Revenue Authority (KRA).
On November 3, the bank won a KES 450.27 million ($3.5 million) tax claim against the taxman over excise duty charges, but it could not replicate that victory in another withholding tax claim. Stanbic Kenya lost a tax appeal for KES88.4 million ($678,500) levied against it by the KRA.
After the taxman conducted a tax audit on Stanbic Kenya from November 2021 to December 2022, it found that the bank owed arrears taxes for payments made to international card companies—Visa, MasterCard, and UnionPay—and failed to collect and remit withholding taxes to the government.
Stanbic used these card payment providers to facilitate cashless transactions for merchants, offering services such as payment clearing, settlement, and access to the card networks’ systems.
The KRA argued these payments were subject to withholding tax because they qualified as royalties for using the card networks’ trademarks and logos, as well as their management services to access their payment systems. Since the income was obtained from transactions initiated from Kenya, the KRA maintained that the bank had a legal obligation to withhold taxes from them.
Stanbic Kenya countered that the card companies only provided professional services to the bank. It also argued the payments didn’t involve intellectual property use as KRA claimed.
The Tax Appeals Tribunal ruled that the payments made to the card companies were not only for technical services or settling transactions. They also covered the fees the bank paid for using the companies’ logos and trademarks (for licencing and marketing purposes), and for accessing their systems, which are needed to authorise and settle transactions.
Because these payments involved using trademarks, the tribunal classified them as royalties. In Kenya, royalties are taxable under the Income Tax Act.
