- February 9, 2026
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Case Study: Commissioner of Domestic Taxes v Royal Floraholland Kenya Limited (Income Tax Appeal E218 of 2024) [2025] KEHC 10031 (KLR) (Commercial and Tax) (11 July 2025) (Judgment)
Background of the Appeal
The case originated from an appeal against the Tax Appeals Tribunal’s judgment dated June 28, 2024. RFKL had challenged KRA’s objection decision of March 29, 2023, which rejected its VAT refund applications. These claims stemmed from services (marketing, logistics, and customer support) provided by RFKL to its parent entity, FloraHolland NL, under an intercompany agreement. RFKL contended these were “exported services” and thus zero-rated for VAT purposes.
Conversely, KRA argued that the services were agricultural in nature, thus exempt from VAT, and could not be zero-rated merely by being exported. KRA also asserted that the input taxes claimed belonged to FloraHolland NL as the principal, not RFKL as an agent, and that RFKL failed to provide a specific breakdown of invoices, hindering verification.
Issues for Determination
The High Court identified two primary issues for its determination:
- Whether RFKL’s VAT refund applications were deemed allowed by operation of law under Section 47 of the Tax Procedures Act (TPA).
- Whether RFKL was entitled to claim input VAT for services provided to FloraHolland NL, and whether these services qualified as “exported services” or “exempt agricultural services” under the VAT Act.
Court’s Analysis and Findings
On the Timeliness of Refund Applications
The High Court meticulously examined Section 47 of the now-repealed Tax Procedures Act, which stipulated a 90-day period for KRA to notify an applicant of a decision on a refund claim. The applications were lodged in July 2019, March 2020, and May 2020, but the rejection notice was issued on January 26, 2023 – significantly beyond the 90-day statutory timeline.
The Tribunal had mistakenly focused on the period between RFKL’s objection filing and the objection decision, rather than the initial refund application. The High Court clarified this error, stating that the law’s intent was to protect taxpayers from administrative delays. Citing the precedent in Commissioner of Domestic Taxes v Sony Holdings Limited [2021] KEHC 7071 (KLR), the court affirmed that a refund application is deemed ascertained and approved if KRA fails to make a decision within the stipulated 90 days.
Therefore, the High Court found that the Tribunal’s finding on the timeliness was erroneous and concluded that the refund applications were indeed deemed ascertained and approved by operation of law due to KRA’s delay.
On the Nature of Services and Input VAT Claim
KRA contended that RFKL acted as an agent for FloraHolland NL, providing agricultural services (sourcing and exporting flowers), which are exempt from VAT. Thus, any associated input VAT was not deductible and belonged to the principal. KRA relied on Commissioner of Domestic Taxes v Dutch Flowers Group Kenya Limited to support the argument that an agent cannot claim input VAT incurred on behalf of a principal.
RFKL argued that its services (marketing, logistics, customer support) were provided for use and consumption by FloraHolland NL in the Netherlands, thus qualifying as “exported services” under Section 2 of the VAT Act and therefore zero-rated. RFKL also highlighted KRA’s previous acknowledgment of these as exported services and cited Republic v Kenya Revenue Authority & the Attorney General ex parte Fontana Limited and Commissioner of Domestic Taxes v Total Touch Cargo Holland [2018] eKLR, both of which supported the “consumption test” for exported services, where the place of consumption determines the VAT treatment.
The High Court agreed with the Tribunal’s finding that the services were clearly for use and consumption outside Kenya. The court emphasized that the Kenyan VAT system is destination-based, meaning exports are zero-rated. The “consumption test” dictates that if a service, even if performed in Kenya, is ultimately used or enjoyed outside Kenya, it qualifies as an exported service and is zero-rated.
Crucially, the court explicitly rejected KRA’s characterization of RFKL merely as an “agent” incurring costs on behalf of a principal. Instead, the court concluded that RFKL was a distinct “service provider” operating under a structured intercompany agreement with clear value attribution. This finding affirmed RFKL’s independent standing in incurring costs and providing services. Consequently, RFKL was entitled to claim input VAT refunds associated with these zero-rated exported services, as the costs were incurred in the course of its own service provision, not merely as a pass-through on behalf of another entity.
As such RFKL won
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