Taxman, Kenya-Re in Sh1.2bn court row despite Uhuru order

Times Tower. FILE PHOTO | NMG

By OTIATO GUGUYU
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Summary

• An annual report by Kenya Re, shows the taxman continues to pursue it in court with a principal tax claim of Sh742 million and a further Sh536m in interest and penalty despite the Presidential directive—a claim KRA disputes.
• KRA said the dispute dates back to a tax assessment carried out between 2008 and 2012 based on failure by Kenya Re to withhold taxes on payments made to non-resident insurance companies and non-resident brokers for producing the underwriting opportunity to the reinsurer.

The Kenya Revenue Authority and Kenya Re-Insurance Corporation (Kenya Re) remain locked in a court battle over a Sh1.2 billion tax claim despite a directive by President Uhuru Kenyatta in July that State agencies withdraw all legal suits filed against each other.

An annual report by Kenya Re, shows the taxman continues to pursue it in court with a principal tax claim of Sh742 million and a further Sh536m in interest and penalty despite the Presidential directive—a claim KRA disputes.

“Kenya Re has declined to engage in alternative dispute resolution (ADR) even after the circular issued the Head of Public Service that such cases be withdrawn from court and mediated within government,” KRA said in an emailed response to the Business Daily.

KRA said the dispute dates back to a tax assessment carried out between 2008 and 2012 based on failure by Kenya Re to withhold taxes on payments made to non-resident insurance companies and non-resident brokers for producing the underwriting opportunity to the reinsurer.

BLOCKED AUDITS

The tax claim also stemmed from providing administrative duties of underwriting the risk where compensation is subject to withholding tax.

Kenya Re petitioned court in 2014, saying the attendant administrative duties do not fall within the payments of which withholding taxes are deductible.

Initial attempts to settle the matter out of court failed following year-long talks as KRA noted the insurer used it to block further audits.

Kenya Re declined the review until the old matter is sorted out in court or through the parallel ADR process.

“The parallel alternative dispute resolution collapsed in 2018, both parties having failed to agree and the case was therefore referred back to High Court for determination,” KRA said.

And as the matter drags on in court, Auditor-General Nancy Gathungu has flagged the claims by KRA as an “uncertain contingent liability”.

Despite failing to set aside the money for the tax dispute, Kenya-Re voted to pay out Sh280 million in dividends to shareholders for the period ended December 2019.