In a landmark decision, the Tax Appeals Tribunal (TAT) has reaffirmed that withholding tax is not applicable on management or professional fees under the Kenya-France and Kenya-South Africa Double Tax Treaties (DTTs), if no Permanent Establishment (PE) is created in Kenya.

This ruling came as part of a recent case where the Kenya Revenue Authority (KRA) issued an assessment demanding withholding tax on agency fees paid by a Kenyan company to third-party marketing agents based in France and South Africa.

KRA's argument was based on their interpretation of the DTTs between Kenya and these two countries, asserting that the fees fell under the "other income" article and were therefore taxable.

The appellant contended that the agency fees should not be subject to withholding tax since the marketing agents had not established a PE in Kenya.

This position was upheld by the Tribunal, which referenced previous rulings, notably in Total Kenya Limited vs. Commissioner of Domestic Taxes and McKinsey and Company Inc. Africa Proprietary Limited vs. Commissioner of Legal Services and Board Coordination.

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In these cases, it was established that, in the absence of a PE, income derived from management or professional services rendered by non-residents could not be taxed in Kenya under the "other income" provisions of the DTTs.

The Tribunal’s decision reiterates the limitations of Kenya's taxation rights under the DTTs when no PE is established, confirming that the “other income” article does not automatically subject agency fees to withholding tax.

However, it remains to be seen whether the KRA will appeal the judgment.

This ruling could significantly impact the taxation of international service providers, as the Tribunal's interpretation of DTTs reinforces the need for a PE to trigger taxation on such income.

The case is a reminder of the importance of correctly interpreting tax treaties to avoid unnecessary assessments and disputes.