Blow to De La Rue as High Court orders Sh1.1bn payment to KRA

The High Court has ordered British currency-printing conglomerate De La Rue PLC to pay the Kenyan taxman Sh1.1 billion in a long-running tax dispute with the Kenya Revenue Authority (KRA)

The decision by the court comes despite the UK-based firm applying diplomatic pressure on the new administration of President William Ruto to intervene in its favour in a row over Value Added Tax (VAT), where the firm insisted that it should not have been required to pay the sum. KRA had argued that the company cannot offset royalties to its parent company as an allowable expense.

However, De La Rue countered that it paid royalties to its parent firm for services rendered to it and that no taxes were due on its income. 

Today's High Court ruling upholds the 2021 judgment of the Tax Tribunal ordering the firm to pay taxes due for the years 2013–2017.

'No Intellectual Property Rights'

KRA told the High Court that the company had entered into a contract with CBK and it bore significant risk in the contract. In addition, KRA said that there were no Intellectual Property Rights arising to warrant payment of royalties. 

The High Court held that the appeal was lacking in merit and there was no evidence to persuade it to overturn the tribunal’s judgment.

De La Rue recorded a 58 percent drop in profit for the six months to September 2022, signalling a fall in the share of profits this year for the National Treasury which holds a 40 percent stake in the unit.

The UK firm operates locally through its subsidiary De La Rue Kenya EPZ Limited, which for the half-year period reported a profit of £0.5 million (Sh74 million), down from £1.2 million (Sh177.5 million) in the corresponding period last year.

The Kenyan government acquired a 40 per cent stake in the local unit in April 2019 for £5 million (Sh739.5 million) in a bid to share in the profits the company makes from the State’s currency printing contracts.

Revenue from the subsidiary fell from £15.1 million (Sh2.23 billion) to £10.8 million (Sh1.6 billion), in line with a general decline in the parent’s earnings on the back of reduced demand for bank notes globally, amid supply chain constraints that added to costs.

“We witnessed a post-Covid-19 lull in demand, with banknote volumes significantly down, a trend that was seen across the banknote printing market,” said De La Rue Plc in its financial reports for the period.

Between September 2013 and March 2017, bank notes were a taxable supply and were exempted from VAT after September 2017.

The court’s ruling comes a month after it emerged that there were attempts to resolve the tax dispute diplomatically.

The company has another tax case involving Sh1.5 billion, which is under Alternative Dispute Resolution mechanism. The parties are expected to agree on the figures for payment of royalties.

Four years ago the government closed a joint venture agreement with De La Rue where the government paid Sh700 million for a 40 percent stake in the company.