upepo
Elder Lister
Coca-Cola's regional office in Nairobi signed an agreement with its American parent company, The Coca-Cola Export Corporation. The American parent said: "We own the secret formulas and the brand rights. You run the marketing campaigns in Kenya – the flashy roadshows, the ads in local dialects, the school sponsorships – and we'll pay you for it." So the Nairobi office did the work. Then it went to the Kenya Revenue Authority and asked for a refund of over 900 million shillings in VAT. Its reasoning was straightforward: we provided a service to a customer in America, so under the VAT Act, that's an "exported service" taxed at zero percent, and we can reclaim all our input VAT.
The taxman laughed. "Not so fast," he said. "You ran those ads right here in Kenya. Kenyans watched them. Kenyans drank the soda. The whole point of your marketing was to sell more Coke in Kenya. That service was consumed on Kenyan soil, so it's a local supply. You should have charged 16% output tax. No refund for you – in fact, you owe us about 725 million shillings." That was the opening salvo in a legal war that would take nearly three years to reach a final conclusion.
Before the Tax Appeals Tribunal, the two sides dug in. The Commissioner of Domestic Taxes made a powerful, practical argument. He pointed to the physical reality: every billboard was erected in Nairobi, every radio jingle was broadcast on Kenyan frequencies, every sample was handed to a Kenyan consumer. How could anyone call that an export? He warned that if companies could zero-rate all their intra-group marketing services, the Kenyan tax base would bleed dry. Multinationals would simply label everything as a service to a foreign parent and pay no VAT at all.
Coca-Cola Africa fired back with a clever legal counterargument. It pointed to the exact wording of the VAT Act, which defines an exported service as one that is "provided for use or consumption outside Kenya" – and then adds a crucial phrase: "whether the service is performed in Kenya or outside Kenya". For Coca-Cola, that was the golden key. The place of performance simply did not matter. What mattered was the place of consumption. And who consumed this service? Not the Kenyan public, who merely watched the ads for free. The real consumer was the American parent company, which paid for the marketing so it could sell more concentrates and brand licenses around the world. The Kenyan public was just the target, not the customer.
The Tax Appeals Tribunal, in its judgment delivered on 31st March 2020, sided with Coca-Cola. The Tribunal drew a sharp distinction that would become famous in Kenyan tax circles: the difference between the "beneficiary" of a service and its "audience". Yes, the Kenyan public was the target of the advertisements. But the contractual customer, the payer, and the ultimate economic beneficiary was the American parent. The service was therefore "consumed" in the United States, making it a zero-rated export. The Tribunal ordered the KRA to refund the full amount.
But the Commissioner was not done. He appealed to the High Court, and for nearly three years the case sat in legal limbo. When the High Court finally ruled on 3rd March 2023, Justice E.C. Mwita delivered a masterpiece of plain reasoning. He asked a simple question: who actually bought the service? The answer was Coca-Cola Export in America. He then asked: did the Kenyan public pay anything for the ads? No. Did they sign any contract with Coca-Cola Africa? No. Therefore, he concluded, there was no consumption in Kenya to tax. "Consumption," the judge wrote, "would come in only after Coca-Cola Export decided what to do with the brands that had been marketed and promoted." Until then, the service was an unfinished good, sold to a foreign customer.
The High Court also looked at other cases that had wrestled with the same problem. In an earlier case called Commissioner of Domestic Taxes v Total Touch Cargo Holland from 2018, the court had already said that the test for exported services is the location of final use or consumption, not where the work is done. That principle was now being applied to marketing services. Later cases would reinforce the idea. In Google Kenya Limited v Commissioner of Domestic Taxes from 2022, the court held that marketing and support services Google Kenya provided to Google Ireland and Google LLC were exported services because the foreign affiliates were the "beneficiaries and consumers". In Commissioner of Domestic Taxes v WEC Lines (K) Limited also from 2022, agency services for a foreign shipping line were zero-rated for the same reason. And as recently as 2025, in Commissioner – Legal Services & Board Coordination v PVH Kenya Ltd, the court reaffirmed that services performed in Kenya but used or consumed abroad remain zero-rated, even if local people are involved in the execution.
The KRA's final argument – that this would open a loophole for tax avoidance – was rejected by the High Court. The judge said that legitimate business arrangements cannot be treated as tax evasion simply because they are efficient. He noted that Kenya's VAT law is built on the "destination principle", a global standard that says tax should be paid where the final consumption happens. To tax Coca-Cola Africa's service in Kenya would be to violate that principle and risk double taxation on international trade. With that, the High Court dismissed the Commissioner's appeal, and the KRA was forced to write a very large cheque.
And so the story ends with a clear moral: when you're doing business across borders, the question is not where your feet are standing, but where your customer is sitting.