Summary

On 23 October 2025, the High Court (court) determined in Commissioner of Domestic Taxes v Sendy Limited (Income Tax Appeal E137 of 2024) that digital platforms that exercise significant control over transactions and connect service providers and customers are deemed principal suppliers for value-added tax (VAT) purposes. This means that the digital platforms are deemed to supply the entire service rather than merely providing access to the platform, and therefore, are liable for VAT on the full customer payment, not just the platform's commission.

The court also found that a private ruling cannot override a proper statutory interpretation of the law by a court of competent jurisdiction. The Kenya Revenue Authority (KRA) had issued a private ruling concluding that the taxpayer was liable for VAT only on commissions, but this did not shield the taxpayer from the court's decision that the law imposes VAT liability on the full customer payment.

Background

Sendy Limited (Respondent) operated a digital marketplace for delivery services connecting third-party customers with independent transporters. According to the Respondent, the transport services were provided by the third-party suppliers, and the Respondent's income was limited to its commissions charged to the transporters for the use of its platform. In its case before the Tax Appeals Tribunal, the Respondent showed its audited financial statements, sample commission agreements with transporters and witness testimony to support its assertion that it had accounted for the VAT on its commissions. Furthermore, the Respondent had earlier obtained a private ruling from the Appellant that the Respondent was liable for VAT only on its commissions. The Tribunal ruled in the Respondent's favor, finding that it did not provide transport services.

The Commissioner of Domestic Taxes (Appellant) asserted that the Respondent was the principal supplier of the transport services. According to the Appellant, the Respondent exercised significant control over the services provided on its platform — the Respondent controlled the customer relationship through its digital application, dispatched the nearest available driver, determined the price, issued the demand for payment and, most critically, collected the full consideration for the services. The Appellant therefore argued that the Respondent was liable for VAT on all fees collected from the customers.

Analysis and determination

The court framed the main issue for determination as whether the Tribunal erred in finding that the Respondent did not provide transport services. The court analyzed the imposition of VAT under Section 5 of the VAT Act and found that the supply of services was broadly defined and did not prescribe criteria for determining the supplier in complex, multi-party transactions facilitated by a digital platform.

The court therefore relied on jurisprudence from the Court of Justice of the European Union (CJEU), which had pronounced itself on the issue under the harmonized EU VAT system. Article 28 of the EU VAT directive provides that intermediaries acting in the name of, and on behalf of, a principal (so-called undisclosed agents) are deemed to buy/sell the services provided by the principal. The court discussed several cases, including one in which the CJEU had determined that a platform is presumed to be acting in its own name (and therefore the deemed supplier) if it is involved in the supply. The CJEU said this presumption becomes irrebuttable if the platform (1) authorizes the charge to the customer or the delivery of the service or (2) sets the general terms and conditions of the supply. The court juxtaposed this against another CJEU decision that had found a company's platform service was an "information society service" distinct from the underlying accommodation service based on the reasoning that the company did not exercise the same decisive influence over the essential elements of the accommodation rental. Furthermore, the court referred to another CJEU decision that found intermediation service must be regarded as forming an integral part of an overall service whose main component is a transport service and, accordingly, must be classified not as "an information society service" but as "a service in the field of transport."

Guided by the EU jurisprudence, the court looked beyond contractual form to assess the economic and commercial reality of the transactions. The court determined that Sendy exercised control over the transport services by:

• Setting pricing and dispatch rules
• Issuing Requests for Payment (RFPs) in its own name (treated as tax invoices under Section 42 VAT Act)
• Collecting full payment into its own bank accounts

Regarding the existence of a private ruling to the contrary, the court held that although Section 64 of the Tax Procedures Act provides that a private ruling is binding, it does not override the mandate for statutory interpretation of the law by a court of competent jurisdiction. The court's duty is to interpret and enforce the law as enacted, and an administrative opinion, despite creating a legitimate expectation for the taxpayer against the administrator, cannot override a judicial determination of the law.

The appeal was therefore allowed, and the VAT assessment on the transport services upheld.

Implications

This decision is likely to influence VAT compliance requirements for digital platforms operating digital marketplaces in Kenya, including Digital Platforms Logistics, ride-hailing, e-commerce delivery and gig platforms, particularly for platforms that exercise control over pricing, payment and service delivery.

Taxpayers ordinarily apply for private rulings from KRA to help manage tax risks, as the rulings are deemed to be binding on the KRA. With the finding in this decision, taxpayers may want to reconsider such reliance.