M-kopa Holdings C/o Jesse Morre, Director Vs. Commissioner Of Legal Services And Board Coordination

The assumption that a company’s place of effective management (PEM) must be where its board meets is outdated and no longer applies in today's digital world. The place of effective management test focuses on substance over form. It requires identifying the individuals within a company who actually “call the shots” and exercise “realistic positive management.”

M-Kopa Holdings was incorporated on 31st July 2017 under the United Kingdom Companies Act, 2006. It is a private company limited by shares, with its registered office in England and Wales.

The Kenya Revenue Authority (KRA) conducted an audit of M-Kopa Holdings' operations for the years 2018, 2019, and 2020, resulting in Withholding Tax (WHT) and Pay-As-You-Earn (PAYE) assessments. The core issue of dispute between the parties was whether M-Kopa Holdings had its PEM in Kenya, thereby making it a tax resident in Kenya.

M-Kopa’s Submissions

M-Kopa Holdings argued that its place of management and control was not in Kenya, given that it is a private company limited by shares and incorporated under the United Kingdom Companies Act, 2006. The company further submitted that its registered office is in England as evidenced by its certificate of incorporation.

M-Kopa Holdings contended that the KRA should have considered several key factors in determining whether the company is managed and controlled in Kenya, including:

a) The place where the company’s board of directors or equivalent body holds their meetings:

b) Where the senior day-to-day management of the company is carried on;

c) Where the company’s headquarters are located;

d) Which country’s laws govern the legal status of the company; and

e) Where the company’s accounting records are kept.

M-Kopa Holdings submitted that its board was composed of 14 directors, of whom 5 were Kenyan tax residents. The remaining members included 5 directors from the UK, who were tax residents in the UK, 3 from the USA, who were tax residents in the USA, and 1 director from Switzerland, a tax resident in Switzerland.

M-Kopa Holdings asserted that any individuals present during board meetings who were not directors attended only by invitation as board observers and did not participate in decision-making or voting, in accordance with the company's Articles of Association. Senior managers of M-Kopa Holdings were invited to attend board meetings solely to report on key strategic decisions undertaken by the group, but they were not members of the board and did not have decision-making authority.

The company emphasized that the board retained full responsibility for making key strategic decisions regarding the affairs of M-Kopa Holdings, while board committees assisted in fulfilling the board’s oversight responsibilities.

Furthermore, M-Kopa Holdings noted that out of the thirteen board meetings held, only one meeting took place physically in Kenya. It submitted that no formal decisions were made during that meeting.

KRA’S CASE

The KRA took the position that M-Kopa Holdings' board of directors merely ratified decisions that had already been approved by management through various committees, some of which were convened in Kenya. As a result, the KRA argued that, in substance, the decisions were made in Kenya despite M-Kopa Holdings being incorporated in the United Kingdom.

The KRA further stated that upon reviewing the minutes shared by M-Kopa Holdings, several points became apparent:

a) Its management and control were exercised in Kenya because the directors and shareholders resided in Kenya, held their meetings in Kenya and also made key decisions in Kenya.

b) Its senior managers like the CEO, CFO and CCO resided in Kenya.

c) The board merely ratified decisions of the committees which were held in Kenya.

d) Its directors namely, Ms Moore and Hughes operated from Kenya as members of management and sub-committees of the board.

Tribunal’s Analysis and Findings

The Tribunal held that a company may have more than one place of management but can only have a single PEM at any given time. In cases where a company's key management and commercial decisions are made in multiple locations, its PEM will be where those decisions are predominantly or primarily made.

The Tribunal further held that the place of effective management test is one of substance over form. It therefore requires a determination of those persons in a company who actually “call the shots” and exercise “realistic positive management”

The Tribunal emphasized that the assumption that a company’s place of effective management must be where its board meets is outdated and no longer valid in today’s digital world. Instead, the PEM is determined by the location where key management and commercial decisions are made, whether by the directors or senior managers.

The Tribunal held that the current global interpretation of PEM rejects the traditional view that the board's meeting location is the definitive and sole place of management. This is particularly true in cases where the board meets and makes decisions in locations unrelated to the company’s activities or distant from the primary location where senior managers perform their core duties, which sustain the company’s operations.

Accordingly, the Tribunal held that it is the role played by senior managers or directors of the company in key management and commercial decisions that is determinative, in determining the PEM.

The Tribunal held that the total of the activities carried out in Kenya ranging from the location of the senior managers, the locus of most committees of the board and the undisputed fact that the Board of Directors held a meeting in Kenya where it approved the consolidation of audited financial statements of M-Kopa Holdings Limited which is a significant instrument in the operations of M-Kopa Holdings led it to the conclusion that the key decisions regarding M-Kopa Holdings were made in Kenya.

The Tribunal further noted that nothing tangible was tabled before it by M-Kopa Holdings to show that the real conduct of M-Kopa Holdings’ business was carried out in the UK. Accordingly, and based on the above analysis, the Tribunal upheld the KRA’s decision that M-Kopa Holdings’s PEM was in Kenya.

How we can assist

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