Dutch Flower Group Kenya Limited v Commissioner of Domestic Taxes
The bottom line
#Kenya's Court of Appeal confirmed that agents cannot claim input VAT on costs incurred for their principals, and services used in Kenya are not exported services.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the appeal raises questions of law within the jurisdiction of this Court on a second appeal
- 2.Whether the contractual relationship between the appellant, FRE and FCH constituted an agency relationship and, if so, whether the appellant was entitled to claim input VAT on costs incurred on behalf of its principals
- 3.Whether the services supplied by the appellant qualified as exported services for purposes of VAT
Key legal issues
#Jurisdiction of the Court of Appeal on a second tax appeal
The appeal raised questions of law - interpretation of the service agreements, the legal effect of the parties' relationship, and application of the VAT Act - falling within the Court's jurisdiction under section 56(2).
Although the respondent argued the grounds merely challenged factual findings, the Court held the substance concerned legal interpretation. The Court would not revisit factual findings or substitute its own assessment of evidence, save where findings disclose an error of law or are unsupported by evidence, per the second-appeal doctrine in Leting v Express (K) Limited.
Whether the service agreements created an agency relationship
Yes. The cumulative effect of the contractual provisions showed the appellant performed functions on behalf of FRE and FCH and subject to their control; the label 'Service-Provider' did not displace the substantive relationship.
Relying on ICDC v Patheon Limited and Garnac Grain, the Court held agency need not be expressly declared but may be inferred from consent, control and conduct. FRE's designation as 'Principal', the cost-plus 5% remuneration, agreed annual budgets and the right to inspect the appellant's books demonstrated control consistent with agency, sustaining the High Court's finding.
Whether an agent may claim input VAT on costs incurred on behalf of its principal
No. A supply made to an agent on behalf of a principal is deemed made to the principal, who alone is entitled to deduct the input VAT.
Adopting the Coftea Agencies decision, the Court held there must be a direct and immediate link between the input transaction and the output transactions giving rise to the deduction. Where costs are reimbursed by the principal, the tax burden is borne by the principal and the agent cannot claim input VAT on expenditure not attributable to it.
Whether the appellant's services qualified as exported services for VAT purposes
Partly no. Applying the destination principle, the flower food, sleeves, labels and packaging services were consumed in Kenya by Kenyan suppliers and did not qualify as exported services.
Section 2 of the VAT Act defines exported services as those provided for use or consumption outside Kenya. The Court applied a strict, literal construction, refusing to substitute the place of payment, contracting or performance for the statutory test. The impugned services were directed at and utilized by Kenyan flower suppliers preparing flowers for export, so their immediate benefit and use occurred in Kenya.
Legal principles established
#- On a second appeal under section 56(2) of the Tax Procedures Act, the Court of Appeal confines itself to questions of law only and will not re-evaluate evidence or disturb factual findings unless they disclose an error of law or are unsupported by evidence.
- An agency relationship may be inferred from the substance of the contractual arrangements and the parties' conduct, notwithstanding the label 'Service-Provider' used in the agreement.
- Where an agent procures goods or services on behalf of, and at the expense of, the principal, the agent cannot claim input VAT on those acquisitions; the supply is deemed made to the principal.
- For a service to qualify as an exported service under section 2 of the VAT Act, the determining factor is the location where the service is finally used or consumed, not where it is physically performed.
- Tax legislation must be construed strictly according to the plain and ordinary meaning of the statutory language, without implication or intendment.
Court orders
#- 1.Appeal dismissed with costs to the respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Wrote the judgment
Wrote the judgment
- On appeal from
- High Court of Kenya at Milimani Commercial Division
- HC Income Tax Appeal No. E101 of 2020
- Jurisdiction invoked
- Section 56(2) of the Tax Procedures Act - second appeal on a question of law only
Relief refused
#Setting aside the High Court judgment and upholding the Tax Appeals Tribunal decision allowing the input VAT claim
The Court found the appellant was in substance an agent of FRE and FCH and that the flower food, sleeves and labels services were consumed in Kenya
Costs
Appeal dismissed with costs to the respondent
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In the premise we find that this appeal is lacking in merit, and is, therefore, dismissed with costs to the respondent. It is so ordered.
The use of the term “Service-Provider” cannot, by itself, displace the substantive legal relationship created by the agreements.
where an agent procures goods or services on behalf of, and at the expense of the principal, the agent cannot claim the input VAT relating to those acquisitions as its own.
The focus is not simply on where the service is performed, but on where the service is ultimately used or consumed.
However, in determining those questions, we shall not revisit the factual findings of the High court, or substitute our own assessment of the evidence, save where such findings disclose an error of law, or are unsupported by the evidence.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Dutch Flower Group Kenya Limited v Commissioner of Domestic Taxes", Case Analysis (2026). Civil Appeal E673 of 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1903/eng@2026-09-25
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.