THE LAW

“tax avoidance” means a transaction or a scheme designed to avoid liability to pay tax under any tax law;

ANALYSIS

In all tax structures, there is always the risk that the KRA, should it audit the transaction, will allege that the transaction was undertaken to avoid tax. “Tax avoidance” is defined under the Tax Procedures Act, 2015 (the TPA) to mean “a transaction or a scheme designed to avoid liability to pay tax under any tax law”. Section 85 of the TPA provides that where the Commissioner has applied a tax avoidance provision in assessing a taxpayer, the applicable penalty would be equal to double the tax that would have been avoided. While the Commissioner is generally empowered to remit/waive tax penalties and interest, the Commissioner has no such power with regard to a tax avoidance penalty under section 85 of the TPA.

The Income Tax Act, Cap 470 provides for anti-avoidance rules under section 23 which provides: 

“…Where the Commissioner is of the opinion that the main purpose or one of the main purposes for which a transaction was effected (whether before or after the passing of this Act) was the avoidance or reduction of l...