Car & General has been barred from using profits from its two subsidiaries – Watu Credit and Cummins C&G Joint Venture – to reduce its tax obligations in a Tax Appeal Tribunal ruling.
In the appeal, Car & General (C&G) had sought to include profits from the two subsidiaries in the computation of its earnings before interest, tax, depreciation, and amortization (EBITDA) to determine its deductible interest expense. Car & General had a 50 percent stake in Cummins, which it held as a joint venture with CMA Africa Holdings BV before the capital markets regulator allowed it to acquire the remaining 50 percent stake of Cummins – incorporated in Mauritius-in June 2023.C&G also owns 29 percent in asset financing fintech Watu Credit, translating to a KSh 38.6 million investment.In the Kenya Revenue Authority’s (KRA) argument, by including profits from the subsidiaries, the firm inflated its gross earnings and increased deductible interest expenses, increasing the EBITDA, which translated to a reduced taxable income. The tribunal supported the Kenya Revenue Authority’s decision to exclude this income, saying that it had already been exempted in a move that enforces the legal cap on interest expense deductions to combat base erosion – which the taxman views as tax evasion.
The 5 – bench Tribunal agreed that Car and General’s relationship with Watu Credit and Cummins C&G was one of shareholding and not a partnership hence these profits should not be included in Car and General’s EBITDA computation.
Car & General’s principal activity is the sale and service of motorcycles, household goods, agricultural tractors and implements, marine engines, three-wheeler vehicles, commercial laundry equipment, commercial engines, forklifts, excavators, power equipment and general goods.
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