The High Court has allowed the Kenya Revenue Authority (KRA) to pursue a fresh appeal against Unilever Kenya in a dispute involving more than Sh1.2 billion in customs taxes, reopening a battle over the taxation of royalty payments by multinational firms.
The case stems from a November 2024 tribunal decision that largely overturned tax assessments arising from Unilever’s imports, exports, and intellectual property arrangements.
The dispute concerns classification of a consignment imported by Unilever containing materials for manufacturing Chicken Flavour Powder, Beef Flavour Powder, Flavour Powder (Lovage), and Onion Powder.
The row also touches on the flavour powders and materials used in the manufacture of food seasoning products such as Royco Mchuzi Mix, Royco Cubes, and Knorr Cubes, among others.
At the centre of the case is whether royalty payments made by Unilever Kenya to the United Kingdom-based Unilever Global IP Limited should be included in the customs value of imported goods.
Outcome of the suit could shape future tax treatment of multinational companies operating in Kenya.
The High Court allowed KRA to proceed with the appeal after finding that an 18-day delay in filing was not inordinate and had been sufficiently explained by administrative lapses and work-related pressures.
The judge said the intended appeal raises valid questions on interpretation of tax laws and treatment of cross-border transactions. The court said the issues extend beyond interests of parties involved.
“Taxation is a matter of profound public importance, as it directly affects the revenue base of the State and the obligations of taxpayers,” the court said in the ruling.
It added that the dispute touches on the “proper interpretation and application of tax statutes” and carries implications for “fairness, certainty and accountability in the administration of public finance.”
The court extended the time for filing the appeal and deemed KRA’s memorandum of appeal properly filed, paving the way for the case to be heard on its merits.
The dispute originated from a customs audit conducted by KRA on Unilever Kenya’s import and export operations covering the period between 2018 and May 2023.
Following the audit, KRA issued a demand for additional taxes amounting to Sh1.8 billion. After objections and reconciliation meetings, the authority revised the assessment to Sh1.24 billion.
The assessment was based on three key findings. KRA argued that royalty payments made by Unilever Kenya to Unilever Global IP Limited in the United Kingdom should have been included in customs values. It assessed Sh773.4 million in additional taxes on that issue alone.
The authority also claimed that four imported flavour powders had been wrongly classified under customs tariff codes, leading to a further tax demand of Sh109.4 million.
In addition, KRA assessed taxes on export consignments for which it said certificates of export had not been issued.
Unilever challenged the entire assessment before the Tax Appeals Tribunal. The company argued that royalties paid under trademark and technology licensing agreements were linked to use of intellectual property in manufacturing and marketing finished products rather than the importation of raw materials.
It told the tribunal that most of its imports consisted of raw materials sourced independently from third-party suppliers and used to manufacture products such as Royco, Knorr, Omo, Sunlight, Geisha, and Vaseline in Kenya.
The company further argued that the disputed flavour powders were industrial inputs used in food manufacturing and were correctly classified as raw materials rather than finished food seasonings.
Unilever also maintained that KRA had previously issued tariff rulings classifying the products under the same customs code used by the company, creating a legitimate expectation that the classification was correct.
In November 2024, the tribunal largely sided with Unilever. Before delivering its final judgment, it had already entered a partial consent order that vacated Sh353 million in VAT and excise duty linked to export transactions.
On whether royalty payments made to Unilever’s UK intellectual property affiliate attracted additional customs duties, the tribunal found that they were not dutiable because they were neither related to imported raw materials nor a condition of their sale.
It found that imported goods in question were raw materials and that the royalty payments were linked to trademark and technology licence agreements rather than the imported goods themselves.
The tribunal further held that KRA had failed to show that payment of the royalties was a condition for the sale or importation of the raw materials. It noted that the licence agreements neither tied royalty payments to the importation of raw materials nor prohibited imports where royalties remained unpaid.
On tariff classification, the tribunal sided with Unilever. It found that the four disputed products were raw materials. It accepted Unilever’s position that the products were ingredients used to manufacture Royco and Knorr products and therefore properly classifiable under a code which covers flavouring as raw materials.
It also noted that KRA itself had issued tariff rulings in 2017 classifying the same products under that code, creating a legitimate expectation that the classification was correct. The Tribunal therefore rejected KRA’s reclassification and the resulting Sh109.4 million tax demand.
KRA now hopes to overturn those findings at the High Court.
The appeal is likely to be closely watched by multinational corporations, tax advisers, and manufacturers because it could clarify when royalty payments made to overseas intellectual property owners become part of the customs value of imported goods.
