Crowe Horwath
TM
African Footprint
Issue 12 - July 2014
Technical Newsletter of the Crowe Horwath International African firms
Inside This Issue:
Nigeria
Officially the Federal Republic of Nigeria is a federal constitutional republic
comprising 36 states and its Federal Capital Territory, Abuja. The country is
located in West Africa and shares land borders with the Republic of Benin in
the west, and Cameroon in the east, and Niger in the north. Its coast in the
south lies on the Gulf of Guinea in the Atlantic.
Fact Sheet
Population
Currency
Language
Languages (other)
Religion
GDP
GDP growth rate
Inflation
Over 160 million
Naira (NGN)
English
Hausa, Igbo and Yoruba
Muslims and Christians
$509.9 billion
7.3% (World Bank)
8% (CBN)
Nigeria is often referred to as the "Giant of Africa", due to its large
population and economy. With approximately 174 million inhabitants,
Nigeria is the most populous country in Africa and the seventh most
populous country in the world.
Nigeria
1
Horwath Leveton Boner is Growing
3
Unlocking the Mystery of Hotel
Management Agreements: Part 2
4
Dealings with Financial Service
Commission (Mauritius)
6
How to build bridges between
South Africa and Reunion Island
6
Jointly owned bank accounts in
the British Isles (and also in
some other European countries)
8
Interest paid on certain foreign
contracts not subject to withholding
tax in Kenya
9
The European Union adopts
legislative package on the reform
of the audit market
11
Nigeria has remained a key player in the international oil industry since the
1970s, and maintains membership in the Organization of the Petroleum
Exporting Countries (OPEC), which it joined in July 1971.
Feedback from our
Readers!
Should you wish a specific topic to
be covered in our next issue,
please let us know by emailing
your request to our editor
kent.karro@crowehorwath.co.za
Audit Tax Advisory
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Economy
The country has a highly developed financial services sector,
with a mix of local and international banks, asset management
companies, brokerage houses, insurance companies and brokers,
private equity funds and investment banks. Nigeria also has a
wide array of under exploited mineral resources which include
natural gas, coal, bauxite, tantalite, gold, tin, iron ore, limestone,
niobium, lead and zinc. Despite huge deposits of these natural
resources, the mining industry in Nigeria is still in its infancy.
Nigeria is classified as a mixed economy emerging market,
and has already reached lower middle income status according
to the World Bank, with its abundant supply of natural resources,
well-developed financial, legal, communications, transport
sectors and stock exchange (the Nigerian Stock Exchange),
which is the second largest in Africa.
Nigeria is the United States' largest trading partner in
sub-Saharan Africa and supplies a fifth of its oil
(11% of oil imports). It has the seventh-largest trade surplus
with the US of any country worldwide. Nigeria is the 50th-largest
export market for US goods and the 14th-largest exporter of goods to the US.
Nigeria has relatively high external debt and large foreign reserves. The GDP growth rate currently stands at
approximately 7.3%.
Financial System
The CBN is a major regulator and supervisor in the money market, with the NDIC playing a complementary role. The
CBN exclusively regulates the activities of commercial banks (27) and finance companies and additionally promotes the
establishment of development banks.
Nigeria has one of the fastest growing telecommunications markets in the world with major emerging market operators
(like MTN, Etisalat, Zain and Globacom) basing their largest and most profitable centers in the country. The government
has recently begun expanding this infrastructure to space based communications. Nigeria has a space satellite which is
monitored at the Nigerian National Space Research and Development Agency Headquarters in Abuja.
Why invest in Nigeria
Investment in Nigeria is characterized by particular strengths:
Abundant Resources: Nigeria has enormous resources, most of which are yet to be fully exploited. They include
?
mineral, agricultural and human resources.
Large Market: Nigeria offers the market in sub-Saharan Africa, with a population of over 160 million people. The
?
Nigerian market potential also stretches into the growing West African sub-region.
Free Market Economy: The Government has created a favorable climate for business and industrial ventures.
?
Administrative and bureaucratic procedures have been greatly streamlined. The Government has put in place
policies and programmes that guarantee a free market economy.
Robust Private Sector: The country has a dynamic private sector, which has assured greater responsibilities under
?
the new economic environment.
Fast Growing Financial Sector: There is a well-developed banking and financial sector. The investor has easy
?
access to working capital and other credit facilities.
Skilled and Low Cost Labour: There is an abundance of skilled labour at an economic cost, resulting in production
?
costs which are among the lowest in Africa.
Infrastructure: Rapid development of physical and industrial infrastructure, in terms of transportation,
?
communications, electricity and water supply.
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Horwath Dafinone, Lagos, Nigeria
We are a firm of Chartered Accountants with over 48 years
experience in accountancy, consultancy, taxation and
auditing services. We are currently ranked 5th in Nigeria
with 8 Partners and over 60 staff.
The firm was founded by Chief David Omueya Dafinone, as
"D. O. Dafinone & Co, Chartered Accountants", and
registered under the Registration of Business Names Act
1961 in the Federal Republic of Nigeria on the 18 August
1966. The firm joined Crowe Horwath International and on
the 1 July 2003, the firm changed its name to "Horwath
Dafinone".
We provide services to a diverse range of clients based both
in Nigeria and abroad. As a member of the Institute of
Chartered Accountants of Nigeria (ICAN), we are registered
by the Institute to engage in the audit of publicly quoted
companies.
We have established policies and procedures designed to
promote an internal culture based on the recognition that
quality is essential in performing engagements. We resolve
accounting and financial reporting and internal control
procedures through consultation within the firm, and have
regular peer reviews conducted by both the ICAN and
Crowe Horwath International.
Lagos 14th February 2014
From L – R;
Ede Dafinone, Igho Dafinone, Bernard Delomenie,
Terri Dafinone, Jibola Ogundipe, Rasheed Ajibola
We have many years of experience in the fields of; banking, oil and gas, manufacturing, building and construction,
insurance, telecommunication and investment and have grown our partnership based on the tenet of independence,
professional due care and objectivity.
Mr Igho Dafinone is the managing partner and leads a team of highly qualified individuals with solid experience in the
fields of audit, consulting, accounting and tax. He is a chartered accountant with over 30 years of experience specializing
in audit and taxation.
Ede Dafinone
Horwath Dafinone
Lagos, Nigeria
Horwath Leveton Boner is Growing
The partners of Horwath Leveton Boner have pleasure in announcing the merger of their firm with David J Phillips Inc. (DJP).
DJP was incorporated in 2010 offering audit, tax and advisory services. The merger was effective from 1 June 2014.
They assure their clients of their continued professional service, whilst maintaining the personal touch that their clients
have become accustomed to.
Crowe Horwath welcomes David and Graham Phillips and their team and look forward to building a long and successful
relationship together.
“Coming together is a beginning; keeping together is progress; working together is success.”
- Henry Ford quotes from BrainyQuote.com
Mark Watson
Horwath Leveton Boner
Johannesburg, South Africa
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Unlocking the Mystery of Hotel Management Agreements: Part 2
In the previous Issue of the African Footprint, we shared Part 1 of the three part paper published by my colleague Matt
Gebbie, of the Horwath HTL office in Jakarta Indonesia, which aims to assist clients demystify the peculiarities of the
hotel management agreement.
In this edition of the African Footprint, we share part two of this three part paper. We trust you will find of interest the
explanations that follow of some of the key commercial terms that form the backbone of a typical hotel management
agreement.
Terminology
Hotel Management Company
HMC
Hotel Management Agreement, made between HMC and Owner
HMA
General Manager
GM
Finance Director
FD
Furniture, Fixtures and Equipment
FF&E
Operating bank account (OBA)
Who controls the hotel's bank account?
Typically, the OBA is held at a mutually approved bank, established by the owner, but operated by the HMC on behalf of
the owner. Funds derived from the operation of the hotel are deposited by the HMC in the OBA. Funds are disbursed by
the HMC to cover the costs and expenses for maintaining, conducting and supervising the operation of the Hotel.
All cash flows from the OBA must align with the agreed annual budget, though additional owner approval is sometimes
sought for extraordinary expenditures of certain types or over certain limits outside the hotel annual budget.
Can I limit the number of people who can authorise payments and sign cheques?
Authority to make disbursements and/or withdrawals from the OBA is limited through mutual agreement to specified hotel
management personnel (typically the GM and FD).
Operating capital
Operating, or working capital refers to the minimum amount of money that must be maintained in the hotel's OBA such
that the HMC can make timely payment of the hotel's operating expenses. It is often calculated as equivalent to one
month's (may vary) operating expenses. It is important to maintain this amount in the OBA so the hotel is always able to
meet its expense payment obligations. If the amount of money in the OBA drops below the minimum, the owner is
required to top it up.
FF&E Reserve
What is FF&E and why is there a specific FF&E reserve?
Furniture, Fixtures and Equipment includes property assets
not part of the building structure or items classified as plant
machinery and equipment, or operating equipment.
For example, FF&E includes hotel room furnishings and
decorative items, common area furnishings, restaurant, bar
and conference room furnishings and equipment, office
furnishings, storage equipment, computers, projectors and
other items relating to technology.
The integrity of the hotel and its ability to continue to compete on a year-by-year basis requires the FF&E to be constantly
maintained and refreshed. The FF&E reserve is an accumulating reserve or sinking fund to ensure funds are readily
available to maintain the quality of the FF&E throughout the life of the hotel.
These funds may also provide for certain routine capital improvements. The funds are kept 'for a rainy day' and not
disbursed to the owner should there be residual money in the reserve at the end of the financial year. Disbursements
from the FF&E reserve fund are made according to budgets approved as part of the annual hotel budgeting process.
The FF&E Reserve has many alternative labels including Replacement Reserve and Capital Replacement Fund.
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How is the FF&E Reserve calculated?
Typically calculated as a percentage of annual
revenues, increasing in the first few years before
stabilising in/around year 4. The percentages used
can vary between HMCs and/or brands.
Is the money kept in the OBA?
The reserve is held in a specific bank account at a
mutually approved bank and maintained by mutually
approved representatives of the hotel management.
Disbursements are always subject to an approved
annual FF&E reserve expenditure budget and as
such, the owner must approve any amount being
withdrawn that is not part of the approved budget
(except in situations in which the funds are needed
for meeting emergency life safety
needs/requirements).
Hotel Staff
Who actually employs and pays the staff?
Typically all hotel staff, including the GM, are
employed by the owner. Limited exceptions include:
employees of the HMC, brought in on a short
?
term basis to fill gaps; and
third party contract employees.
?
The HMC typically negotiates to have exclusive
authority and discretion with respect to staff hiring,
promoting, transferring, terminating etc. Staff are paid
from revenues earned and salary expenses are
allocated according to where the staff work within the
hotel (departmental expenses and / or undistributed
operating expenses).
Can I select the GM and other staff?
Owner approval is typically sought in the selection of
the GM and in some cases other executive
committee members like the FD. One common
scenario is where the HMC nominates up to two
additional candidates for owner approval if the initial
nominated candidate is rejected.
Hotel Budgets
What is in the pre-opening budget and why isn't it an
operating cost?
The pre-opening budget funds hotel activities prior to
'Opening' (i.e. when revenues are to be generated) and
includes expenses such as hiring and training staff, advance
sales and marketing activities, PR, interim office space,
telecoms and the like. The pre-opening period typically runs
for a minimum of 12 months prior to opening, depending on
the category of the hotel.
Who prepares the annual budget and how does the Owner
participate in the process?
The pre-opening budget is put forward by the HMC for owner
approval. It is typically paid into a specific account opened by
the owner accessible by mutually authorised representatives
of the hotel management.
Annual budget
The annual budget process should be finalised before the
beginning of each financial year. The draft annual budget is
prepared by the HMC and submitted to the owner for
approval. It should include amongst other things (i) financial
projections such as a detailed P&L, cash flow, FF&E budget,
capital expenditure and working capital requirements; and (ii)
the sales & marketing and human resources plans.
If the owner does not approve the draft annual budget,
discussion begins between owner and HMC towards
reaching agreement. A dispute resolution process should be
specified in the HMA to ensure procedures are in place for
resolving any disputes in a timely manner and do not
adversely affect the on-going operation of the hotel.
In the next edition of African Footprint, the final part of this
three part paper we will share insights into the owner's right
to terminate, the pro-forma profit and loss (P&L) statement,
non-competition and brand standards.
Michelè De Witt
Horwath HTL
Cape Town, South Africa
Some HMCs prefer to retain employment of the GM,
and in some cases other executive committee
members, and 'loan' them to the Owner for a set
period. The main advantage for the HMC is that they
retain an employment link with their senior personnel
and can move them internally within HMC system
hotels.
Regardless, of whether a secondment situation is
arranged, the benefit packages for key executives
sourced from the HMC network are typically set/tied
to HMC policies/standards to provide consistency for
such executives when moving between the HMC
managed properties.
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Dealings with Financial Service Commission (Mauritius)
Management Companies are duty bound to deal with
the Financial Service Commission (FSC) in an open
and cooperative manner and to keep the FSC
promptly informed of any matter that might
reasonably be expected to be disclosed. In particular:
(a) Except as may be approved by the FSC, all
applications for Global Business Licences should
be made through duly licensed Management
Companies.
(b) Save with the express approval of the FSC, the
registered office of a Global Business Company
must not be at an address other than that of one
of the Management Companies. The
Management Company shall be responsible for
client awareness of their legal obligations and the
conditions attached to their clients' licence.
Management Companies may allow associated
companies under their direct control to act as
Secretary provided that:
(i) They provide the FSC with the assurance that
the company providing such services is able to
exercise the same degree of skill, care and
diligence as would be expected from the
Management Company itself;
(ii) The associate is authorised under Section 164 of the
Companies Act 2001 to act as Corporate Secretary.
Additionally, if the associate will be an entity other
than a Management Company, then formal
permission should be obtained from the FSC under
Section 21 of the FSD Act 2001 for it to deal with
residents.
(c) Any change of Management Company as Secretary or
local representative should be notified to the FSC by
both the outgoing and the incoming Management
Company.
(d) Where the payment of fees to be made through
Management Companies who would hold the FSC's
fees in their Clients' Monies Account, Management
Companies should ensure that settlement of these
fees are made within 15 days of the issue of the
Licence or its renewal.
(e) Management Companies would not be allowed to be
indebted towards the FSC, for more than 30 days, in
respect of the processing and first annual fees.
Source : www.fscmauritius.org
Suresh Sewraz
Crowe Horwath (Mur) Co
Mauritius
How to build bridges between South Africa and Reunion Island
The relationship between Raakesh Khandoo from Horwath Leveton Boner of Johannesburg and Abdoullah Lala of Crowe
Horwath in Reunion Island allowed for Danisse Nazaraly and Kevin Dijoux-Ognard, students with a graduate degree of
Accounting and Audit at University of Reunion Island, the opportunity to spend a few months of training in Johannesburg.
Thanks to a partnership between the University of Reunion Island and the Regional Council of Chartered Accountants of
Reunion Island (CROEC), Kevin and Danisse had the opportunity to attend four months of compulsory training in a
chartered accountants firm in Johannesburg, South Africa.
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In addition to the personal and professional experience, this exchange strongly supports the opportunity to develop
economic relationships between the southern countries of the Indian Ocean. “We keep exporting great minds to Europe,
but we hide what's going in this zone”, says Marcelino Burel, President of Regional Council of Chartered Accountants
(CROEC). “Economic growth will go through external development or innovation. Here we are condemned to watch
what's going on outside. When a young person goes to Europe, in his head, he forgets about Reunion Island. He isn't
conditioned to talk economically with Reunion Island. It's not the same psychological configuration, although he knows he
is 2 hours away by plane. Proximity isn't felt.” tells the President of CROEC. Based on this observation and the idea that
chartered accountants of Reunion Island in the area will be a precious advantage for company managers who would want
to develop exports, the Council wants to positively support the mobility of future chartered accountants in the area.
Named “Africain Réunion Stage” (African Reunion Island Training), this mobility program has been the first experience
this year. Kevin and Danisse, 23 years old, graduate degree students were chosen to spend their training in a Crowe
Horwath firm in Johannesburg. “I wanted to improve my English, my technical skills and to come back in a position of
strength with knowledge acquired abroad. It allows us to differentiate ourselves from others and to come back with added
value.”
Indeed, since 2002, international financial accounting standards – IFRS – are mandatory in almost all countries, except
the United States. Standards are included in the University training, but still not practiced in Reunion Island. “Today,
financial news broadcasted and relayed is not the same in all countries, while capital markets are international, IFRS
standards are intended to converge practices and represent the future”, says Jerôme Gablain, associate professor at
University of Reunion Island. Thanks to their experience in South Africa, Kevin and Danisse are a step ahead. With their
experience in English, team work, precision and customer relations, they have grown and would like to repeat the
experience.
“Because of a problem with a visa, we had to leave a month earlier, and although happy to return to Reunion Island, we
felt nostalgic”, says Danisse. The Anglo-Saxon way allowed them to work immediately on the second day. A surprise, but
also, a rewarding discovery. “In Reunion Island, we work individually. In South Africa, working is collective with the
supervision of seniors…” explains Kevin. “Eventually, they could grow to high positions as managing directors in Reunion
Island. With their culture, Danisse and Kevin would be able to display their abilities or help create joint-ventures. We had
to go to these countries” says Marcelino Burel. The South African team has been satisfied with the two students and they
are ready to welcome others. Next year, consideration will be given to sending four students, two to Cape Town and two to
Johannesburg.
Abdoullah LALA
Fiduciaire des Mascareignes
Reunion Island
Danisse Nazaraly and Kevin Dijoux-Ognard
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Jointly owned bank accounts in the British Isles
(and also in some other European countries)
It is quite common for an individual in South Africa to
own a bank account which is registered in the British
Isles. This may be because he or she originated from
the British Isles or the account may have been
opened for investment purposes.
If an individual is married, in a civil partnership or cohabiting with a partner, it is also common for a British
Isles bank account to be placed into the joint names
of the two parties. One of the key estate planning
advantages of doing this is that when one of the
parties dies, the bank account would pass into the
surviving party's name automatically. This would then
avoid the need for the deceased's executor being
obliged to conduct a court procedure (known in
England as probate) to obtain the authority to
administer the account, as would be necessary if the
account was in the sole name of the deceased.
It can also be the case that people will attempt to
avoid a future court procedure on their demise by
placing bank accounts in the British Isles into joint
names with a third party, child or other family
member. However, there are many pitfalls associated
with this type of estate planning and trouble can lie
ahead where the legal and practical implications of
doing this are not understood. The following case
studies illustrate the problems that can arise:
Case study 1
Alfie and Marjorie are married and have two children;
Mornay, who enjoys the high life and Liezl, who is in a
rocky marriage. Alfie and Marjorie wish to pass their
estates to their children equally when they die. Both
Alfie and Marjorie own a joint bank account in
England and they believe that it would be good estate
planning to add both of their children's names to the
bank account. This way, when the survivor dies, the
account will automatically pass into the names of the
children without a court procedure. The potential
problems associated with this kind of planning are as
follows:
1
Once the account has been placed into the
children's names, unless all parties to the
account are required to sign on the account, it is
possible for the bank account to be completely
controlled by one of the children. Mornay, for
example, could withdraw substantial funds to
fuel his lifestyle without his parents' knowledge
or agreement.
2
Liezl may become divorced and it might be
argued by her husband that she owns a share in
the bank account, which could then be brought
into the divorce proceedings.
3
Mornay's playboy lifestyle could come to an abrupt end
and he may become bankrupt. Creditors could argue
that Mornay was entitled to a share in the account and
that it should form part of the bankrupt's estate.
4
By adding the children's names to the bank account,
this may have adverse tax consequences in South
Africa for Alfie and Marjorie as SARS may view this as
a donation of part of the value in the bank account.
5
If Alfie and Marjorie had decided to only add Liezl's
name (bearing in mind that Mornay may squander the
funds) with an “understanding” that when Alfie and
Marjorie die, the bank account funds will be divided
equally between Mornay and Liezl, there is the risk
that the “understanding” will not be carried out by Liezl
at the time of death and Mornay, as the expectant
beneficiary, may have to engage in litigation to recover
his share.
The next case study is designed to illustrate how the
English courts may approach a dispute over the ownership
of a joint account:
Case study 2
Hilary is a single parent who is domiciled in South Africa and
owns a bank account in England. Hilary has two children,
Johann and Grant. Johann is studying in England and Grant
is working in South Africa. Hilary may decide to add
Johann's name to the account so that Johann may withdraw
a small amount of funds to assist with his studying.
Subsequently, Hilary dies with a Will leaving her estate to
Johann and Grant equally. The joint bank account in
England will pass into the sole name of Johann who then
argues that he should be the sole beneficiary of the account
as he is now the sole legal owner. Grant argues that he
should be entitled to an equal share of the account and
commences litigation in England.
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English common law provides that where one person places an account into joint names, there is a presumption that the
provider of the funds does not intend to make a gift of the funds, unless perhaps if the co-account holder is a spouse, civil
partner or co-habitee. In Hilary's case, there would be a presumption that the funds belong to her estate. So despite the
joint account now being in the sole name of Johann, he would be considered as holding the funds as a nominee for
Hilary's estate. This presumption could be rebutted in one of two ways:
1
If the circumstances give rise to a presumption of advancement (anticipation of an inheritance), for example if there
was evidence that Hilary had intended to gift the entire account to Johann;
2
By evidence that the provider intended to transfer the beneficial interest, for example if Hilary's Will left everything to
Johann, or alternatively if there was a specific clause in her Will gifting her interest in the account to Johann.
The English court will look at the intentions of the parties at the time of opening a joint account or converting a sole
account to a joint account. If there was no evidence that Hilary had intended to gift the funds in the account to Johann, it
is likely that the English courts would hold that the joint account should pass in accordance with Hilary's Will, which would
be interpreted in accordance with the law of Hilary's last domicile at death (South Africa).
The examples above are designed to illustrate the importance of seeking sound estate planning advice for offshore bank
accounts. In addition, the issues that have been discussed for bank accounts may also be applicable to jointly owned
investments registered in the British Isles and it always advisable to consult a professional to advise on the legal and
other implications.
Kent Karro
Horwath Zeller Karro
Cape Town, South Africa
Reproduced with the permission of the
author Mr Oliver Phipps
Solicitor
Lester Aldridge LLP
Solicitors
Russell House, Oxford Road
BOURNEMOUTH BH8 8EX England
Interest paid on certain foreign contracts not subject to withholding tax in Kenya
A Case Law Synthesis
Commissioner of Income Tax (Appellant) versus Mabati Rolling Mills Limited (Respondent) [2008]
1
Introduction and case background
Interest charged by and paid to a foreign entity for supplies outside Kenya is not subject to Withholding Tax rules in
Kenya.
On 24 February 2012 the Kenya Revenue Authority issued to Mabati Rolling Mills a Notice of Assessment to pay a sum of
Kshs. 141,884,052/= being tax, penalty and interest for years 1996 to 2001. The notice stated, inter alia the following:
“As discussed with yourselves during an audit carried out between 4th and 8th February 2012, your company was found to
have paid interest to several non-resident persons in respect of supply of both machinery and raw materials on credit.
Such interest should have withholding tax upon payment.”
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Mabati Rolling Mills objected to the said assessment
on the grounds that since the contract that gave rise
to the payments was made in Japan, the interest
payments are not income chargeable to tax under
the provisions of the Income Tax Act.
The appeal was heard by the Income Tax Local
Committee and on 26 September 2003, the Local
Committee made the following decision/ruling:
“The interest was carried by foreign companies
outside Kenya on supply of raw materials. By reason
that the total activities relating to the interest was
outside Kenya the source of the interest was not
Kenya. Therefore the members of the Local
Committee are of the opinion that Mabati Rolling
Mills was not obliged to withhold any amount in
respect of withholding tax relating to such type of
interest.”
Kenya Revenue Authority aggrieved by the Local
Committee's ruling appealed against the decision to
the High Court of Kenya.
2
The substance of the appeal
The major question that the Appeal Court tackled
was whether the interest had accrued in or was
derived from Kenya to be subject to withholding tax
pursuant to the Withholding Tax Rules of Kenya.
The objective of the Withholding Tax Rules is
justifiable as it seeks to avoid revenue loss in the
hands of foreign residents, by ensuring deductions
are made at source to avoid the difficulty in recovery
from such foreign nationals.
Kenya Revenue Authority in disputing the Local
Committee's ruling, argued that the Income Tax Act
Laws of Kenya provided that withholding tax should
be charged on interest paid to a person whether
resident or non-resident provided that, the person
making the payment is a resident or is a person
having a permanent establishment in Kenya. Thus,
Mabati Rolling Mills as a resident company ought to
have withheld tax on the interest payment made to
the Japanese company.
The High Court then in explaining the relevant Income Tax
Act Laws of Kenya relied on by the Kenya Revenue
Authority in the appeal, stated that where a resident
person makes a payment to any other person in respect of
interest, the amount thereof shall be deemed to be income
which accrued in or was derived from Kenya. However,
one of the provisos to the Income Tax Act is that
withholding tax shall not apply on interest payments unless
the payment is incurred in the production of income
accrued in or derived from Kenya or in connection with a
business carried on in whole or in part in Kenya.
The High Court quoted from another case which was
heard in Tanganyika (present day Tanzania) – Judge
Sinclair sitting in the High Court of Tanganyika in
Commissioner of Income Tax versus P. Co. Limited
(E.A.T.C 131) held that:
“It seems to me that where income is really derived from is
a question of fact which should be determined as a
practical man would determine.”
3
Conclusion and determination of the appeal
At the outset it should be noted that withholding tax on
interest will not only be dependent on whether the interest
was payable but will also be affected by whether the
income made accrued in or was derived from Kenya.
Judge D Musinga while upholding the decision of the Local
Committee and while ruling in favour of Mabati Rolling
Mills (the Respondent) [as against Kenya Revenue
Authority (the Appellant)], stated:
“From the facts on record, it is clear that the contract was
entered into in Japan, payment and delivery of the goods
was done in Japan and consequently, interest derived
entirely from the place where the goods are sold is not
amenable to withholding tax. I uphold the decision of the
Local Committee and dismiss these appeals with costs to
the Respondent.” Dated, Signed and Delivered at Nairobi
on the 1 October 2012.
Jackline Oluoch
Horwath Erastus & Co
Nairobi, Kenya
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The European Union adopts legislative package on the reform of the audit
market
The Crowe Horwath firm in Reunion Island, also located in Paris (France), comprises five partners and 12 employees.
The firm provides accountancy, consultancy and auditing services to companies.
A training department allows the firm to train auditors on the rules of audit market reform.
Reunion auditors are members of the national body of French Auditors and are therefore trained to comply with the rules
set by the European Council.
New rules to improve the quality of statutory audit procedures in the EU has been approved. The European Parliament
adopted the reform process on 3 April 2014.
The reform is aimed at increasing transparency and confidence in the audit market by enhancing the credibility of the
audited financial statements of public-interest entities (PIEs), which are companies with a significant public interest
because of the nature of their business, their size, their number of employees or their corporate status, including banks,
insurance companies and listed companies.
In addition, the new rules will facilitate a wider choice of audit providers, in a market that is nowadays highly concentrated
in a few big accounting firms.
The main features of the reform include:
Mandatory rotation of auditors
The new legislation will impose mandatory rotation of auditors
of PIEs after a period of 10 years.
Member states may allow the auditor or audit firm to continue
to audit the same PIEs up to a maximum duration of
20 years where a public tender process is conducted and
up to 24 years in the case of a joint audit.
Prohibition and restriction on the provision of non-audit services
In order to avoid conflicts of interests and threats to independence, a number of non-audit services such as tax,
consultancy and advisory services will be forbidden to be provided to the audited entity.
When an audit firm provides non-audit services to the audited entity (other than those prohibited) for three or more years,
the total fees for such services will be limited to no more than 70% of the average of the fees paid in the last three years
by the audited entity.
Cooperation of audit oversight bodies
The supervision of the system will be carried out within the framework of a Committee of European Auditing Oversight
Bodies (CEAOB). The European Securities and Markets Authority (ESMA) will provide assistance in the field of external
relations within the structure of the CEAOB.
This reform was adopted after an intense debate between stakeholders from different cultures and laws.
This package of new rules will come into force in France and in Reunion Island in the coming year. Discussions between
the auditors and the government in France has resulted in the adoption of these rules to ensure the acceptability of these
reforms.
Abdoullah LALA
Fiduciaire des Mascareignes
Reunion Island
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Crowe Horwath
TM
Our African Network
Contact Information
Algeria
Mali
Hamza & Associés
Tele: +213 20 508188
Email: h.tarek@hamza-dz.com
Inter Africaine d’Audit et d’Expertise (IAE-SARL)
Tele: +223 20 286675
Email: iaecpt@orangemali.net
Angola
Mauritius
Horwath Angola - Auditores e Consultores, Lda
Tele: +244 925 289207
Email: carlos.florencio@crowehorwath.ao
Crowe Horwath (Mur) Co
Tele: +230 208 8684
Email: contactus@crowehorwath.mu
Cote d’Ivoire
Morocco
Uniconseil
Tele: +225 08212520
Email: soraya_toure@yahoo.fr
Horwath Maroc Audit
Tele: +212 537 77 46 70
Email: benbrahim@horwath.ma
Cameroon
Nigeria
Audit & Financial Consultants
Tele: +237 33 42 1969
Email: njc.calvin@gmail.com
Horwath Dafinone
Tele: +234 1 545 1863
Email: duvie@dafinone.com
Djibouti
Reunion
Crowe Horwath Djibouti Sarl
Tele: +253 2135 7517
Email: coutts.otolo@crowehorwathea.co.ke
Fiduciaire des Mascareignes
Tele: +262 2 6290 8900
Email: a.lala@fdm.re
Egypt
South Africa
- Cape Town
Crowe Horwath Dr A M Hegazy & Co
Tele: +202 376 00516
Email: dramhegazy@crowehorwath.eg
Ethiopia
Yeshanew Gonfa & Co
Tele: +251 0 118693141
Email: ygandcompany@gmail.com
Kenya
Horwath Zeller Karro
Tele: +27 21 481 7000
Email: contactus@crowehorwath.co.za
Horwath HTL (South Africa)
Tele: +27 21 527 2100
Email: capetown@horwathhtl.co.za
- Johannesburg
Crowe Horwath EA
Tele: +254 20 2329542
Email: coutts.otolo@crowehorwathea.co.ke
Horwath Leveton Boner
Tele: +27 11 217 8000
Email: info@crowehorwath.co.za
Kenya
Tanzania
Horwath Erastus & Co
Tele: +254 20 3860513
Email: erastuscpa@kenyaweb.com
Libya
Ahmed Ghattour & Co
Tele: +218 21 444 4468
Email: aghattour@ghattour.com
Madagascar
Cabinet Genevieve Rabenjamina
Tele: +261 202 221121
Email: cce@moov.mg
Horwath Tanzania
Tele: +255 22 2115251
Email: chris.msuya@crowehorwath.co.tz
Tunisia
Horwath ACF
Tele: +216 71 236000
Email: noureddine.benarbia@crowehorwath.com.tn
Zimbabwe
One & One Chartered Accountants
Tele: +263 4 304 576
Email: onemusi@yahoo.com
Crowe Horwath EA, Crowe Horwath (Mur) Co, Crowe Dr A M Hegazy & Co, Crowe Horwath Djibouti, Horwath Zeller Karro, Horwath Leveton Boner, Horwath Maroc Audit, Horwath Dafinone, Hamza & Associés, Horwath Angola, Uniconseil,
Audit & Financial Consultants, Cabinet Genevieve Rabenjamina, Yeshanew Gonfa & Co, Inter Africaine d’Audit et d’Expertise (IAE-SARL), Horwath ACF, Fiduciaire des Mascareignes, Horwath Erastus & Co, Ahmed Ghattour & Co,
Horwath Tanzania and One & One Chartered Accountants are separate and independent members or business associates of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member or business associate firm of
Crowe Horwath is a separate and independent legal entity and is not responsible or liable for any acts or omissions of Crowe Horwath or any other member or business associate of Crowe Horwath and specifically disclaims any and all
responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member or business associate.
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