By Victor Orandi

On 30th July 2020, the Tax Appeal Tribunal established that a director of a company cannot be held liable for the legal responsibilities of the company to settle its tax liabilities. This was founded in the appeal of Stephen Kimathi Mutiso, a director of a company, against the decision of the commissioner of domestic taxes (“Commissioner”). The Commissioner issued an agency notice against the personal bank account of the director on the basis of unpaid VAT by the director’s company.

The Tax Procedures Act, 2015 gives the Commissioner power to enforce tax payments against an agent of the taxpayer. However, the Tax Appeal Tribunal identified that the company and its director are two distinct and separate legal persons and therefore, the company has a legal responsibility to settle its tax liabilities from its own account and not from the director’s personal account.

The Commissioner is obligated to establish that an agent of the taxpayer has or may have money belonging to the taxpayer before moving to enforce any due tax payments against the agent.

The director of a company may only be held liable for the tax obligations of a company if the director is found to have entered into an arrangement with the intention of ensuring that the company is unable to settle its tax obligations.