Revenue Authority Must Prove Fraud in Invoice Trading Cases: Kenya Tax Appeals Tribunal



In this article I discuss the recent decisions of the Kenya Tax Appeals Tribunal in which it was held that the Revenue Authority has the burden of proving fraud in cases of invoice trading. This is an exception to the general principle that the burden of proof in tax matters lies upon the tax payer.


Recently, Uganda Revenue Authority [URA] rolled out the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) partly as a response to the invoice trading scheme which in the past gave rise to false refund claims, fictitious purchases (with no physical movement of goods) and unverifiable claims by taxpayers. However, the skeletons of invoice trading still loom and the tax appeals tribunal and courts continue to handle cases arising from the infamous scheme.  One key aspect that lingers from a technical point of view is that of the burden of proof in such matters. This is critical because in cases of invoice trading, URA usually alleges fraud on the part of the taxpayer and yet places the burden on the same taxpayer to prove otherwise.

The Invoice trading scheme in Uganda

The Invoice trading scheme stems from Section 28 of the VAT Act Under the said provision, a credit is allowed to a taxable person for the tax in respect of a taxable supply made to it during that period.

The Tax Appeal Tribunal in the case of Red Concepts Ltd V Uganda Revenue Authority TAT Application No. 36 of 2018 defined Invoice Trading as a scheme involving companies being set up to enable one claim VAT input by issuing fictitious invoices. By claiming input credit, the taxpayer’s VAT liability is reduced which would, in turn, lead to loss of revenue by URA where the claim is fictitious.

In the past, URA issued public notices in which it published lists of taxpayers allegedly affected by the scheme involving the fraudulent use of fictitious invoices in VAT returns for the period 2013-2017. It asked these taxpayers to verify their returns with it and provide further evidence in proof of claimed purchases. Subsequently, all taxpayers whose information URA deemed unsatisfactory were denied input credits on grounds that the claims were fictitious and sometimes that the suppliers in the alleged transactions were also fictitious. The said taxpayers were also slapped with double penalties on the same grounds. Aggrieved by these assessments, some taxpayers petitioned the Tribunal and/or court for redress. In these cases, URA usually pleads that the applicant was involved in VAT fraud and as such the assessments and penalties against it are justified.

Burden of proof

In all proceedings before any court, one party bears the primary burden of proving the allegations made against the other. Specifically, in tax matters, Section 18 of the Tax Appeals Tribunal Act provides that;

“In a proceeding before a Tribunal for review of a taxation decision, the applicant has the burden of proving that……. an assessment is excessive and in any other case, the taxation decision should have been made differently.”

This is the general rule in all civil matters. However, where fraud is pleaded by any party, such fraud must be pleaded and proved specifically by the party alleging it. Tax matters are civil matters and this principle, therefore, applies to them. However, in the past, although URA has pleaded fraud against the taxpayer, the burden of proof has been left on the taxpayer.

Thus, in the Red Concepts case (supra) the tribunal noted that the standard of proof in civil matters is on a balance of probabilities. In this case, the tribunal ruled in favor of URA on grounds that the taxpayer failed to prove that the entity giving rise to the transactions for which the input credit was claimed existed. The Tribunal noted that having failed to do so, it could not rule out fraud and/ or fictitious transactions or invoice trading. By making this conclusion, the Tribunal placed the burden of proof on the Applicant notwithstanding that it is URA that had alleged fraud.

A reading of the Red Concepts case reveals that the issue of burden of proof where fraud is alleged was not specifically raised by any of the parties and/or by the Tribunal. It is also clear that in the said decision, the principle that the standard of proof where fraud is alleged is higher was not also considered.  If this had been the case, then the Tribunal should have placed the burden of proof of fraud on URA which had alleged it.

Burden of proof in invoice trading cases in Kenya

Kenya Revenue Authority was equally hit by the invoice trading scheme and although previously the Kenya Tax Appeals Tribunal held a similar view, in March 2020, it delivered 2 key decisions in which it shifted the burden of proof to Kenya Revenue Authority. These decisions are Shreeji Chemicals Ltd V Commissioner of Investigations and Enforcement Tax Appeals Tribunal Appeals No. 339 of 2018 and Appeals No. 58 and 186 of 2019. All these cases involved the same parties and had similar facts and conclusions.

In Appeal No. 339, the Applicant was profiled as a beneficiary of the missing trader scheme (what in Uganda is referred to as invoice trading scheme). The missing trader scheme was explained in that case to be a scheme where traders devised a scheme to evade taxes by registering several businesses for the sole purpose of fictious invoicing and the business would then sell the invoices to other businesses and issue ETR receipts with no sales at all or actual supply but underpay the VAT to reduce input VAT. In this case, the Kenya Revenue Authority alleged fraud against the taxpayer.  The Kenya Tax Appeals Tribunal held that:

‘‘It is settled law that fraudulent conduct must be distinctly alleged and distinctly proved and it is not allowable to leave fraud to be inferred from facts’’

The said tribunal further found that,

“The burden of proof which essentially in tax law rest on the tax payer, shifted to the Respondent at the point issues of VAT fraud were raised…if a supplier is fraudulent, but the recipient knows nothing or could not know of his intention, the recipient’s right to deduct input VAT, connected with that transaction stays intact. [Emphasis added].

The Tribunal opined that the burden shifts to the Kenya Revenue Authority at the point where VAT fraud is raised. The tribunal noted that the standard of proof in fraud is distinctly higher than the normal civil standard of the balance of probability. The Tribunal thus found that the Revenue Authority had failed to satisfy the burden of proof nor the standard of proof required.

UK Courts have also held a similar view. Thus, in the case of CCA Distribution Limited in Administration V The Commissioner for her Majesty’s Revenue and customs Appeal No. LON 2008/1471 the court found that where fraud arises in tax matters, it must be established that the taxpayer knew and/or should have known that by his purchase he was participating in a transaction connected in the fraudulent evasion of tax.

Similarly, in the case of Moblix Limited (2010) EWCA CIV 517 the UK court of Appeal found that although the requirement of knowledge of the taxpayer was not rooted in the legislation, it does not require the introduction of any further legislation. Only until such knowledge is proved against the Applicants can it be held culpable for fraud done by another entity.

Further, in the cases of Beigebell Limited V HMRC TCO7163 Appeal No. TC/2016/04373, court found that although the taxpayer had severally dealt with fraudulent taxpayers, he did not have knowledge of the fraud in light of all the circumstances surrounding the matter and as a result court found that the taxpayer was entitled to the input tax credit for the period in question.

The requirement for knowledge was established in the landmark case of Kittel v Belgium  SPRL C-439/04 and C440/04 [2006] now commonly referred to as the Kittel Doctrine/principle The Principle in Kittel allows the Revenue Authority to deny the taxpayer the right to deduct input tax where the transaction on which the tax is claimed is connected with fraud and for which the taxpayer knew or should have known of that fact.

The above decisions demonstrate that it is not enough for URA to allege fraud, it must actually prove that the taxpayer knew or ought to have known that they were getting involved in a fraudulent tax scheme, otherwise, they must be exonerated. Their role in the fraud must be clearly spelt out. If they were merely victims of fraud, then they are entitled to the input tax credits and it is immaterial that they derive their claims from a fraudster.


Although in ordinary tax cases the taxpayer has the burden of proving that the tax is excessive, where fraud is alleged against the taxpayer, URA bears the burden of proving the taxpayer’s knowledge and involvement in the fraud. This is because fraud is a serious allegation and in fact, there are criminal repercussions for getting involved in tax fraud. As a result, the standard of proof is higher therefore URA should not merely allege that a taxpayer is involved in tax fraud without concrete evidence. It cannot make assumptions or inferences about a taxpayer. It must be sure that the taxpayer knew or should have known that they were involved in fraud. Without that, any claim by URA against such taxpayer must fail.


This article provides general information only. It is not intended to provide advice with respect to any specific set of facts, nor is it intended to be relied on as legal advice.

About the Author

Damalie Tibugwisa is a commercial law practitioner and is the founder and managing partner of M/s Tibugwisa and Co. Advocates. For comments and inquiries contact her at or +256787461139 or for other services by the firm check the firm’s website on