Taxing computer software royalties in Kenya: reconciling conceptual approaches through copyright and property law

Abstract

Kenya has recently witnessed litigation regarding the tax implications of acquired software. Simply phrased, if software is intellectual property, then the usual tax implications attached to intellectual property will obtain. Though intuitive, this position is not as straightforward when it comes to acquisition of computer software. One main reason is responsible for the difficulty—the anatomy of computer software. This anatomy forces a more nuanced analysis of the components of a software transaction, and specifically the nature of interest in question. A corollary is that a diverse range of transactions—all involving different and separate interests—are possible. A proper taxation regime requires clarity as to what subject matter is subject to the tax treatment, be it a sale, licence, gift, and so on. The diversity of transactions possible regarding a single copyrighted work, however, anticipate the possibility of varied subject matter, specifically for tax purposes, which possibility diminishes any immediate certainty of the subject matter involved. Therefore, if it is possible for various kinds of market transactions, all with different tax implications, to inhere with respect to a single work of software, a more deliberate view is required. Kenyan jurisprudence has appeared to accept a broad characterisation of software-related transactions as attracting royalty payments. Recognising the obvious conceptual error in this view, other jurisdictions have drawn a clearer line between “copyright” itself and “copyright-embodying” articles. Fundamentally antithetical tax obligations accordingly accompany this differentiation.