Betting powerhouse SportPesa has been sucking revenues out of its lucrative Kenyan market by paying billions of shillings to a software development company it owns in the UK – an arrangement that has significantly reduced its tax bills.
An investigation by Finance Uncovered has found that the British company, SPS Sportsoft, has been providing software services to SportPesa’s Kenyan operation, Pevans East Africa, which some experts believe is a staggering mark-up of more than 400 per cent since 2017.
According to its annual statements, SPS billed Pevans £42 million (Sh5.5 billion) for “IT and services” over two years alone.
Yet its UK costs were so low that its total pre-tax profits in that time were £33 million (Sh4.3 billion), a profit margin of 77per cent.
The arrangement could have reduced SportPesa’s profitability in Kenya, where the firm would be taxed at 30 per cent, and shifted the revenues to the UK, where corporation tax is just 19 per cent.
At the same time, SPS has also relied on the provisions of a 43-year old ‘double taxation’ treaty between the UK and Kenya to massively reduce its British tax bill.
It has enabled SportPesa to build a profits reserve in the UK of £22 million (Sh2.8 billion), according to its 2018 accounts – its most recent filing – a nest egg that could be used to invest in its business or to pay dividends to the firm’s shareholders.
SportPesa said it had a “revenue share” arrangement between its UK and Kenyan companies and that it was standard practice for the online betting industry. The company said it abided by all legal and accounting principles.
But tax experts have raised questions about the pricing arrangement.
An official at the Kenya Revenue Authority (KRA) said after reviewing SPS Sportsoft’s financial statements, there appeared to be clear “overcharging”.