Transfer pricing - Kenya

Kenya introduced transfer pricing rules in 2006 to supplement the provisions of section 18(3) of the Income Tax Act (ITA) 2006, Chapter 470, as amended by Income Tax Rule, 2012 and Income Tax Rule, 2014. The arm’s length principle is laid down in these rules.

Section 18(3) of the ITA states that transactions between a non-resident person and a related resident person should be at arm’s length.

The Kenya Revenue Authority (‘KRA’) has proposed to introduce detailed transfer pricing practice notes. To date, they have not yet been published.
In addition to the rules laid down in section 18(3) of the ITA, the KRA applies the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines) and the UN Transfer Pricing Manual (UN TP Manual).

 

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Transfer Pricing Documentation Solutions

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Transfer Pricing Regulations

  • Section 18(3) of the Income Tax Act CAP 470 provides that, ‘Where a non-resident person carries on business with a related resident person or through its permanent establishment and the course of that business is so arranged such that it produces to the resident person or through its permanent establishment either no profits or less than the ordinary profits which might be expected to accrue from that business if there had been no such relationship, then the gains or profits of that resident person or through its permanent establishment from that business shall be deemed to be the amount that might have been expected to accrue if the course of that business had been conducted by independent persons dealing at arm’s length’.
  • In addition to the above, a multi-national enterprise (MNE) is required to comply with The Income Tax (Transfer Pricing) Rules, 2006 which offer guidelines on how to apply the arm’s
  • The rules prescribe a general overview on the application of transfer pricing rules and Kenya heavily relies on the OECD guidelines which offer a more formulaic expression on implementation.
  • The TP rules empower the Commissioner of Domestic Taxes (KRA) to request for TP documentation to any Multinational enterprise operating in Kenya on transactions where transfer pricing is applicable.
  • Section 18(3) of the Income Tax Act CAP 470 provides that, ‘Where a non-resident person carries on business with a related resident person or through its permanent establishment and the course of that business is so arranged such that it produces to the resident person or through its permanent establishment either no profits or less than the ordinary profits which might be expected to accrue from that business if there had been no such relationship, then the gains or profits of that resident person or through its permanent establishment from that business shall be deemed to be the amount that might have been expected to accrue if the course of that business had been conducted by independent persons dealing at arm’s length’.
  • In addition to the above, a multi-national enterprise (MNE) is required to comply with The Income Tax (Transfer Pricing) Rules, 2006 which offer guidelines on how to apply the arm’s
  • The rules prescribe a general overview on the application of transfer pricing rules and Kenya heavily relies on the OECD guidelines which offer a more formulaic expression on implementation.
  • The TP rules empower the Commissioner of Domestic Taxes (KRA) to request for TP documentation to any Multinational enterprise operating in Kenya on transactions where transfer pricing is applicable.

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    For further information on transfer pricing please contact:

    George Mureithi [CPA]

    Principal - Kenya Practice

    12+ years experience in Audit, Taxation, Accounting, and Financial advisory in Kenya with clients from diverse sectors of the economy including: Manufacturing, insurance, banking, sole proprietors & partnerships, staff pension and provident fund, donor funded organizations, projects, and state-owned institutions. Mureithi is an active and licensed member of Institute of Certified Public Accountants of Kenya (ICPAK)
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