Transfer pricing regulation in Kenya: a critique
This study analyses the current Transfer Pricing ('TP') legal framework in Kenya, the challenges experienced by the Kenya Revenue Authority (KRA) in evaluating the trahsfer price and proposals for redressing them. This is benchmarked against international best practices provided by the Organization for Economic Co-operation and Development Transfer Pricing Guidelines (,OECD TP guidelines'), the United Nations Tax Model Convention on Transfer Pricing ('UN Tax Model') and guidelines from the World Trade Organization ('WTO') on customs valuation. The key argument made is that there is a very weak legal framework in the area of transfer pricing that threatens to make the current Kenya TP legislation not be able to withstand legal challenges. The study critically evaluated the existing institutional framework for the implementation of transfer pricing regulations. The study analyses the institutions vis a vis the transfer pricing application in other jurisdictions and provides areas for reform. The study also analyses the Unilever case and its aftermath as a case study. The study highlights the inadequacies of the Income Tax (TP) regulations. These rules also differ from the Customs valuation methods posing a challenge while dealing with adjustments by revenue authorities. The study also looks at some of the challenges faced by Kenya in implementing the OECD approach. This study therefore explores the differences between UN model and OECD model and recommends areas of synergies. In conclusion, the study established that the current legal and institutional framework for TP in Kenya is inadequate and in need of reforms. As such, recommendations are made for strengthening the legal, policy and institutional~work for TP in Kenya in line with international best practices.