New Transfer Pricing Rules in Kenya

September 29, 2023

On September 4, 2023, the Cabinet Secretary to the National Treasury of Kenya issued the Transfer Pricing Regulations Bill regarding the Income Tax Act for public consultation. These new rules are intended to align with the Finance Act 2022, which contained a large number of amendments to the section of the Income Tax Act on related party transactions, including the introduction of Country-by-Country Reporting requirements for multinational entities with transactions in Kenya. 

Key Proposals

Some of the key proposals contained in the new Transfer Pricing Regulations include:

  1. The broadening of the scope of transactions subject to a TP review: Currently, transactions listed as subject to these TP Rules include:
  2. The sale, purchase, or lease of tangible assets.
  3. The transfer, purchase, or use of intangible assets.
  4. The rendering of services.
  5. The money lending.
  6. Any other transaction that may affect the profit or loss of a company.

 

In this regard, they propose to broaden the scope of transactions subject to transfer pricing to also include:

  • Insurance and reinsurance transactions.
  • Derivative transactions.
  • Cost contribution agreements.
  • Corporate restructuring or reorganization, regardless of the financial situation of the entity involved.
  • Financial transactions, including guarantees, purchase or sale of marketable securities, advances of any kind, and postponed payments or accounts receivable..
  • The enhancement of the information in the Local Reports to add a detailed description of the controlled transaction, including The parties involved, the transaction values, the contractual terms of the settlement currency, trading patterns, the amounts of intra-group payments or collections for each related party transaction, and the jurisdiction of the parties involved.
  •  The authority for the Commissioner to request additional information to support transfer prices, such as financial statements of the parties of the transactions, segmented reports, details and fundamentalism of the selection of allocation keys, allocation schedules demonstrating the employment of the financial data in the Local Report. 

Concluding Observations

This revision of the Transfer Pricing Regulations in Kenya should hopefully result in additional compliance requirements for MNEs, also clarifying more regarding the Transfer Pricing applicability in Kenya. 

Source: Bowmans Law