The Kenya Revenue Authority (KRA) has won a landmark case against Del Monte Kenya Limited after the Tax Appeals Tribunal dismissed the company’s appeal over transfer pricing. The Tribunal ordered the fresh produce giant to pay KSh 1.76 billion, ruling that the company failed to justify why profits were being shifted to offshore affiliates instead of being taxed in Kenya.
“The tribunal found that the pineapple giant could not justify why it was shifting profits to offshore companies when the real value of the business is created in Kenya,” the judgment stated.
Tribunal Rejects Del Monte’s Transfer Pricing Defense
KRA’s 2018 audit revealed that Del Monte used a cost-plus pricing model that artificially reduced its Kenyan profits while favoring related foreign distributors. The Tribunal emphasized that Del Monte’s Thika-based farming and processing operations generate the bulk of the value, and therefore profits must be taxed locally.
The company argued that it had applied a 4.83% markup supported by a benchmarking study, claiming this was consistent with comparable manufacturers. However, the Tribunal rejected this position, finding that Del Monte’s documentation did not adequately reflect the economic reality of its Kenyan operations.
Additionally, intercompany loans advanced by Del Monte Fund BV were dismissed as lacking commercial substance. The Tribunal held that “multinationals cannot use paperwork to export profits when the actual work, risks, and value addition happen on Kenyan soil.”
What Is Transfer Pricing and Profit Shifting?
- Transfer Pricing: The method multinationals use to set prices for transactions between subsidiaries. These prices should follow the arm’s length principle, meaning they should match what independent companies would charge each other.
- Profit Shifting: The practice of moving taxable income to low-tax jurisdictions, often through manipulated transfer prices, intercompany loans, or intellectual property arrangements.
In Del Monte’s case, KRA argued that the company’s pricing to its Swiss affiliate was not at arm’s length, effectively shifting profits out of Kenya.
KRA Challenges Offshore Transactions
The Tribunal noted that Del Monte failed to provide official documentation to counter KRA’s evidence that its lending entity was wholly owned by the Swiss affiliate, DMI GmbH, rather than its Cayman Islands parent.
KRA maintained that the company’s transfer pricing arrangements were designed to minimize Kenyan tax obligations, and the Tribunal agreed, ruling that Del Monte’s approach undermined Kenya’s tax base.
This ruling signals Kenya’s tougher stance on profit shifting and transfer pricing abuses. By reinforcing that profits must be taxed where real farming, processing, and value addition occur, the Tribunal has set a precedent for how multinationals operating in Kenya will be scrutinized.
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