The taxman is investigating food producer Kakuzi over allegations of tax evasion arising from cross border financial deals with its majority shareholder Camellia Plc.
KRA is looking at possibilities of transfer pricing which have resulted to nonpayment of taxes in Kenya, where a company conducts transactions within its subsidiaries located in varied locations. Clues from the Capital Market Auhority (CMA) led to the investigations by KRA. The CMA questioned Kakuzi’s CEO and Finance Director for allegedly shifting profits abroad even amidst a conflict of interest by Kakuzi’s UK majority shareholder.
“KRA wishes to state that it’s currently undertaking internal reviews on transfer pricing and other tax practices of Kakuzi Plc with a view of commencing an in-depth audit work, “ KRA Commissioner for Domestic Taxes Risper Simiyu said.
Ms. Simiyu added that the reviews will enable KRA establish transfer pricing allegations and the company’s dealings.
On the other hand, the CMA revealed that it is investigating contracts that tie Kakuzi and the parent company Camellia Plc, which point to conflict of interest. The CMA revealed that minority shareholders of the company had lodged complaints of being locked out of the board operations which are currently controlled by Camellia Plc, based in the UK.
These squabbles within the subsidiaries are what alerted the CMA and KRA to open investigations on Kakuzi, for transfer pricing allegations. Transfer pricing is a price pegged on a good or service charged by companies operating as subsidiaries with locations in different countries. Transfer pricing allows companies to engage in illegal tax methods through under pricing or over pricing their goods and services which in turn affects the tax values of the goods or services. Some entities use transfer pricing as a means of cleaning records of money laundering.
The Organisation for Economic Co-operation and Development (OECD) requires companies to price their transactions and provide tax authorities within their jurisdictions with up to date evidence of the transactions including the formula reached to determine the tax values. Some organizations do not adhere to these requirements.
The taxman has however tightened the noose in investigating both local and cross border tax transactions that have a huge impact on the Kenyan economy, hence multinationals must adhere to the tax treaties as set by the jurisdictions of operation.