The Kenya Revenue Authority (KRA) has launched an investigation into food producer Kakuzi on claims that it paid less tax as a result of international financial transactions with its primary shareholder Camellia Plc.
The taxman is attempting to determine tax losses via transfer pricing, in which businesses perform transactions between several units of the same organization.
“To start an extensive examination, KRA is now conducting internal assessments of Kakuzi PLC’s transfer pricing and other tax policies. This will make it easier for KRA to verify transfer pricing claims and business operations,” said Rispa Simiyu commissioner for domestic taxes.
The price charged when products or services are exchanged between two businesses belonging to the same group but situated in separate nations is transfer pricing.
Through strategies like underpricing or overpricing transactions or transferring earnings to low-tax jurisdictions, it can enable businesses to legitimately reduce their tax obligations.
Companies are expected to price transactions as though they take place between third parties in accordance with OECD regulations, and they must also give tax authorities accurate documentation of the pricing process.
In light of claims of a conflict of interest, the Capital Markets Authority (CMA) says tax it is looking at contracts between Kakuzi and its parent firm, Camellia.
Minority shareholders have previously claimed that Camellia Plc, the company’s controlling shareholder had barred them from the board.
The multinational owns a controlling 50.7% ownership in Kakuzi as a result of its holdings in Bordure Limited and Lintak Investments.
Cross-border financial agreements between Kakuzi and other businesses in the Camellia Plc Group will be of interest to KRA.
The group’s primary parent is Camellia Plc Group firms by shared holdings, according to the company’s 2021 annual report.
“Fellow subsidiaries within the Camellia Plc Group act as brokers and managing agents for certain products and operations of the group,” says the report.
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The transactions between Kakuzi and its other subsidiaries, which involved Eastern Produce Kenya Limited, Robertson Bois Dickson Anderson (RBDA) Kenya Branch, and Eastern Produce Regional Services totaled Ksh 369.4 million last year.
Majority of KRA inquiries are closed with the company agreeing to alter its transfer pricing and pay more corporation tax.
The taxman, however, starts criminal inquiries where there is proof of dishonesty. Fraudulent agreements lying to the authorities, as well as over-tax evasion, are examples of potential abuses resulting from transfer pricing.
Growing, packing, and selling avocados, macadamia nuts, blueberries, tea Greenleaf, and forestry goods are among Kakuzi’s main pursuits.
Additionally, the business raises livestock and sells beef. It is present in Nandi County in the Rift Valley and Murang’a County.
