The legal and institutional framework of transfer pricing in Kenya: a case study of the unilever case and its aftermath

Abstract

This study analyses the legal and institutional framework of transfer pricing in Kenya using the Unilever Case and its aftermath as a case study. In this regard, the action taken by the government after the decision in the Unilever case is examined to determine whether there are any inadequacies in transfer pricing law. The key argument made is that Kenya is facing a problem in the area of transfer pricing owing to the inadequacies in transfer pricing law and absence of transfer pricing case law with good public features. In addition, the study critically evaluates the existing institutional framework for the implementation of transfer pricing regulations. The thesis looks at the institutions which were in place before and after the Unilever case and proceeds to find out the adequacy of these institutions to execute the transfer pricing law in place at the respective time. The key findings made include the fact that the Unilever case approved the application of OECD Guidelines even though Kenya had not ratified or adopted them. This application by the court prompted the KRA to promulgate the Income Tax (Transfer Pricing) Rules, 2006 which set out the rules to provide guidelines on transfer pricing. The rules modelled on OECD guidelines on transfer pricing are shown to have inherent inadequacies. In conclusion, the study establishes that the current legal and institutional framework for transfer pricing in Kenya is inadequate and in need of reforms. In this regard, recommendations are made for strengthening the legal, policy and institutional framework for transfer pricing in Kenya in line with international best practices.