Effects of Transfer Pricing on Revenue Generation by Multinational Enterprises in Kenya

Abstract

The purpose of the study was to establish the effects of Transfer Pricing on revenue generation by Multinational Enterprises in Kenya. In the past decade, Kenya has seen an influx of Multinational Enterprises registering subsidiaries and branches in the country due to the foreseen growth and potential in the market. For uniformity purposes and to enjoy economies of scale, related Multinational Enterprises transact with each other across jurisdictions hence the importance of Transfer Pricing rules which have a great impact on revenue generated by the entities ultimately having an effect on the revenue collected in the country. Despite the enactment of Transfer Pricing rules, there are still concerns that Multinational Enterprises are still engaging in transfer mispricing activities that deprives off revenue from Kenya to other jurisdictions. The study adopted a descriptive research design. The population comprised of the 8 Multinational Enterprises currently operating in Kenya. The data collected was standardized and analysed using the Microsoft Excel software to determine different measures of central tendency. The key finding of the study is that the relationship between revenue generated and related party sales showed strong direct relationship and related party expenses have a negative relationship with the revenue generated by the Multinational Enterprises. This means that a change in the related party sales and related party expenses by a company engaging in related party transactions has the potential to affect the revenue generated by the company and ultimately revenue collected in Kenya. The study recommends an evaluation of the effect of Transfer Pricing on revenue generated by Multinational Enterprises in Kenya on a case by case basis.