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Kenya – Transfer Pricing (2025)

Kenya’s transfer pricing framework is primarily anchored in the Income Tax Act cap 470 Laws of Kenya and the Transfer Pricing Rules established under Legal Notice No:67 of 2006 within that Act. Domestic legislation explicitly refers to the Arm’s Length Principle and subjects taxpayers to transfer pricing rules as set out in the Act and the Transfer Pricing Rules. The Transfer Pricing Rules set out the accepted methods, documentation obligations and confer on the Commissioner the authority to prescribe other methods where, in his opinion and given the nature of the transactions, the arm’s length price cannot be determined using the enumerated methods.

Arm’s Length Principle and the role of the OECD Guidelines

Kenya recognises the Arm’s Length Principle in domestic law. The OECD Transfer Pricing Guidelines (TPG) are treated as supplementary guidance rather than legally binding instruments. Kenyan case law has referred to the OECD TPG; notably, Unilever Kenya Limited v Commissioner Of Domestic Taxes (Income Tax Appeal Case No:753 Of 2003) has reinforced the practical use of the OECD Guidelines as an interpretative reference in comparability and transfer pricing assessments.

Domestic law provides a definition of related parties in Section 18(6) of the Income Tax Act cap 470, which states: “For the purposes of subsection (3), a person is related to another if — (a) either person participates directly or indirectly in the management, control or capital of the business of the other; (b) a third person participates directly or indirectly in the management, control or capital of both; or (c) an individual, who participates in the management, control or capital of the business of one, is associated by marriage, consanguinity or affinity to an individual who participates in the management, control or capital of the business of the other.” Paragraph 2 of the Transfer Pricing Rules 2006 further defines “Related enterprises” as one or more enterprises whereby (a) one enterprise participates directly or indirectly in the management, control or capital of the other; or (b) a third person participates directly or indirectly in the management, control or capital of both. Section 2 of the Income Tax Act provides an objective definition of “control,” including that a person holds at least twenty per cent of voting rights in a company; that a loan advanced by the person constitutes at least seventy per cent of the book value of the total assets of the other person (excluding loans from financial institutions not associated with the lender); that a guarantee by the person constitutes at least seventy per cent of the total indebtedness of the other person (excluding guarantees from non‑associated financial institutions); that the person appoints more than half of the board of directors of another person or at least one director or executive member of the governing board of that person; that the person is owner of or has exclusive rights over know‑how, patent, copyright, trade mark, licence, franchise or similar rights upon which another is wholly dependent; that the person or a designated person supplies at least ninety per cent of the purchases of another person and, upon assessment, the Commissioner deems influence in price or other conditions; that the person purchases or designates a person to purchase at least ninety per cent of the sales of another person and, upon assessment, the Commissioner deems influence in price or conditions; and any other relationship, dealing or practice that the Commissioner may deem to constitute control.

Methods and selection criteria

Paragraph 7 of the Transfer Pricing Rules (Legal Notice No:67 of 2006) lists the transfer pricing methods accepted in Kenya: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), Profit Split Method, and “such other method as may be prescribed by the Commissioner from time to time” where the Commissioner considers it appropriate. The applicable criterion for method selection is the “most appropriate method” under paragraph 8(2) of the Transfer Pricing Rules 2006, which aligns with the OECD TPG approach of selecting the method best suited to the facts and circumstances of the controlled transaction rather than following a strict hierarchy.

Comparability and ranges

Kenya follows the comparability analysis guidance in Chapter III of the OECD TPG as a best practice, influenced by jurisprudence such as the Unilever case. The jurisdiction does not prefer domestic comparables over foreign ones, does not use secret comparables for assessments, and allows the use of an arm’s length range and statistical measures in accordance with the OECD TPG. The domestic rules do not require comparability adjustments as a mandatory legislative requirement, so comparability adjustments, the selection of comparables and treatment of ranges are undertaken in line with OECD principles emphasizing functional and economic comparability.

Documentation and reporting

Kenyan law requires taxpayers to prepare transfer pricing documentation. Paragraph 10 of the Transfer Pricing Rules requires preparation of a transfer pricing policy by the taxpayer. Section 18B of the Income Tax Act Cap 470, introduced by the Finance Act 2021, incorporates Country-by-Country Reporting (CbCR) provisions into domestic law. Documentation must be prepared in English and provided upon request, with taxpayers typically given between 14 and 21 days to submit the documents. Proposed CbCR regulations follow the BEPS Action 13 three‑tier approach and provide that notification is due six months prior to the filing deadline once the threshold set by the Commissioner is met. The threshold is at the Commissioner’s discretion and is currently set at EUR 750 million. The profile does not state an explicit legal requirement to file Master File or Local File in exact conformance with Annexes I and II of Chapter V of the OECD TPG, but it confirms a CbCR requirement consistent with Annex III.

Safe harbours, exemptions and materiality

Kenya does not have formal safe harbour rules for particular industries, taxpayer types or transaction types according to the profile. No other simplification measures are listed, and the jurisdiction does not provide exemptions from transfer pricing documentation obligations.

APAs and MAP; procedures and timelines

Mechanisms available to prevent and resolve transfer pricing disputes include rulings and enhanced engagement programs, and Kenya participates in Mutual Agreement Procedures (MAP). The profile points to the OECD MAP Profile for Kenya for further details. The profile does not indicate that Advance Pricing Agreements (APAs), whether unilateral, bilateral or multilateral, are available or in regular use.

Sanctions and other considerations

There are no transfer pricing specific penalties under Kenyan law as set out in the profile; however, general penalties under Sections 82 and 83 of the Tax Procedures Act, 2015 may apply. Kenya allows year‑end adjustments consistent with the OECD TPG. Secondary adjustments are applied in specific situations, for example where deemed dividends arise after an adjustment pursuant to section 7(1)(b)(v) of the Income Tax Act or where a Double Taxation Agreement requires adjustments. The profile does not provide extensive detail on re‑characterisation powers beyond the general authorities of the Commissioner.

Attribution of profits to Permanent Establishments (PEs)

Kenya follows the Authorised OECD Approach (AOA) for the attribution of profits to permanent establishments and applies it in 15 tax treaties. For treaties that still contain the older version of Article 7 of the OECD Model Tax Convention, Kenya would follow the pre‑AOA approach as applicable under those treaties; for treaties that have adopted the updated Article 7, Kenya applies the procedures required by the business profits articles of those Double Tax Agreements.

Conclusion

Kenya’s transfer pricing regime is grounded in the Income Tax Act cap 470 and the Transfer Pricing Rules (Legal Notice No:67 of 2006), with the OECD TPG serving as authoritative guidance though not legally binding. The law defines related parties and control with specific quantitative tests, lists accepted transfer pricing methods while empowering the Commissioner to prescribe alternatives, and applies a “most appropriate method” standard. Documentation obligations are significant and must be met in English upon request, and Kenya has begun integrating CbCR into domestic law via Section 18B, with a current threshold of EUR 750 million under the Commissioner’s discretion. Dispute prevention and resolution mechanisms include rulings and MAP; APAs and safe harbours are not indicated in the profile.

References

For additional information and the OECD country profiles, see https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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