Managing your risks and opportunities
Transfer pricing has become one of the most important tax issues for multinational companies (MNEs). Managing transfer pricing risk and maximizing the opportunities it lends itself through schemes such as Advanced Pricing Arrangements (APA) are both key to maximizing on after tax profit in the medium to long term.
Transfer pricing rules are intended to deter repatriation of untaxed earnings outside the country in which an enterprise operates and to ensure that all dealings between related companies spread across different tax jurisdictions and countries are properly accounted for.
Managing transfer pricing risk remains critical in an increasingly aggressive environment. Kenya Revenue Authority (KRA) and other revenue authorities worldwide are increasingly auditing tax-payers activities with transfer pricing audit objectives. The result of these audits could lead to tax adjustments
that may be significant.
Rule 6 of the guidelines lists the transactions which may be subject to adjustment of prices under the TP Rules to include:
• The sale and purchase of goods;
• The sale, purchase or lease of tangible assets;
• The transfer, purchase or use of intangible assets;
• The provision of services;
• The lending or borrowing of money; and
• Any other transactions which may affect the profit or loss of the enterprise involved.
Virtually all countries including Kenya have put in place mandatory transfer pricing rules, in their tax laws, with documentation requirements and provisions for penalties. As a result, business entities need to understand their obligations under the law and strategy of managing transfer pricing risk and opportunities. The rules generally borrow from the OECD regulations of transfer pricing.
Under the Kenyan Income Tax Transfer Pricing Rules, companies which have dealings with related companies in other countries would be required to prepare their transfer pricing documentation and submit the same to KRA.
Since 2006, KRA has been rolling a transfer pricing structure to be complied with. This has now been fully operationalized with the setting up of a Transfer Pricing department at KRA. Companies with international related party dealings are now required to prepare and submit their transfer pricing documentation in accordance with the Income Tax Transfer Pricing Rules, 2006.
KRA has indicated that attention to transfer pricing will be increased in the course of this year and upcoming audits since taxpayers are obliged to maintain transfer pricing documentation under the guidelines Transfer pricing documentation which is usually in the form of a transfer pricing policy is the basis on which a company is expected to pay transfer pricing taxes.
Companies with international related party dealings may want to have a good policy that would shield them during times of low margins and high margins.
Transfer pricing taxes pose a newer risk to businesses owing to its complexity.
Consider the following key questions:
• Have you recently changed your operating structure, introducing different inter-company transactions?
• Are you directing your transfer pricing compliance efforts to the right transactions?
• Have you identified all of the cross-border services and the benefits received?
• Are your inter-company finance transactions (e.g. loans, guarantees, foreign exchange, debt instruments, centralized treasury transactions, etc.) appropriately analysed and documented?
• Do your transfer pricing practices match your transfer pricing policies?
• Are you subject to audit in one or more countries and suspect you may be at risk in others?
Multinational enterprises place more importance on transfer pricing than on any other tax issue, and are also concerned about managing the risks to their financial state posed by transfer pricing.
How can we help you?
Audit defence strategies
With an increasing number of large businesses being confronted with transfer pricing audits, it is essential to understand the risks and have a sophisticated and tailored audit defence strategy. The PKF Transfer Pricing team has the experience and tools to assist organizations facing an audit. Our approach to audit defence strategies:
PKF offers a wide range of transfer pricing services, including:
• Assessment of transfer pricing risk;
• Preparation of transfer pricing documentation;
• Benchmarking analysis to support intragroup pricing;
• Assistance in obtaining approval from tax authorities on the method for determining the tax base of a foreign company’s permanent establishment in Kenya;
• Provide audit related defense against tax authorities queries.
Located across the globe, our teams of experienced transfer pricing professionals have in-depth knowledge of local and regional issues. As part of an extensive integrated global network, our teams collaborate across countries and regions, as needed, to provide you with focused, quality service. PKF’s transfer pricing professionals combine forward planning, coordination and execution of tax strategies to keep pace with your business change
Trebon for excellent results…
A new multipurpose insecticide to counter troublesome pests affecting vegetables, cereals, fruits and flowers has been introduced in the market. The new insecticide, Trebon, is known to combat a wide range of insects among them whiteflies, aphids, leaf miners, hoppers, moth, common cutworms and caterpillars.
Trials on the efficacy of the insecticide were carried out in three regions in the country on different plants. The trials which started in 2008 were carried out in Kericho on roses, Timau (carnations) and Naivasha (vegetables).
According to researchers who carried out the trials Trebon was found to have a knockdown effect on hoppers, cutworms and whiteflies.
During Trebon launch in Sopa Lodge Naivasha, Mitsui Chemicals Agro Corporation Kenya representative Mr. Dickson Mureithi said results indicated that the insecticide effectively controlled whiteflies at the rate of 400-500 ml/ha.
Mr. Mureithi said that after 72 hours after application the efficacy against whiteflies was excellent. On aphids the rate of infestation dropped drastically until all insects were killed.
Mr. Jack Apollo Juma a researcher said Trebon has proved very safe to users and its effects on beneficial insects such as lady birds are insignificant.
Ms. Mary Opisa a representative of Finlay Flowers where trials were conducted on roses said that the insecticide was tried on whiteflies on all stages of growth. She pointed out that it had excellent effect especially on adult flies and nymphs.
Trebon is manufactured by Japanese chemical company Mitsui Chemicals Agro Inc. The chemical was established in 1987 and has been registered in over 40 countries across the globe. The insecticide is being marketed locally by Elgon Kenya Limited.
Elgon Kenya an associate member of Kenya flower Council, deals in agricultural chemicals and fertilizers, seeds, irrigation system and farm equipments. They also manufacture polythene sheeting, printed/plain bags, plastic containers, corrugated cartons, labels, strapping roles among others.
Mitsui Chemicals Manager Europe, Middle East and Africa International Business Department sales and Marketing Division Mr. Bunkichi Tsunekawa said the product has maintained its status as a multipurpose insecticide with high efficacy.
He said Trebon shows insecticidal activity against some organophosphate resistant and carbamate resistant insect pests.
“It does not only kill insects but also shows specific activities like repellency activity inhibition against laying of eggs,” added Mr. Tsunekawa.
Advantages of Trebon
Trebon has low mammalian toxicity, rapid knockdown activity, no irritation to the user, low impact on environment, short pre-harvest intervals and low risk on pest resurgence.
KEPSA Partners with Ministry of Foreign Affairs to Improve Economic and Commercial Diplomacy for Trade and Investment
Kenya Private Sector Alliance (KEPSA) held a Breakfast meeting on 11th July 2011 with the Ministry of Foreign Affairs to foster the already existing cordial partnership so as to promote trade and investment within the region and beyond.
In a press release, KEPSA stated that this will partly be achieved by strengthening and positioning Kenya’s Economic and Commercial Diplomacy structures in order to aggressively promote its products as well as it being the preferred investment destination within this region. There is therefore the need to strategically align/equip Kenya’s Missions abroad with adequate capacity to market Kenya’s Products as well as enable them to explore areas of investment and expansion for Kenya’s entrepreneurs.
This will intentionally be implemented through Economic Diplomacy which is a deliberate strategy and policy by countries to position themselves to reap economic benefits from their interactions with other countries.
The Acting Minister for Foreign Affairs, Hon. George Saitoti was enthusiastic about the steps being taken by both the government and the private sector to set the stage for additional collaborations between the Ministry, KEPSA and the various sectoral federations. He mentioned that the new constitution has addressed itself to this matter and has recommended under the fourth schedule that the portfolio of foreign trade be placed together with foreign affairs and foreign policy. He noted that all over the world, effective and successful foreign ministries devote enormous resources in the pursuit, promotion and protection on individual economic and commercial interests and Kenya cannot afford to be left behind.
Hon. Saitoti said that the government is involved in various activities to promote foreign trade including drafting the Foreign Policy with Economic Diplomacy as one of its pillars; mapping out specific economic zones with selected and well briefed Economic Counsellors and Trade Attaches who will oversee and coordinate trade facilitation and networking; undertaking joint trade and investment promotion activities abroad and investing in Science, Technology and Innovation in agricultural production, pharmaceutical and medical care, infrastructure and ICT.
In addition, the minister emphasized that the dual citizenship that is now possible for Kenyans in the diaspora, as per the new constitution, will boost foreign trade as Kenyans will now confidently channel funds back home for investment, as well as seek more long term trade opportunities in the host countries. In this regard, the ministry has set up a special department (Directorate of Diaspora and International Jobs) that will provide information regarding investment opportunities in different countries.
KEPSA appreciated the progress so far to position Kenya as a leading economic hub in the region and a competitive foreign investment destination, urging the government to provide the necessary regulations in consultation with the private sector to tap into the huge markets in the trading blocs like EAC, COMESA and SADC. The scale of Economic Diplomacy therefore has to be in the context of the African Agenda that will specifically target Africa’s untapped resources, high population, green energy and strong and resilient manpower.
Kenya has the potential and needs to strengthen its Economic and Commercial Diplomacy in order to:
1) Expand its export access by increasing its presence in major countries with potential and existing markets
2) Attract Foreign Direct Investment (FDI) to Kenya
3) Attract joint ventures and partnerships with local entrepreneurs
4) Attract technology transfer and Financial support for local expansion
Moreover, KEPSA sees the launch of the Open Data Portal as a good measure for exploring business opportunities using the available data. It will also be a tool for job creation to the unemployed youth.
The ICT sector has made major contributions to the country’s economy with an annual growth rate of 20 per cent in the last few years and the website being launched for the first time, will make large quantities of Government data available to the public in a digital electronic format.
The Government data website will be particularly useful to policy makers and business persons who require timely and accurate information in formulating policies and making business decisions.
Regional Council Kenya holds their first meeting
The FloraHolland Regional Council Kenya (RCK) held their first meeting in Nairobi on 24th of June 2011. Bernard Oosterom, chairman of the cooperative, and Peter Otto, manager cooperative affairs, officially selected nine members selected to sit in the council. They included Warmolt Tonckens, Bob Andersen, Simon van der Burg, Jos van der Venne, Grace Nyachae, Morris Wahome, Anand Shah, Jack Kneppers and Tiku Shah.
Bernard welcomed and expressed his appreciation to the nine members for accepting to be part of the RCK. The role of the RCK members was explained with specific attention to the role of GJ van der Kooij, who is sitting on behalf of FloraHolland in the RCK. He will be the secretary for the RCK and coordinator between the council and the Board of FloraHolland.
Bernard shared the latest developments in the international supply chain with a presentation on the results of the ‘Roland Berger Consultancy’ report for FloraHolland. The RCK members were asked for their view on this matter. He explained the latest discussions around the member’s involvement within the cooperative. Besides having Regional Councils (16 in total now) an ‘Advisory Soundboard’, one for Flowers and one for Plants, will most likely be set up whereby the role of the FPC (FloraHolland Product Committee) will change.
The Regional Council meeting for all regional council members will take place in Holland on 11th of October and the next General Members’ Meeting (ALV) of FloraHolland on 8th of December. The Regional Council Kenya will be invited to both events.
FloraHolland will also select a chairman out of the nine RCK members with consultation of the nine RCK members. Before the next Regional Council Kenya meeting in September the chairman will be known. Based on the discussions of this first meeting one of the subjects on the agenda for the next Regional Council Kenya meeting will be ‘how can we improve our clock system in the future (if applicable)?’.
For three days the FloraHolland Trade Fair ‘Aalsmeer will be the place for the floriculture industry to do business. The FloraHolland Trade Fair Aalsmeer will be held from Wednesday 2 through Friday 4 November this year. The show is part of the International HortiWeek. The IFTF in Vijfhuizen and the Horti Fair in Amsterdam RAI are also be taking place at the same time. There will be a free shuttle bus service to take visitors between the various trade fairs.
The trade fair will be expanded once again and in total, there will be more than 650 growers’ stands as well as a number of themed plazas.
Trade professionals will be granted free admission to FloraHolland Trade Fair Aalsmeer. Each visitor will be registered at the entrance.