NAIROBI, Kenya — The Kenya Revenue Authority (KRA) has ordered Del Monte Kenya Limited to pay Sh1.76 billion after the Tax Appeals Tribunal dismissed the multinational fresh produce firm’s appeal in a high-stakes transfer pricing dispute, dealing a significant blow to profit-shifting arrangements by foreign-owned companies operating in Kenya.
In its ruling, the tribunal agreed with KRA that Del Monte failed to justify why it was allocating the bulk of its profits to offshore-related companies despite substantial value creation taking place in Kenya.
“The tribunal found that the pineapple giant could not justify why it was shifting profits to offshore companies when the real value of the business is created in Kenya,” the ruling stated.
The dispute arose from a KRA audit of Del Monte Kenya’s transfer pricing arrangements for the 2018 financial year, focusing on sales of fresh and processed pineapples to its Swiss affiliate, Del Monte International GmbH (DMI GmbH).
KRA’s audit found that Del Monte Kenya applied a cost-plus pricing model that artificially depressed taxable profits in Kenya while favouring related foreign distributors in lower-tax jurisdictions.
The tax authority argued that the prices charged to the Swiss affiliate were not at arm’s length and did not reflect what independent parties would have agreed under comparable circumstances, resulting in profit shifting out of Kenya.
Del Monte challenged the assessment, arguing that KRA had erred in fact and law by disregarding its functional analysis and benchmarking study, which supported a 4.83 per cent markup on costs under the Transactional Net Margin Method (TNMM) using a full cost mark-up (FCMU).
“The Respondent erred in fact and in law by disregarding the Del Monte functional analysis, resulting in an incorrect characterisation of the Appellant and assessing tax on the related party transactions on the assumption that the Appellant did not earn an arm’s length return,” Del Monte argued.
The company maintained that it operated as a manufacturer selling to a related distributor abroad and should therefore earn only a modest return, insisting its pricing complied with applicable transfer pricing rules.
However, the tribunal rejected that position, holding that Del Monte failed to demonstrate that its pricing reflected the economic reality of its operations in Kenya.
The tribunal found that the scale of Del Monte’s activities — including production, processing, labour, and operational risks — justified higher returns than those reported.
It further held that multinational enterprises cannot rely on contractual arrangements or internal paperwork to export profits when the actual work, risks, and value addition occur locally.
“KRA in its pleadings stated that it had indeed sought information from registry records and therefore confirmed the ownership and relationship between Del Monte and the enterprises engaging with it in cross-border transactions,” the tribunal noted.
A key issue in the case involved a multi-billion-shilling intercompany loan advanced to Del Monte Kenya by Del Monte Fund B.V., which the company claimed was owned by its ultimate parent entity in the Cayman Islands.
KRA, however, presented registry evidence showing that the lender was wholly owned by DMI GmbH, the Swiss affiliate benefiting from the pricing structure.
The tribunal held that Del Monte failed to provide official documentary evidence to rebut KRA’s findings, undermining its defence.
The ruling reinforces KRA’s increasingly aggressive stance on transfer pricing enforcement as it seeks to curb base erosion and profit shifting by multinational corporations.
