Review of The Draft Income Tax (Transfer Pricing) Rules, 2023
On 4th September 2023, the Cabinet Secretary (Treasury and Economic Planning) through the Commissioner General (KRA) published the Draft Income Tax (Transfer Pricing) Rules, 2023 for public comment. These rules are expected to replace the Income Tax (Transfer Pricing) Rules 2006 which are currently in force. The Draft Rules (2023) encompass the various statutory amendments to the Income Tax Act and are aimed at keeping in line with these changes. Notably, they are geared towards alignment to the Organization for Economic Co-operation and Development Transfer Pricing Guidelines (OECD TP Guidelines). This Article seeks to highlight the critical changes proposed by the Draft Rules (2023) as against the 2006 Rules and their projected impact.
The new rules cover more transactions, like insurance, reinsurance, and restructuring. They also list the information the Commissioner can ask for, like details of transactions, payments, relationships, and reasons for choosing a pricing method. This makes things more transparent.
The Draft Rules (2023) say that the price for buying or selling commodities should be the same as the price on a public market. Commodities include things like agricultural produce, fisheries products, minerals, hydrocarbons, and other goods with publicly quoted prices. The Commissioner may issue guidelines on the conditions and procedures for how to use these prices.
The Draft Rules (2023) refer to penalties for non-compliance, such as fraud, tax underpayment, and failure to file returns, replacing the older Income Tax penalties from the 2006 Rules.
Overall, the Draft Rules introduce significant changes to Kenya’s Transfer Pricing regime, including country-by-country reporting and updated requirements for MNEs, as mandated by the Finance Act (2022). These changes increase compliance obligations for MNEs and align Kenya’s rules with OECD guidelines, reinforcing its global position in transfer pricing.