Kakuzi braces for landmark verdict as KRA wraps up tax evasion probe

Kakuzi workers packaging avocados for export on May 19, 2022. [David Gichuru, Standard] Listed agricultural company Kakuzi will soon know whether its officials will face prosecution or financial sanctions when the taxman renders its verdict on a landmark transfer-pricing probe into the company. The Kenya Revenue Authority (KRA) in August this year revealed it had launched investigations against Kakuzi over claims of paying less tax linked to its cross-border financial deals with its majority shareholder Camellia Plc. KRA has been probing whether Kakuzi has been engaging in transfer pricing to evade or under-declare its tax obligations. Transfer-pricing accounting occurs when goods or services are exchanged between divisions of the same company. For example, if a subsidiary company sells goods or renders services to its holding company or a sister company, the price charged is referred to as the transfer price. Multinational corporations use transfer pricing as a method of allocating profits among their various subsidiaries within the organisation, often as a means to avoid paying taxes. The KRA probe followed a similar ongoing investigation by the Capital Markets Authority (CMA) earlier this year. Tax laws Analysts see the verdict of the KRA probe and any enforcement as a landmark in that it could establish precedence in the interpretation of existing tax laws. CMA earlier this year questioned Kakuzi Chief Executive Christopher Flowers and Finance Director Ketan Shah over allegations of shifting profits abroad and conflict of interest by its UK-based majority shareholder. KRA told Financial Standard last week its investigation is on course and the findings of its probe will be "finalised soon." "KRA is in the process of reviewing the tax compliance status of Kakuzi Plc," said KRA Commissioner for Domestic Taxes Rispah Simiyu in an interview. "Findings of the review will be shared with the company once the review is complete, and it is envisaged that the process will be finalised within the timelines provided for in the service level agreement." KRA said it is bound by law not to reveal the tax affairs of an individual or company. It, however, added such information could be revealed to other regulators for purposes of investigation. "The information is treated as confidential under section 6(1) and (2) of the Tax Procedures Act and the same are held as such," it said. "However, Tax Procedures Act compels the Authority to release information only for purposes of investigation to an authority responsible for the investigation of graft issues in a public office." UK-based Camellia owns a 50.7 per cent stake in Kakuzi, giving it control of the company. Camellia purchased the stake in Kakuzi in the mid-1990s. CMA was earlier understood to be probing contracts between Kakuzi and its parent company, Camellia Plc. The regulator was interrogating the financial implications of transfer pricing, which comes about when a firm executes transactions between different units of the same organisation. The CMA is also investigating Limuru Tea, which is controlled by British multinational Unilever, for alleged understatement of the value of its plantation and financial misstatements as the multinational prepares to exit the company. The ongoing probe on Limuru Tea and Kakuzi Plc is centred around suspected, but so far unproven, abusive transfer pricing practices. CMA had earlier contacted individual directors of Kakuzi over claims of shifting profits abroad and conflict of interest by its UK-based majority shareholder, according to people familiar with the probes. The move, which widened one of the largest recently known investigations by Kenya's capital markets regulator on a listed firm, saw Kakuzi directors questioned from mid-September on contracts and transactions between Kakuzi and its parent firm Camellia Plc. Kakuzi management, including the CEO Mr Flowers, Finance Director Mr Shah and General Manager in charge of Finance Benjamin Okiring, had earlier been contacted by the CMA in the ongoing probe. Regulatory filings Kakuzi, whose agricultural activities are in the counties of Murang'a and Nandi, produces and sells avocados, macadamia nuts, blueberries, tea green leaf and forestry products. The firm also deals in livestock farming and sells beef. "The group transfer pricing policy gives guidance on related party transactions, which are carried out using the arm's-length principle," Kakuzi says in its regulatory filings. Kakuzi directors include Mr Nicholas Ng'ang'a, who is also the chairman of the board; CEO Mr Flowers, who is an executive director by virtue of his role; and Mr Graham Mclean, a non-executive director. Others are Messrs Daniel M Ndonye, Stephen Waruhiu, Andrew Ndegwa Njoroge (all Independent directors), Dr John Kibunga Kimani - non-executive director and Shah, who is also the finance director and hence an executive director. Minority shareholders of the company had earlier protested allegations of being locked out of the Kakuzi board, which was controlled by Camellia Plc. Dr Kimani, who is Kakuzi's second-largest shareholder came on board in a board shake-up that followed allegations of human rights abuses, including rape and violence at the firm. Camellia says it has taken remedial measures and made governance reforms and encourages its subsidiaries to do the same with an aim of better handling potential future abuses. Dr Kimani had previously failed in attempts to get a board seat even though he owns a third of the stake in the company. Multinationals in the country are expected to face further tax scrutiny, with the KRA expected to tighten the noose on taxpayers after President William Ruto set a target to double tax collections by the end of his first term in office in 2027. President Ruto recently gave KRA a target of Sh3 trillion by the end of the next financial year, and to double it over the next five years, noting that while improving, tax collections remain far below the potential. Developing countries like Kenya are becoming aware of risks arising from alleged abusive transfer pricing practices by some multinationals. According to tax experts, the main risks include tax leakages and in the case of publicly listed firms, shortchanging of local minority shareholders.

Kakuzi braces for landmark verdict as KRA wraps up tax evasion probe

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Similar Articles

Kenya's cybersecurity skills gap persists despite training efforts

Ruto's budget limbo deepens as IMF digs in on bailout conditions

German 'chemical town' fears impact of industrial decline

AI boom raises pressure for clean energy transition

DIGGER JOBS

Digger Motors

Digger Real Estate

Kakuzi braces for landmark verdict as KRA wraps up tax evasion probe

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS