Kenya Tribunal Upholds TNMM Over RPM in Avic Transfer Pricing Dispute

22 November 2024

Kenya’s Tax Appeals Tribunal reviewed whether Avic International Beijing (EA) Limited correctly used the resale price method to price purchases of completely knocked-down motor vehicle kits from its Chinese affiliate. The taxpayer argued that the RPM was appropriate, but the tax authority applied the transactional net margin method, leading to additional taxable income and a deemed dividend subject to withholding tax.

The Tribunal upheld the use of the TNMM, finding that Avic’s significant value-adding functions, including assembly and fabrication, made the resale price method unreliable. It agreed that the taxpayer’s comparables analysis omitted key functional differences and that the tax authority’s benchmarking was more appropriate.

However, the Tribunal held that while withholding tax applies to deemed dividends arising from transfer pricing adjustments, the tax authority had no legal basis to collect WHT for periods before November 2019. It upheld WHT only for later periods.

The ruling confirms the primacy of method reliability in Kenyan transfer pricing disputes and clarifies the temporal limits on WHT assessments linked to deemed dividends.

For the Full English Translation visit: Kenya vs Avic International Beijing (EA) Limited, November 2024, Tax Appeals Tribunal, Case no. TAT E786 OF 2023 - TPcases