KRA tightens grip on cross-border company transactions to curb transfer pricing

The Income Tax (Transfer Pricing) Rules, 2026, introduce stricter requirements on how multinational companies price goods, services, loans and other transactions /FILECompanies operating across borders with subsidiaries or related businesses in Kenya will no longer have the same latitude to set prices for transactions within their corporate groups, after the government tightened oversight of transfer pricing.

The new changes introduce stricter pricing requirements for commodities, expand the categories of transactions subject to scrutiny and require companies to maintain more detailed records to justify how they price goods, services and financial arrangements within multinational groups.

The gazetted Income Tax (Transfer Pricing) Rules, 2026, introduce stricter requirements on how multinational companies price goods, services, loans and other transactions between related entities.

This according to legal experts will make it harder to shift profits out of Kenya and reduce local tax liabilities.

PwC Kenya manager for tax and legal services Charity Kihumba, said the new rules would strengthen the taxman’s position when reviewing complex transactions involving related companies.

“In practical terms, the rules are likely to raise compliance expectations and strengthen the Kenya Revenue Authority’s position in transfer pricing reviews, particularly for taxpayers with commodity, financing, restructuring and other complex related-party arrangements,” said Kihumba.

The regulations replace rules introduced in 2006 and give the Kenya Revenue Authority (KRA) a broader framework to scrutinise transactions between Kenyan businesses and their foreign parent companies, subsidiaries or other related entities.

The changes come as tax authorities seek greater transparency over how multinational groups allocate income and expenses across jurisdictions, particularly where pricing arrangements affect the profits declared in Kenya.

Transfer pricing refers to the prices charged for transactions between companies under common ownership or control.

Although such transactions are legitimate, tax authorities scrutinise them to ensure they reflect market conditions and do not artificially shift profits from higher-tax jurisdictions to lower-tax locations.

For Kenya, the rules could make it harder for multinational groups to justify prices that reduce taxable profits booked by their local subsidiaries, particularly where transactions involve commodities, loans, management services and other cross-border dealings.

One of the most significant changes affects companies importing and exporting commodities whose prices are publicly quoted on recognised exchanges or published by approved price-reporting agencies and other public indices.

Under the rules, the quoted price will be used in computing taxable income, based on an average of prices during the 15 days before and 15 days after shipment, as established through the relevant shipping documents.

This gives tax authorities a clearer reference point when assessing whether related companies have traded commodities at prices that reflect market conditions.

It is expected to affect businesses in agriculture, energy, mining and commodity trading, where prices can fluctuate and intra-group contracts influence the profits recorded in different countries.

PwC, however, flagged a potential dispute over how the benchmark should be applied, noting that the rules allow the quoted price to be disregarded where a taxpayer transacts with an independent third party at a higher price for exports or a lower price for imports.

This provision departs from the approach under the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines, which treats quoted prices as a reference point under the comparable uncontrolled price method and allows for comparability adjustments.

Already global civil society networks, economic justice groups, and developing-nation caucuses are aggressively pushing to shift leadership of global tax and corporate trade arrangements away from the OECD to the United Nations.

“This is likely to be one of the most commercially significant changes for taxpayers dealing in products for which quoted market prices exist,” said PwC partner, tax and legal services Titus Mukora.

The 2026 rules also widen the scope of transactions that KRA can examine, moving beyond the traditional focus on goods, services and intangible assets.

The regulations expressly cover financing transactions, including borrowing, lending, guarantees, advances, deferred payments and receivables.

They also bring insurance and reinsurance, business restructurings, cost distribution arrangements and derivatives into clearer focus.

The new rules require companies to justify prices and costs in transactions with their parent firms and other related businesses.

For example, a Kenyan subsidiary taking a loan from its foreign parent may need to explain how the interest rate was set. Companies restructuring their operations must also show how costs and profits were shared.

Businesses will have to keep detailed records, including contracts, transaction values, payments made across countries and explanations of how prices were determined.

They may also need to provide audited accounts and financial statements from related companies abroad.

PwC warned that meeting these requirements could be difficult for Kenyan subsidiaries that cannot easily access financial information held by their foreign parent companies.