Fie Insights

The establishment of suitable Intercompany Agreements (ICAs) is a continuous initiative rather than a singular undertaking. This is attributable to the dynamic nature of the group’s composition, subject to alterations resulting from acquisitions, organic growth, or organizational reconfiguration. Additionally, the group must periodically revise its Transfer Pricing (TP) compliance strategies due to modifications in tax...

Intercompany agreements, or ICAs, are legal contracts entered into between businesses with similar interests. These agreements lay the groundwork for the legal structure that governs the provision of services, products, intangible assets, and financial assistance inside a corporate group. Management services, administrative and other back-office services (e.g., finance, tax, legal, and HR services), marketing services,...

Controlled Foreign Company (CFC) rules are tax laws that are designed to prevent multinational companies from shifting profits to subsidiaries located in low-tax jurisdictions in order to avoid paying taxes in their home country. These rules aim to ensure that multinational companies pay their fair share of taxes on the income generated by their foreign...

The STTR rule, part of the Inclusive Framework on BEPS, helps countries fairly tax multinational companies. It’s one of the rules under Pillar Two, which allows countries to tax certain payments when other countries don’t tax them enough. The STTR focuses on preventing companies from dodging taxes by moving their profits to countries with very...

Tax Policy Changes Value Added Tax Firstly, there is a proposal to review the VAT threshold, aiming to optimize operational efficiency within the VAT system.  Reviewing the VAT threshold can enhance efficiency by streamlining the administration of VAT, potentially reducing compliance burdens for small businesses. Secondly, a comprehensive assessment of exempt and zero-rated supplies is...

A medium-term revenue strategy (MTRS) is a high-level roadmap for tax system reform, covering a period of four to six years. Tax reform includes changes to tax policy, tax administration and legal frameworks. According to PCT 2017, the core elements of the MTRS Includes; A social contract on the level of revenue mobilization effort for...

The Kenyan taxation framework operates on a self-assessment basis, susceptible to manipulation, filing errors, income understatement, and expense overstatement, among other vulnerabilities. To comprehend the foundation of this system, it is essential to explore the underlying legal framework. Under the Judicature Act (CAP 8), the High Court, Court of Appeal, and subordinate courts are mandated...

Introduction According to a guide developed by the International Institute for Sustainable Development (IISD), the Pillar Two Global Anti-Base Erosion (GloBE) minimum tax proposal will have an impact on numerous countries, regardless of whether they take action within their own borders. The GloBE initiative establishes a reservoir of potential tax revenues from the incomes of...

Energy and Resource (ER) Transfer Pricing Considerations Trading Hub: In the present BEPS landscape, the focal point regarding trading hubs revolves around a crucial transfer pricing (TP) consideration. It involves ensuring a harmonious correlation between two key factors: Strategic Decision-Making and Risk Control: This entails verifying that the geographic location where pivotal decision-makers exert authority...

Transfer price is the price of a transaction between two entities that are part of the same economic group of companies. The price transacted between the two related entities is the “transfer price” and the process for setting the price is referred to as “transfer pricing.” Whereas commercial transactions between independent enterprises are generally determined...

The report on Crypto-Asset Reporting Framework (CARF) and Amendment to the Common Reporting Standard (CRS) was released to the public by Organization for Economic Cooperation and Development (OECD) in the month of October 2022. This comes at a time where OECD recognizes the need to address Crypto assets which can be transferred and held without...

According to Finnerty in 2007, International tax law framework has been used to indicate a set of rules that affect the tax treatment of cross-border operations. This set of rules is constituted primarily by domestic tax rules, whose application is generally limited by double tax treaties and other international law instruments. In Kenya for instance,...

BAPA process has been well elaborated and articulated in the Bilateral Advance Pricing Arrangement Manual. However, it only acts as a guidance on the best practices to approach the process and should not be construed as an advice but an awareness on the whole spectrum. The following stages has been suggested to guide the BAPA...

In the advent of globalization, new emerging business models have developed in the last 10 years with the recent developments heavily experienced in the financial products and intermediaries such as Decentralized Finance (DeFi). At the same time jurisdictions globally are concerned about the potential growth of digital economy and the risks associated with reduced transparency...

Background The Appellant is a registered taxpayer whose principal business is grading and packaging of flowers for export. It is located in Naivasha Kenya. The Respondent is a principal officer of Kenya Revenue Authority, Kenya Revenue Authority is an agency established under the Kenya Revenue Authority Act for the collection of Government revenue and related...

The Profit Split Method: it logically follows that the residual profits will be allocated to those entities contributing the unique and valuable intangibles and making the crucial strategic decision (entrepreneurs), while entities performing supporting functions will be allocated a small and stable (routine) remuneration. The aim is aligning profits with value contribution. It is useful...

Transactional Profit Methods The Transactional Net Margin Method (TNMM): Net Margin data derived from uncontrolled transactions. TNMM examines the net profit relative to an appropriate base like costs (Net Profit return to Costs), sales (Net Profit return to Sales), or assets (Net Profit Return to Assets). It operates like a cost plus or resale minus,...

The Cost-Plus Method (CPM): Gross profit margin data expressed as a mark-up of production costs incurred in uncontrolled transactions. OECD GL paragraph 2.45 states that cost plus method begins with the costs incurred by the supplier of property (or services) in a controlled transaction for property transferred or services provided to an associated purchaser. An...

Most countries, the OECD and the United Nations transfer pricing guidelines have all built in a degree of flexibility into their approaches, allowing other methods to be used in specific cases, provided that they approximate an arm’s length result and are acceptable to all the parties involved – that is acceptable to the tax administration,...

Income tax treaties begin with the recitation that they are entered into between countries for the purposes of avoiding double taxation of international income flows, and the prevention of fiscal evasion with respect to taxes on income and capital gains. Permanent Establishment (PE) is a key concept in international corporate tax planning, used by tax...

The global economy is growing rapidly coupled with integration of national economies and markets. This growth has created an opportunity for profit shifting by Multinationals from high-tax jurisdictions to low-tax jurisdictions through treaty shopping; which has been cited by OECD Inclusive framework as one of the major sources of BEPS concerns. Against that background, OECD...

Abuse of tax treaties has been cited by Organization for Economic Cooperation and Development (OECD) as a key source of base erosion and profit shifting (BEPS). The Multilateral Instruments as Action 15 (MLI) helps the fight against BEPS by implementing the tax treaty-related measures developed through the BEPS Project in existing tax treaties in a...

Article 6 to 21 of OECD Model Tax Convention on Income and Capital provides the basis for taxation of the various income heads noted as well as allocating taxation rights to the relevant state. According to Veronika Daurer (Fellow, Monash University Taxation Law and Policy Research Institute), in the absence of a treaty between a...

Income tax treaties begin with the recitation that they are entered into between countries for the purposes of avoiding double taxation of international income flows, and the prevention of fiscal evasion with respect to taxes on income and capital gains. According to international law as presented in Vienna Convention on the Law of Treaties 1969...

The world’s tax treaties are based on precedents found in an OECD model tax convention or a UN model tax convention. Both models divide taxing rights on cross-border investment and business activities. The OECD model shifts taxing rights to capital exporting (residence) treaty partners while the UN treaty allows capital importing countries (Source country) to...

According to OECD model for tax convention, intangibles are intended to address things that are not physical assets or financial assets; but which are capable of being owned or controlled for use in commercial activities. In addition, the use or transfer of these intangible assets would be compensated had it occurred in a transaction between...

Kenya through its proposed Finance bill 2021, introduced documentation guidelines for Multinational Enterprises (MNEs) operating locally through their subsidiaries. This comes at a time when globally jurisdiction members under Organization for Economic Cooperation and Development (OECD) are racing to implement Inclusive framework on BEPS (Base Erosion and Profit Shifting) to combat illicit financial flows, tax...

Globally, countries especially across Middle East (Gulf countries) and Africa like Tunisia, Uganda and Egypt are racing towards implementing electronic tax invoice. The wave is already being felt locally with Kenya Revenue Authority (KRA) rolling out the hardware-based electronic tax invoicing which commenced on 1st August 2021; with a deadline for complying extended to 31st...

The digital economy has gained significant importance within the global economy as a driver of innovation and competitiveness. In Africa, Kenya has positioned itself as a leader in access to digital infrastructure; with 98% of its citizen owning sim cards, and 65% of the population having access to the internet. The high internet penetration in...

Finance Bill, 2022/23 Proposed Amendments on Transfer Pricing Documentation The finance bill 2022 was received in the National Assembly on 12th April 2022 for debate. The income tax amendments section 18C has been introduced to include notification to the commissioner by a multi-national enterprise (MNE) group on the following disclosures not later than the last...

In January 2022 the OECD (Organization for Economic Co-operation and Development) released a final version of the transfer pricing guidance on documentation and other important sections pertaining to transfer pricing. As per OECD 2022 guidance on documentation, it provides guidance for tax administrations to take into account in developing rules and/or procedures on documentation to...

According to the Organization for Economic Co-operation and Development (OECD) thin capitalization refers to the situation in which a company is financed through a relatively high level of debt compared to equity. The Kenya Finance Act 2021 introduced new provisions governing interest payments that are not deductible for corporation tax purposes. The Act, provides for...

The finance bill 2021 was tabled in National Assembly on 11th May and passed on 29th June 2021. The bill proposed the following amendments to the following statutes that took effect in 1st January 2022; Income Tax Extractive Industries Taxation: The Act grants an allowance of 50% in the first year of use of machinery...