Kenya vs Checkpoint Technologies Kenya Limited, February 2024, Tax Appeals Tribunal, Tax Appeal 1181 of 2022, [2024] KETAT 114 (KLR)

Posted on | By Courts of Kenya
Category: Benchmark, Range and Median, Transfer Pricing Methods | Tag: , , , , , ,
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Checkpoint Technologies used the Transactional Net Margin Method (TNMM) with net cost plus margin as the profit level indicator to determine the pricing of controlled transactions with its parent company. The benchmark study showed an arm’s length range (interquartile range) of 4.9% to 7.3% with a median of 5.5%. However, the agreement between Checkpoint Technologies and its parent company only provided for a mark-up rate of 5%.

The tax authorities conducted an audit for FY2017-2020 and found that Checkpoint Technologies should have used the median in its benchmark study. As there was a discrepancy between the mark-up applied (5%) and the median mark-up of 5.5%, an additional income assessment was issued.

Checkpoint Technologies appealed, arguing that it was not required to adopt the median position. If the reported taxable income (5%) is within the arm’s length range of 4.9% to 7.3%, there is no legal basis for adjusting the income.

Decision

The Tax Appeal Tribunal found in favour of Checkpoint Technologies.

The Tribunal relied on para. 3.63 of the OECD TPG, which states that any point within the arm’s length range satisfies the arm’s length principle if the range includes results from relatively equal and reliable comparables.

 
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