Treasury Takes Aim at Tax Loopholes in Corporate Transactions
In an effort to close tax loopholes utilized by multinational corporations, the Treasury has introduced new draft Income Tax (Transfer Pricing) Rules, aiming to broaden the scope of transactions subject to transfer pricing regulations. These proposed changes encompass various financial activities, including insurance and reinsurance transactions, cost contribution arrangements, derivatives, guarantees, and the buying or selling of marketable securities. The move is part of a broader initiative to enhance transparency in inter-company dealings and curb tax avoidance through profit repatriation.
Kevin Chege, the Manager of Tax and Transfer Pricing at PKF Eastern Africa, explained, "The main intention is to try to bring into focus transparency in terms of inter-party related dealings and ensure there is no tax avoidance through the repatriation of profits. Businesses are evolving, and the rules today are not as elaborate as previously."
Transfer pricing rules are designed to guide related enterprises to determine fair prices for inter-company transactions, known as "arm's length prices." Additionally, these rules specify administrative regulations, including the types of records and documentation that must be submitted to the Kenya Revenue Authority commissioner. The proposed expansion of these rules reflects Kenya's commitment to closing tax loopholes and promoting equitable taxation in the corporate sector.
REGULATION
Government Requires Real Estate Agencies, Saccos, Casinos, Forex Bureaus, and Insurance Brokers to Register with Anti-Money Laundering Watchdog by September 15
In a concerted effort to combat economic crimes such as financial terrorism and racketeering, the Kenyan government has mandated that real estate agencies, saccos, casinos, forex bureaus, and life insurance brokers register with the Financial Reporting Centre (FRC) before September 15, 2023. The move comes as part of a broader strategy to enhance oversight and transparency within these industries, ensuring that they do not unwittingly facilitate money laundering schemes or the financing of terrorism.
In separate statements issued to the chief executives of real estate agencies and saccos, the FRC emphasized its commitment to supervise these entities' reporting practices, particularly concerning suspicious financial activities. This initiative aligns with the Proceeds of Crime and Anti-Money Laundering (Amendment) Act (2012), which mandates reporting and regulatory institutions to promptly report any suspicious or unusual transactions. By closely monitoring these sectors, the government aims to curb illicit financial activities that may threaten the stability of the nation's economy.
Additionally, casinos and internet betting firms will need to comply with both the FRC and the Kenya Revenue Authority's daily tax collection requirements from gamblers. This dual oversight is intended to ensure that these industries operate within the bounds of the law and do not inadvertently contribute to money laundering or terrorist financing. By enhancing its regulatory measures, Kenya seeks to address concerns raised by international bodies, such as the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), regarding the influx of illicit funds into the country. Together, the FRC and the Kenya Revenue Authority will collaborate to monitor cross-border currency declarations involving sums exceeding $10,000, further bolstering the nation's efforts to combat financial crimes on a regional scale.
COMPANIES
East African Breweries Plc (EABL) Defends Diageo's Stake Acquisition Amid Senate Scrutiny
Nairobi, Kenya - East African Breweries Plc (EABL) found itself under the Senate Trade Committee's microscope on Thursday, as its CEO, Ms. Jane Karuku, staunchly defended the recent acquisition of an additional 14.97 percent stake in the company by its parent firm, Diageo Plc. This transaction elevated Diageo's ownership in EABL to 65 percent. The scrutiny followed a petition lodged in the Senate by Rono Nicholas, sponsored by Bomet Senator Hillary Sigei, alleging fraudulent activities within EABL.
Ms. Karuku refuted the petitioner's claims, asserting that the share acquisition was entirely above board. She clarified that the shares were procured for the purpose of onward transfer to a new buyer at a significantly higher value, ultimately benefiting Diageo shareholders. The petitioner's assertion that the shares were earmarked for an onward sale to Heineken/Castel Group, ensuring a controlling stake in EABL, was contradicted by Diageo Kenya's disclosures, which stated they had no such agreement or arrangement in place. In her concluding remarks, Ms. Karuku dismissed the petition as lacking credibility and a solid legal foundation.
The acquisition of 118.4 million EABL shares by Diageo, priced at Sh192 per unit, amounted to a total purchase price of Sh22.7 billion. The transaction was executed through a tender offer, extending an invitation to existing shareholders of the Nairobi Securities Exchange-listed firm to sell their holdings at the offered price. Meanwhile, concerns were raised by Uasin Gishu Senator Jackson Mandago regarding Diageo's recent divestment in some of its African beer businesses to the Castel Group in countries such as Cameroon, South Africa, Namibia, and Ethiopia.
The Senate Trade Committee's inquiry into the matter continues, with a focus on ensuring transparency and accountability in this high-profile corporate maneuver within the beverage industry.
COMPETITION
Comesa Competition Commission Orders AkzoNobel and Kansai Plascon Paints to Divest Sadolin Brand in East Africa Merger
The Comesa Competition Commission (CCC) has imposed a pivotal condition for the approval of the proposed merger between Dutch paint manufacturer AkzoNobel and Japan’s Kansai Plascon Paints in the East Africa market, which includes Kenya. In a bid to bolster its presence in the region, AkzoNobel had previously entered into an agreement to acquire the assets of Kansai Plascon’s business in Kenya, Uganda, Tanzania, Burundi, and other African countries.
However, the CCC's approval comes with the stipulation that the merging parties must divest the Sadolin paint brand to an independent competitor based in Uganda, specifically in the geographic cluster encompassing Burundi, Kenya, Rwanda, and Uganda. The regulator's decision aims to safeguard healthy competition within the East African paint market.
The CCC emphasized that the buyer of the divested Sadolin brand must not have any structural relationships with the merging AkzoNobel and Kansai Plascon entities. Additionally, the divestment should include all necessary licenses to allow the buyer independent access to raw materials, production, distribution, and marketing of the Sadolin brand. The parties involved are required to notify the CCC of the divestiture within six months of merger approval, failing which this aspect of the merger will be prohibited.
The move to divest the Sadolin brand follows Kansai Plascon Africa's acquisition of Kenya’s Sadolin paints for Sh10 billion in 2017 and reflects the CCC's commitment to maintaining a competitive market environment in East Africa.
MARKETS
Centum Investment Company Plc Announces Ambitious Plan to Eliminate Debt by March 2024
In a strategic move to bolster its financial stability and mitigate risks associated with increasing interest rates and currency fluctuations, Centum Investment Company Plc has unveiled plans to become a debt-free holding company by March next year. The company aims to achieve this goal by repaying a substantial sum of Sh2.2 billion in loans during the current financial year. This announcement comes as part of Centum's ongoing efforts to fortify its financial position and maintain a resilient business model.
Centum Investment Company Plc has been gradually reducing its indebtedness in recent years, emphasizing its commitment to safeguarding its financial health. In the company's latest annual report, James Mworia, the Chief Executive, outlined the paramount objective of "fully repaying the balance of debt" as one of the top corporate priorities for the current financial year. This proactive approach aims to insulate the company from the vulnerabilities associated with debt, especially in the face of rising interest rates and fluctuations in the local currency.
While Centum Investment Company Plc is focused on becoming debt-free at the holding company level, its subsidiaries, joint ventures, and associates will continue to carry debt based on their respective financial capacities. This strategy allows for greater control over the risk associated with borrowing at each operational unit, providing a flexible and tailored approach to managing debt within the organization.
WHAT YOU MIGHT HAVE MISSED
Britam launches cover for aviation sector workers
Britam General Insurance launched a product targeting businesses and individuals in the aviation industry, including personal cover for the crew. The cover will also extend to legal liability, airport owners and operators liability as well as hull all risks and hull war insurance that covers direct physical loss or damage to the aircraft.
Banks to link part of bonus to Green Financing targets
Commercial banks are set to link part of staff pay, including bonuses, to climate-related milestones following the adoption of a climate-related financial disclosures template. The guideline is anchored on governance, strategy, risk management, metrics, and targets and aims to enable banks to appropriately and comprehensively report their respective climate-related risks and opportunities.
Kenya diaspora workers now face mandatory welfare levy
All Kenyans working abroad will be required to make mandatory contributions to a State welfare scheme if proposals by the Ministry of Labour are approved. The scheme, known as the Kenya Migrant Workers Welfare Fund, seeks to provide relief assistance to migrant workers, invalidity benefits, medical assistance, and survivor benefits when a migrant worker dies.
Every migrant worker will be required to register as a member of the fund before departing the country for foreign employment. Contingency fees paid by private employment agencies will also be channeled to the fund.