Del Monte will face a KSh 6.72 billion tax bill after the Tax Appeals Tribunal determined that the company's challenges to the taxman's assessments fell short of merit.
- •The tribunal upheld a KSh1.76 billion tax bill for 2018 and a further KSh4.96 billion covering taxes, penalties and interest for the 2019–2021 period.
- •In both appeals against KRA, Del Monte Kenya said it undertook a functional analysis of its position in the country that justified its pricing mechanism but KRA said Del Monte made more money in Kenya than it admitted.
- •KRA distrusted Del Monte’s functional analysis and argued that its Kenyan operation does far more than it admits, pointing to large-scale farming, processing, quality control and export work carried out locally; activities that mean the Thika-based fruit processor should earn a larger share of group profits than it reported.
Del Monte countered that it had followed the rules and priced its transactions using a standard cost-plus approach, supported by a benchmarking study showing that its profit margin was in line with comparable companies.
The company said it was being unfairly treated as a high-profit operation when it functioned as a manufacturer selling to a related distributor abroad.
However, the tribunal rejected Del Monte’s position, finding that the company failed to prove that its pricing reflected the economic reality of its operations in Kenya. The ruling agreed with the tax authority that Del Monte’s documentation did not adequately explain why the Kenyan business should earn only a modest return, given the scale of its activities.
“KRA in its pleadings stated that it had indeed sought the information from the registry records and therefore confirmed the ownership and relationship between the Del Monte and the enterprises engaging with it in cross-border transactions," the tribunal stated.
"The Tribunal notes that if Del Monte had adduced in evidence the copies of the respective registry records or official searches, the dispute would have been settled,” it added.
In the second case, the pineapple processor defended charges billed by group companies for agricultural inputs, saying they were centrally procured and legitimate. KRA disallowed these charges for group services and software, saying Del Monte had not clearly shown what services were provided or why the costs were reasonable.
The authority also faulted a series of loans advanced from a group finance company, Del Monte Fund BV. to other units of the company, questioning why interest would be charged on loans when money was already outstanding within the group. It also described the lender as lacking independent financial strength.
Del Monte said the loans were genuine, properly documented and misunderstood by the tax authority. The company argued that KRA had confused different entities within the group and failed to appreciate how internal financing was structured. It said payables had been converted into loans and that the interest rates were reasonable, even citing bank pricing to support its case.
The tribunal was unconvinced, finding out that Del Monte had not clearly demonstrated the ownership, financial capacity or commercial purpose of the lending entity, nor provided sufficient evidence that trade balances were properly converted into loans.
