Kenya: Application of median rate in computing net profit not required (Tax Appeal Tribunal decision)
Tribunal found that tax authority misinterpreted the OECD Transfer Pricing Guidelines
The Tax Appeal Tribunal on May 2, 2025, held in Cipla Kenya Limited v. Commissioner of Domestic Taxes (Tax Appeal E422 of 2024) [2025] KETAT 223 (KLR) that the median rate did not have to be applied in computing the taxpayer’s net profit.
The tribunal found the tax authority misinterpreted the OECD Transfer Pricing Guidelines and made mistakes in identifying comparables, making application of the median rate inappropriate.
The tribunal also held that expenses the tax authority sought to disallow would have led to double taxation under the transactional net margin method (TNMM).
KPMG observation
The tribunal previously held in the Checkpoint Technologies Kenya Ltd. case that taxpayers are not strictly bound to use the median rate, particularly when there are clear and explainable differences in comparability. That decision paired with this latest decision demonstrate a consistent interpretation of the transfer pricing guidelines.
For more information, contact a KPMG tax professional in Kenya:
Lydiah Mose | lmose@kpmg.co.ke
Stephen Nganga | swnganga@kpmg.co.ke