Tribunal Upholds Sh1.7bn Tax Demand on Del Monte Kenya

The Tax Appeals Tribunal has confirmed the Kenya Revenue Authority's (KRA) decision to impose Sh1.7 billion in withholding tax on Del Monte Kenya. The ruling allows KRA to treat additional profits from transactions between related companies as deemed dividends and tax them, even if no actual dividends have been paid to shareholders. This decision was made after Del Monte Kenya challenged the assessment.

The dispute arose from Del Monte Kenya's transactions with its Swiss affiliate, Del Monte International GmbH, and payments to related companies for various services. Following an audit of the company's transfer pricing arrangements for 2019 to 2021, KRA adjusted its taxable income and treated Sh10.6 billion as dividends deemed distributed to foreign shareholders. This led to the imposition of Sh1.7 billion in withholding tax, including penalties and interest.

Del Monte Kenya argued that the withholding tax demand depended on the validity of the primary transfer pricing adjustment, which it had challenged separately. The company maintained that the secondary assessment was premature and that KRA ignored the functions performed, assets used, and risks assumed by the Kenyan entity and its related parties. However, KRA rejected these arguments, stating that the primary dispute had already been decided in its favour.

The tribunal, chaired by Mutiso Makau, dismissed Del Monte's appeal, upholding the assessment. The tribunal relied on a previous decision that upheld the 2019-2021 transfer pricing assessment, confirming an income tax assessment of about Sh4.96 billion. This decision was made on January 16, 2026, and no stay had been issued against it.

KRA made its primary transfer pricing adjustment on December 20, 2024, increasing the income it considered taxable in Kenya. The authority applied a 15 per cent withholding tax rate to the deemed distribution and issued the withholding tax assessment on July 30, 2025. Del Monte objected, but KRA confirmed the demand on October 30, 2025.

The Income Tax Act treats additional taxable income arising from transactions involving a shareholder or related person as a dividend. This means an actual payment to shareholders is not necessary for withholding tax to arise. The tribunal agreed with KRA, stating that the statutory language is clear and mandatory.

The tribunal's decision has significant implications for companies involved in related-party transactions. It confirms that tax authorities can treat additional profits as deemed dividends and tax them, even if no actual dividends have been paid to shareholders. Del Monte Kenya had accused KRA of ignoring its arguments and violating its right to fair administrative action.

Key points

• The Tax Appeals Tribunal upheld a Sh1.7 billion withholding tax demand on Del Monte Kenya over profits from transactions with foreign related companies.
• The decision allows KRA to treat additional profits as deemed dividends and tax them, even if no actual dividends have been paid to shareholders.
• The ruling has significant implications for companies involved in related-party transactions in Kenya.