KRA starts probe of Kakuzi in tax evasion allegations – Business Daily
Entrance of Kakuzi PLC offices in Muranga County. PHOTO | EVANS HABIL | NMG
The Kenya Revenue Authority (KRA) has opened investigations against food producer Kakuzi over allegations of paying less tax as a result of cross-border financial deals with its majority shareholder Camellia Plc.
The taxman is seeking to establish possible tax losses from transfer pricing — whereby companies conduct transactions between different parts of the same organisation.
The KRA probe comes after the Capital Markets Authority (CMA) questioned Kakazi’s chief executive, Christopher Flowers, and finance director Ketan Shah over allegations of shifting profits abroad and conflict of interest by its UK-based majority shareholder.
“KRA wishes to state that it is currently undertaking internal reviews on transfer pricing and other tax practices of Kakuzi PLC with a view of commencing an in-depth audit work,” said Rispah Simiyu, the commissioner for domestic taxes.
“This will enable KRA to establish transfer pricing allegations and the company’s dealings.”
Transfer pricing refers to the amount charged when goods or services are sold between two companies in the same group located in different countries. It can allow companies to legally minimise their tax liabilities by, for example, underpricing or overpricing transactions or allocating profits to low tax jurisdictions.
Under the Organisation for Economic Co-operation and Development (OECD) rules companies are required to price transactions as if they occur between third parties and provide tax authorities with accurate evidence of how the price was determined.
The CMA says it is investigating contracts between Kakuzi and its parent company, Camellia Plc, amid allegations of conflict of interest.
Minority shareholders of the company had previously complained of being locked out of the board, which was controlled by the British company, Camellia Plc.
The multinational, by virtue of its interests in Bordure Limited and Lintak Investments, owns a controlling 50.7 percent stake in Kakuzi.
Of interest to KRA will be cross-border financial arrangements between Kakuzi and other companies under the Camellia Plc Group.
“Camellia Plc is the ultimate parent of the group. There are other Camellia Plc Group companies that are related to Kakuzi Plc through common shareholdings,” says the firm in its 2021 annual report.
“Fellow subsidiaries within the Camellia Plc Group act as brokers and managing agents for certain products and operations of the group.”
The Kakuzi dealings with its fellow subsidiaries were worth Sh369.4 million last year and involved Eastern Produce Kenya Limited, Robertson Bois Dickson Anderson (RBDA) Kenya Branch and Eastern Produce Regional Services Limited.
Most of KRA investigations are resolved by the business agreeing to change its transfer pricing and pay additional corporation tax.
However, where there is evidence of dishonesty the taxman opens criminal investigations. Potential abuses arising from transfer pricing include fraudulent arrangements and lying to the authority, as well as outright tax evasion.
“If it is established that there has been a deliberate and clear scheme to defraud the revenue agency and commit fraud, the KRA could institute prosecution of the individuals involved,” said an executive at one of the Big Four auditing firms who sought anonymity.
Kakuzi’s principal activities include growing, packing and selling avocados, macadamia nuts, blueberries, tea green leaf and forestry products.
The company also engages in livestock farming and sale of beef. It has a presence in Muranga County in Central Kenya and Nandi County in the Rift Valley.
The CMA has stepped up surveillance of agricultural counters for irregular practices that have hurt small shareholders and farmers while benefiting majority owners.
The CMA is also probing Limuru Tea, which is controlled by British multinational Unilever, for suspected undervaluing its 696.8-acre plantation and cooking of books as the multinational prepares to exit the company.
The source at the CMA said Kakuzi was facing challenges linked to its majority owners who for a long time excluded local shareholders from the company’s board of directors.
Kakuzi only appointed its second-largest shareholder, John Kibunga Kimani, as a director in a board shake-up that followed allegations of human rights abuses, including rape and violence.
Dr Kimani, who was raised on Kakuzi’s farms as a squatter, had previously failed in attempts to get a board seat at the agricultural firm despite owning a 32.2 percent stake in the company worth Sh2.7 billion.
The changes came after law firm Leigh Day said that it was representing victims to launch a legal claim in the High Court in London in 2020 against Camellia Plc for alleged human rights abuses by security guards employed by Kakuzi, its Kenyan subsidiary.
This prompted Camellia, which acquired its majority stake in Kakuzi in the 1990s, to promise reforms in the wake of the allegations that forced firms like British retailer Tesco to suspend supplies, including avocados and macadamia nuts, from the Nairobi bourse-listed company.
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