THE world’s largest supplier of cut roses has been taken to court for tax evasion by the Kenyan Government.
In late 2012, the Kenya Revenue Authority ruled that Karuturi used transfer mispricing to avoid paying the government of Kenya nearly $11 million in corporate income tax. This was part of a larger set of tax disputes with government authorities that amount to a quarter of the firm’s 2012 sales.
Transfer mispricing refers to when a multinational corporation artificially changes the actual price of a transaction between parts of itself in order to shift profit to a place with a lower tax rate.
The flowers it produces in Kenya are shipped through a subsidiary in Dubai to the final market in wealthy countries like Australia.
The Kenyan authorities allege that by under-declaring the value of the merchandise shipped to its warehouse in Dubai, the firm shifted profit to Dubai from Kenya to evade paying tax. This is illegal under Kenyan law.
In April this year, Karuturi appealed the ruling, bringing the proceedings into the public domain.
This is the first time an African government has brought a large multinational company to court for transfer mispricing through a fully public process. A broad alliance of civil society movements and organisations are celebrating the Kenyan government’s resolve to stop such behaviour and to do so transparently.
Dr Attiya Waris, a senior lecturer in tax law at the University of Nairobi and Vice-Chairperson of the Tax Justice Network, welcomed the court action.
“Companies like Karuturi are haemorrhaging Africa,” Dr Attiya Waris said.
“Transfer mispricing is robbing Kenyan workers and citizens of access to good public education, health care, transport services and a clean environment, which our government can only provide through proper revenues.”
“If Karuturi is found guilty of tax evasion that would make any roses produced that were connected with the tax evasion, proceeds of crime under international treaties”, Dr Mark Zirnsak, director of the synod Justice and International Mission (JIM) unit said.
“The Australian Government needs to be actively assisting developing countries in combating tax evasion and other forms of crime so we can be sure the goods that end up in our stores are not proceeds of crime.”