KRA accuses flower dealer of playing dirty with parent firm

What you need to know:

  • The Kenya Revenue Authority (KRA) has claimed in court that Van den Berg Kenya Ltd (VDB-K) has been selling most of its flowers to its Dutch parent firm at extremely low prices to cut the amount of tax it can pay.
  • Under the CUP, the taxman employs one blanket rate for all produce. The RPM, however, takes into consideration the unique attributes of each unit to deduce the tax payable by a firm.

The taxman has accused a Naivasha-based company of restricting the sale of its flowers to its parent firm in the Netherlands to avoid paying taxes to the Kenyan Government.

The Kenya Revenue Authority (KRA) has claimed in court that Van den Berg Kenya Ltd (VDB-K) has been selling most of its flowers to its Dutch parent firm at extremely low prices to cut the amount of tax it can pay.

VDB-K has sued the taxman to stop a Sh1.1 billion demand it says the authority has grossly exaggerated. But the KRA says in-depth audits into VDB-K revealed that the company has been colluding with its parent firm to dodge taxes.

The KRA also claims that VDB-K failed to provide crucial information such as details of sales between it and its Dutch parent. The taxman adds that some of the documents provided were written in Dutch, making it hard to use a tax calculation method agreeable to both parties.

“In particular, VDB-K failed to give transaction details with customer names, flower varieties, sizes and prices which information was necessary to establish the end-customer buying price on transaction by transaction basis,” the KRA says.

Court order barring the KRA

“VDB-K provided certain documents in Dutch language, described by its tax agents as casual agents invoices. A review of these documents revealed that the persons listed therein were the same individuals listed in the shared cost analysis,” says Mr Patrick Chege, a manager in the Domestic Taxes Department.

The Dutch-owned company has secured a court order barring the KRA from claiming the amount until Justice George Odunga has determined the suit.

VDB-K has protested at the KRA’s decision to use the comparable unit price (CUP) method to calculate due taxes rather than the resale price mechanism (RPM).

Under the CUP, the taxman employs one blanket rate for all produce. The RPM, however, takes into consideration the unique attributes of each unit to deduce the tax payable by a firm.

VDB-K holds that some of its flowers were sold at lower prices per unit hence the blanket tax has driven up the dues from it.

But the KRA says it was unable to use the RPM method because the Dutch-owned company did not provide sufficient information to consider the attributes of each flower sold.

The taxman also claims that a probe on VDB-K’s books revealed that the Naivasha-based grower sold produce to customers in Europe directly without involving its parent company.