The long-awaited proposal to introduce Advance Pricing Agreements (APAs) regime in Kenya with a five-year limit, through the Finance Bill 2025, marks a significant shift in the country’s approach to transfer pricing (TP) regulation and fosters greater predictability.
This milestone will credentialise Kenya as a premier investment hub. As multinational enterprises (MNEs) continue to expand operations across African markets, Kenya is positioning itself as a jurisdiction that not only enforces tax rules but also provides mechanisms for certainty and cooperation.
APAs represent a proactive tool designed to reduce transfer pricing disputes before they arise, offering greater predictability in tax outcomes for both the Kenya Revenue Authority (KRA) and taxpayers.
Notably, the Finance Bill 2024 had also proposed an APA regime, and the reintroduction of the same in the Finance Bill 2025 signals the government’s policy alignment with global best tax practices.
APAs are internationally recognised as a best practice under the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, specifically Action 14, which promotes effective dispute prevention and resolution.
Their introduction in Kenya reflects an intention to align the country’s TP regime with global standards and enhance its attractiveness to foreign investors.
The opportunity to agree in advance on the TP methodology to be applied to a specified transaction provides clarity in their execution, enabling better business planning while reducing the risk of costly assessments or penalties down the line.
Kenya’s move is not unprecedented. Nigeria has also introduced comprehensive guidelines on unilateral, bilateral and multilateral APAs valid for a maximum of three years through the Federal Inland Revenue Service (FIRS), to address complex tax issues related to transfer pricing in intercompany transactions, with a minimum threshold of $10 million for a single transaction or $50 million for a group of transactions annually.
Similarly, South Africa has expressed interest in formalising its APA framework, with the South African Revenue Service (SARS) engaging in limited bilateral discussions.
Comparably, India launched its APA programme in 2012. According to the APA Annual Reports from the Central Board of Direct Taxes, India has since concluded over 400 agreements, contributing significantly to tax certainty and dispute resolution. These international examples show that, when effectively implemented, APAs can reduce litigation, build trust and foster compliance.
Kenya stands to benefit from studying these models while tailoring its framework to the local economic and administrative context.
Introducing APAs also signals a deeper policy shift from adversarial tax enforcement towards cooperative compliance.
Historically, transfer pricing audits in Kenya have been contentious, protracted and resource-intensive for both KRA and taxpayers. By allowing for early engagement and agreement on pricing methodologies, APAs could foster a relationship of trust, reducing the burden on audit teams and promoting voluntary compliance.
This shift aligns with broader trends in tax administration globally, where collaboration is being prioritised over confrontation.
For APAs to succeed in Kenya, however, certain operational realities must be addressed. Implementing a functional APA programme requires a well-trained, specialised team within the KRA that understands both international TP principles and the business models of MNEs.
Legal clarity around the binding nature and duration of APAs, eligibility criteria and the process for renewal or revision must be established through detailed regulations. Administrative capacity, transparency and accountability will be critical in ensuring that the APA process does not become bureaucratic or susceptible to misuse.
Regionally, Kenya’s APA initiative could set a precedent for other African countries seeking to modernise their TP regimes. The African Tax Administration Forum (ATAF) has emphasised the need for enhanced dispute resolution and tax certainty across the continent.
Kenya already has comprehensive Mutual Agreement Procedure guidelines issued in 2022, offering a structured approach for resolving cross-border tax disputes under its tax treaties. The introduction of APAs would complement this framework by allowing for proactive resolution of potential disputes before they materialise.
Despite their promise, APAs have often been critiqued for being accessible primarily to large multinationals with the resources to engage in lengthy negotiations. In the Kenyan context, there is a risk that small and medium-sized enterprises (SMEs), even those with cross-border operations, could be excluded from this mechanism due to high compliance costs or limited awareness.
Policymakers should consider a tiered approach that includes simplified or unilateral APAs for lower-risk taxpayers, drawing on models such as the United Kingdom’s ‘Simplified APA’ for SMEs or the OECD’s low-capacity guidance for developing countries. The APAs could also be a source of dispute in case the tax authority challenges the implementation of the APA by the taxpayer.
Ultimately, the success of APAs in Kenya will depend not only on the legal provisions, but on a collective commitment to fair and transparent tax practices.
Taxpayers must view the APA process not as a loophole but as a legitimate compliance tool. The KRA, in turn, must administer it with professionalism, consistency, and integrity.
The proposed APA introduction in the Finance Bill 2025 provides a timely opportunity to build a more robust, cooperative and investor-friendly tax environment. With the right design and implementation, APAs could become a cornerstone of Kenya’s evolving transfer pricing and international tax regime, balancing the twin goals of revenue protection and economic competitiveness.
The writers are tax advisors in international tax and transaction services at EY. The opinions expressed herein are not necessarily those of EY
