Challenges affecting implementation of transfer pricing policies by multinational companies in Kenya

Abstract

The objective was to examine the challenges affecting implementation of transfer pricing policies by multinational companies in Kenya. The study specifically sought to determine the extent to which compliance costs, threat of double taxation, loss of revenue and the existing regulations affect implementation of transfer pricing policies by multinational companies in Kenya. The study was guided by theory of optimal transfer prices, agency theory, and modern financial theory. The study adopted a descriptive research design. The target population was senior finance officers, one from each of the 213 MNCs in Kenya. The study adopted a formula by Cochran to calculate the sample size. The sample size of the study was 137 senior finance officers in MNCs. The study collected primary data though a questionnaire which had closed questions. The researcher administered the questionnaire through drop and pick later method. The developed questionnaire was checked for its validity and reliability through pilot testing. Reliability of the questionnaire was tested by Cronbach’s alpha test with the and a co-efficient of above 0.8 was achieved which implied that the instrument was sufficiently reliable for the measurement. The data was analyzed using descriptive and inferential statistics. The descriptive statistics included frequency distribution tables and the means,standard deviation and measures of relative frequencies. The inferential statistics included a multiple regression model which established the relationship between variables. The analyzed quantitative data was presented using tables, charts and graphs. The study found out that there was a negative and significant regression relationship between compliance costs and implementation of transfer pricing policies in MNCs in Kenya. There was a positive and significant relationship between threat of double taxation and implementation of transfer pricing policies.