Because Transfer pricing is not an exact science, precision can be challenging due to the varied methodologies. Sometimes, different methods yield a range of figures, all equally reliable. Article 3:62 of the OECD Transfer Pricing Guidelines for Multinational Enterprises acknowledges this and suggests that within such a range, any point can satisfy the arm's length principle. The Tax Appeals Tribunal supported this assertion in the case of Checkpoint Technologies Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal 1181 of 2022), opting for the interquartile range (IQR) over the tax authority's preference for median adjustments. This aligns with the OECD's guidelines on arm's length principles, emphasizing flexibility in transfer pricing assessments.

Background

Checkpoint Technologies Kenya Limited (CPT-KL), a subsidiary of Checkpoint Software Technologies International Limited (CPT-IL), operates as a limited liability company incorporated in Kenya. Specializing in ICT, information technology, and software development, CPT-KL also offers pre-sale and marketing support services to its parent company, CPT-IL. To ensure compliance with arm's length standards in intercompany transactions, CPT-KL employs the Transactional Net Margin Method (TNMM) with a net cost-plus basis as the chosen pro...