Effective 12 August 2026, Kenya's Income Tax (Transfer Pricing) Rules, 2026 (the 2026 TP Rules) revoke and replace the Income Tax (Transfer Pricing) Rules, 2006 (the 2006 TP Rules).

The 2026 TP Rules represent a significant step toward alignment with international standards, drawing heavily from the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines and incorporating key Base Erosion and Profit Shifting (BEPS)-related measures such as enhanced documentation requirements and Country-by-Country Reporting (CbCR). The rules bring Kenya's TP framework closer to global standards by strengthening the application of the arm's-length principle and expanding the scope of controlled transactions.

The 2026 TP Rules seem to have taken into consideration most of the proposals made in a September 2023 request for public comments on the draft rules. (For background, see Kenya revamps Transfer Pricing rules, dated 12 September 2023.)

This alert highlights the key new provisions introduced by the 2026 TP Rules that apply to taxpayers with related-party dealings.

Executive summary

The key changes introduced by the 2026 Rules are summarized below:

Detailed analysis

Scope of application

The 2026 TP Rules apply to transactions contemplated by Sections 18, 18A to 18F of the Income Tax Act (ITA). These sections relate to cross-border related-party transactions, transactions involving resident related persons in preferential tax regimes and CbCR reporting obligations. This inclusion expands the transfer pricing regime beyond cross-border related-party transactions to align with the anti-avoidance provisions, preferential tax regimes and CbCR regulations.

Definitions

The 2026 TP Rules introduce or update the following terms, which determine the relationships and transactions within its scope:

• Arm's-length price: The price payable in a transaction between independent persons
• Commodity: Defined broadly to include agricultural produce; fisheries products; solid, liquid or gas minerals; hydrocarbons and their derivatives; any other product, natural mineral or mineraloid obtained from land or water; and, in general, any good for which a publicly quoted price exists
• Comparable transactions: Transactions between which there are no material differences, or in which reasonably accurate adjustments can be made to eliminate material differences
• Controlled transaction: Any transaction between related persons
• Connected person: Related persons referred to, or meeting any of the conditions outlined, in sections 2, 18, 18A, 18B, 18C, 18D, 18E and 18F of the Income Tax Act

New transfer pricing transactions subject to the 2026 TP Rules

The 2006 TP Rules covered a relatively narrow list of transactions. The 2026 TP Rules expand the scope of transfer pricing transactions to now include:

• Financing transactions, including any long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities, advance or deferred payments, receivables or other debt arising in the course of business
• Insurance and reinsurance transactions
• Business restructuring or reorganization entered into with a related person
• Cost distribution arrangements
• Transactions involving derivatives
• Any other transaction that may affect the profit or loss of the person involved

New commodity-pricing rule

The 2026 TP Rules introduce a new approach for pricing related-party commodity imports and exports. Specifically, if a reliable price is available from a recognized commodity exchange, price-reporting or statistical agency, governmental price-setting body or another index used by independent parties, the publicly quoted price on the date the goods are shipped is used as the sale price for computing taxable income, regardless of the price agreed between the related parties. The price may be adjusted if the taxpayer provides sufficient evidence that it is appropriate and consistent with the arm's-length principle.

The benchmark is the average quoted price for the 15 days before and after the shipping date, supported by the relevant shipping documents. If an independent-party price is higher for an export or lower for an import, that price takes precedence. Businesses should confirm consistent pricing sources, shipping-date controls and evidence-retention procedures for related-party commodity transactions.

Information and documentation requirements

The 2006 TP Rules granted the Commissioner the power to request general information, i.e., books of accounts and other documents relating to transactions when transfer pricing was applied. The 2026 TP Rules now include the more detailed information that the Commissioner is authorized to request. For each category of controlled transaction, taxpayers may be asked to provide, among other things:

• A detailed description of the transaction (parties, timing, value, settlement currency, contractual terms, trading models)
• A breakdown of intra-group payments and receipts by jurisdiction
• The identities and relationships of connected persons involved
• Relevant contracts with a detailed functional analysis
• A detailed comparability analysis (including the search process, data sources, details of selected comparables the rationale for rejecting comparables
• The rationale for the transfer pricing method and tested party selected, including key pricing factors (including intangibles and location-specific factors)
• Material assumptions, the rationale for any multi-year analysis, industry or economic analyses, budgets or projections relied upon, and comparability adjustments made
• Conclusions on arm's-length compliance and details of any advance pricing agreements in other countries
• For commodities on-sold by a connected person to an unconnected person, the relevant third-party agreements and sales invoices

In addition, the 2026 TP Rules now expressly state that taxpayers must be prepared to provide more detailed reporting information.

The Commissioner may request audited financial statements for each accounting year, including financial statements of the parties to the controlled transaction (including where the tested party is located outside Kenya). In addition, segmented reports (with allocation keys and rationale) may be requested when the controlled transaction relates to only part of the tested party's business.

Finally, the Commissioner may request a summary of the financial information used in applying the chosen method, schedules reconciling that financial data to the annual financial statements, summary schedules of comparable financial data and their sources and any other necessary background information.

All books of account and supporting documents must be prepared in, or translated into, English at the time the transfer price is determined. The Commissioner also retains the general discretion to request information beyond that specifically listed in the 2026 TP Rules.

Implications

The 2026 Transfer Pricing Rules introduce important changes to Kenya's transfer pricing framework and related compliance requirements. Businesses should review their related-party arrangements, update supporting documentation, and assess whether their transfer pricing approaches align with the new rules.