Multinational used transfer mispricing to avoid paying the government of Kenya nearly US$11 million (EUR8 million) in corporate income tax
Nairobi, 22 April 2013
The Kenyan government has found Karuturi Global Ltd, the world's biggest producer of cut roses, guilty of tax evasion. This is the first time an African government has brought a large multinational company to court for transfer mispricing through a fully public process. A broad alliance of civil society movements and organisations are celebrating the Kenyan government's resolve to stop such behaviour and to do so transparently.
In late 2012, the Kenya Revenue Authority ruled that the Bangalore, India-based multinational used transfer mispricing to avoid paying the government of Kenya nearly US$11 million (EUR8 million) in corporate income tax, part of a larger set of tax disputes with government authorities that amount to a quarter of the firm's 2012 sales. On 4 April 2013, Karuturi appealed the ruling, bringing the proceedings into the public domain.
‘Companies like Karuturi are haemorrhaging Africa,’ says Dr Attiya Waris, a senior lecturer in tax law at the University of Nairobi and Vice-Chairperson of the Tax Justice Network. ‘Transfer mispricing is robbing Kenyan workers and citizens of access to good public education, health care, transport services and a clean environment, which our government can only provide through proper revenues.’
TAX EVASION COSTING DEVELOPING COUNTRIES US$1 TRILLION PER YEAR
Karuturi produces 580 million roses per year from its operations in Kenya, Ethiopia and India. (One out of nine roses bought in Europe comes from a Karuturi farm.) The flowers it produces in Kenya are shipped to Europe through a subsidiary in Dubai. By under declaring the value of the merchandise shipped to its warehouse in Dubai, the firm saves costs on its tax bill. This is illegal under Kenyan law.
Waris and others estimate that capital flight due to tax evasion is costing developing countries around US$1 trillion per year.
‘Companies like Karuturi have to play fair,’ remarks Stephen Gichohi of Forum Syd whose partner Muungano wa Wanavijiji recently discussed the issue with workers from Karuturi Flower Farms in Naivasha, Kenya. ‘Karuturi farm workers have a range of concerns about spraying equipment, health services, wages and housing and need their conditions improved as soon as possible.’
GRABBING THE LAND
Karuturi is also expanding aggressively into large-scale agriculture, and has acquired long term rights to more than 300,000 hectares of fertile farmland in Ethiopia since 2009. The land was leased from the government, but intense conflict has emerged over the compensation, displacement and relocation of villagers and herders who lived on or grazed the lands.
‘We are extremely grateful that the Kenyan authorities have caught this land grabber right in its tracks,’ says Nyikaw Ochalla of the Anywaa Survival Organisation, a group defending the indigenous Anuak communities badly affected by Karuturi in Gambela, Ethiopia. ‘This company is criminal, on many counts,’ continues Ochalla.
‘Not only are they fiscal cheats, but Karuturi has been accused of human rights abuses, poor labour practices, threats to the environment and so on," points out Devlin Kuyek of GRAIN, one of the groups following the tax dispute. ‘Even the World Bank Group did not grant Karuturi the political risk insurance it requested for its Ethiopian operations.’
For background information, please see "A litany of trouble" outlining the broad set of complaints against Karuturi available at http://farmlandgrab.org/post/view/21937
Dr Attiya Waris, Law School, University of Nairobi, [email][email protected], +254771891571 (on the Kenyan tax dispute and the struggle for tax justice across Africa)
Mr Stephen Gichohi, Forum Syd, Nairobi, [email][email protected], +254725401366 (on the Karuturi farm workers situation & the campaign against transfer mispricing in Kenya)
Mr Devlin Kuyek, GRAIN, Montreal, [email][email protected], +15145717702 (on Karuturi & global land grabbing)
Mr Nyikaw Ochalla, Anywaa Survival Organisation, London, [email][email protected], +447939389796 (on Karuturi in Ethiopia and the indigenous peoples' situation)
Mr S. Kannaiyan, South Indian Coordination Committee of Farmers Movements, India, [email][email protected], +919444989543 (on Karuturi's operations in India and Africa seen from the perspective of Indian farmers)