[2024] KETAT 143 (KLR)

Beta Healthcare International Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal 866 of 2022) [2024] KETAT 143 (KLR) (9 February 2024) (Judgment)

Neutral citation: [2024] KETAT 143 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 866 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich, E Ng'ang'a & B Gitari, Members

February 9, 2024

Between

Beta Healthcare International Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The appellant is a duly licensed company incorporated under the Companies Act, cap 486 (now repealed) and a wholly owned subsidiary of Aspen Pharmacare Holdings Limited ("Aspen Holdings"), a company incorporated and tax resident in South Africa.

2. The respondent is a principal officer appointed under and in accordance with section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The respondent issued a notice of assessment dated November 25, 2021 of Kshs. 480,175,287. 00.

4. The appellant objected to the notice of assessment vide a letter dated 23rd December, 2021.

5. Thereafter, between December 2021 and May 2022, the appellant and the respondent engaged through meetings and exchanges of correspondence and provided the appellant additional information and various clarifications as requested by the respondent.

6. The respondent vide a letter dated July 5, 2022 issued an objection decision rejecting the objection and upholding the assessment.

7. The appellant being dissatisfied with the objection decision, filed a Notice of Appeal on 4th August, 2022.

THE APPEAL 8. The appeal is premised on the following grounds as stated in the memorandum of appeal dated August 18, 2022 and filed on the same date:a.The respondent erred in law and fact in comparing elements of the uncontrolled transactions with controlled transactions to determine the arm's length price in relation to the transactions that the appellant has entered with its related parties.b.The respondent erred in law and fact by failing to perform comparability analysis, taking into account economically relevant characteristics or comparability factors, to accurately determine the transactions of the appellant as provided for under paragraph 1. 36. of chapter I of the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 (OECD TP Guidelines).c.The respondent has erred in law and fact by misapplying the Comparable Uncontrolled Price (CUP) method as detailed out under Chapter Il, Part II B.1. particularly Paragraph 2. 14. , 2. 15. to arrive at a result contrary to Paragraph 2. 8. of Chapter II of the OECD TP Guidelines.d.The respondent has erred in law and fact by failing to consider material differences and adjustments between sales made to related parties vis-a-vis sales made to third parties in determining the appropriate method to arrive at the arm's length price. The respondent has erred in law and fact by incorrectly asserting that the appellant is a “fully-fledged highly specialized manufacturer performing economic significant functions utilizing valuable assets that include IP and assuming entrepreneurial risks”.e.The respondent erred in law and fact in disregarding Paragraph 3. 14 and 3. 7 of Chapter Ill of the OECD TP Guidelines on 'broad-based' analysis and thus opines that in the present case, all sales are concluded within Kenya where market conditions are uniform and therefore the question of economic circumstances does not arise.f.The respondent has erred in law and fact by basing its analysis on the location of the appellant (seller) rather than the location of the customers contrary to Paragraph 1. 130. of D.1. 4. of Chapter I of the OECD TP Guidelines therefore failing to consider economic circumstances that may be relevant for determining market comparability.g.The respondent has erred in law and fact in its finding that there are no additional functions performed, assets used, or risks borne by the appellant in its transactions with third parties compared to transactions with related parties.h.The respondent has erred in law and fact by asserting that the appellant's Transfer Pricing (TP) policy failed to demonstrate whether Beta Kenya earned an operating margin of between 5% and 8% on distribution to related parties on a segment-by-segment basis.i.The respondent has erred in law and fact by treating the appellant as the tested party contrary to Paragraph 3. 18 of the OECD TP Guidelines.j.The respondent erred in law and fact in disregarding material evidence shared by the appellant relating to the issues raised above.k.The respondent has erred in law and fact by misapplying itself in its findings, and the proposed TP adjustments are unfounded.

Appellant’s Case 9. The appellant’s case is premised on the following documents:a.The appellant’s statement of facts dated and filed on August 18, 2022 together with the documents attached thereto.b.The appellant’s witness statement of Brenda Engelbrecht dated September 22, 2023, filed on the same date and admitted as evidence under oath on October 17, 2023. c.The appellant’s written submissions dated October 31, 2023 and filed on November 1, 2023 together with the authorities attached thereto.

10. That the appellant performs five core functions, predominantly from its factory in Nairobi, namely:a.The holding of intellectual property ("IP") and the manufacturing of products associated with that IP.b.The distribution of the manufactured products in Kenya and neighboring countries, to third parties ("Third Parties').c.The promotion and selling activities relating to the products sold to third parties.d.The manufacturing of products in Kenya for distribution by Aspen Pharmacare Nigeria Limited ("Aspen Nigeria"), Beta Healthcare Uganda Limited ("Beta Uganda"), Kama Industries Limited ("Kama") and Shelys International Limited (“Shelys Tanzania”). These companies are in Nigeria, Uganda, Ghana and Tanzania, respectively, and are associated enterprises of Beta Kenya as defined by the Organization for Economic Co-Operation and Development ("OECD") in the OECD Transfer Pricing ("TP") Guidelines for Multinational Enterprises and Tax Administrations (the "OECD TP Guidelines"). Throughout this document, these companies are referred to collectively as the Related Party/Related Parties.e.The acquisition, promotion and distribution of products that are manufactured and distributed by the related parties of the appellant.

11. That the appellant has two major channels through which it sells its products i.e., local sales and export sales. That local sales primarily occur between the appellant and distributors, and in some cases to retailers through van sales. That in 2018, 2017 and 2016 only about 4%, 3% and 6% (respectively) of the sales were van sales to retailers. That the appellant's sales are governed by market forces of demand and supply and are mainly concluded by way of purchase orders as and when a customer requires the products. That export sales mainly comprise sales to related parties and are governed by distribution agreements signed between Beta Kenya and each of the related parties.

12. That the respondent issued an objection decision in total disregard of the clarifications given and the supporting documentation provided by the appellant when it objected.

13. That the respondent contended that the Comparable Uncontrolled Price ("CUP") method would be the most appropriate method to test the transaction between the appellant and its related parties. That this is because, according to the respondent, the transaction in question is the sale of goods which is similar in nature in both the controlled and uncontrolled transactions.

14. That Chapter II Part II of the OECD TP Guidelines provides the following pertaining to the CUP method:“Paragraph 2. 14 “CUP method compares the price charged for property of services transferred in a controlled transaction to the price charged for property or services in a comparable uncontrolled transaction in comparable circumstances...". Paragraph 2. 15 of Chapter II of the OECD TP Guidelines further states that “an uncontrolled transaction is comparable to a controlled transaction (i.e. it is a comparable uncontrolled transaction) for the purposes of the CUP method if one of the two conditions is met: a) none of the differences (if any) between the transactions being compared or between enterprises undertaking those transactions could materially affect the price in the open market; or b) reasonably accurate adjustments can be made to eliminate material effects of such difference".

15. That the OECD TP Guidelines under Chapter II, Part IA, paragraph 2. 2 states that:-“The selection of a TP method always aims at finding the most appropriate method for a particular case. For this purpose, the selection process should take account of...the degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments that may be needed to eliminate material differences between them. No one method is suitable in every possible situation, nor is it necessary to prove that a particular method is not suitable under the circumstances."

16. The appellant stated that it does not consider the CUP to be the most appropriate method in determining the arm's length nature of the transaction price due to the low degree of comparability with the internal CUP proposed by the respondent.

17. That Paragraph 3. 28 of chapter III of the OECD TP Guidelines states that:““... internal comparables are not always more reliable and it is not the case that any transaction between a taxpayer and an independent party can be regarded as a reliable comparable for controlled transactions carried on by the same taxpayer. Internal comparables where they exist must satisfy the five comparability factors in the same way as external comparables... Assume for instance that a taxpayer manufactures a particular product, se//s a significant volume thereof to its foreign associated retailer and a marginal volume of the same product to an independent party. In such a case, the difference in volumes is likely to materially affect the comparability of the two transactions. If it is not possible to make a reasonably accurate adjustment to eliminate the effects of such difference, the transaction between the taxpayer and its independent customer is unlikely to be a reliable comparable.”

18. That Paragraph 1. 36 of chapter I of the OECD TP Guidelines states that:“commercial or financial relations between the associated enterprises in order to accurately delineate the actual transaction can be broadly categorised as follows: The contractual terms of the transaction.

The functions performed by each of the parties to the transaction, taking into account assets used and risks assumed, including how those functions relate to the wider generation of value by the MNE group to which the parties belong, the circumstances surrounding the transaction, and industry practices.

The characteristics of property transferred, or services provided.

The economic circumstances of the parties and of the market in which the parties operate.

The business strategies pursued by the parties.”

19. The appellant asserted that the respondent has failed to appropriately apply the above stated paragraphs with regard to its intended application of the CUP method. That reasonable adjustments that should have been considered by the respondent include the following:a.An adjustment should be made to the cost of transport in relation to the appellant's Third Party sales. Based on the financial information that has been provided to the respondent, this adjustment is estimated by the appellant to be, on average over the years under appeal,1. 0%.b.An adjustment should be made to the cost of insurance in relation to the appellant's Third Party sales. Based on the financial information that has been provided to the respondent, this adjustment is estimated by the appellant to be, on average over the years under appeal, 0. 3%.c.An adjustment should be made in relation to the selling, promotion and distribution costs that are incurred. Based on the financial information that has been provided to the respondent, this adjustment is estimated by the appellant to be, on average over the years under appeal, 17. 1%.d.An adjustment should be made in relation to volume differences. Based on the information that has been provided to the respondent, the appellant sells 4. 2% of its volume to Third Party wholesalers over the years under appeal. By comparison, the appellant sells 38. 2% of its volume to Related Parties over the years under appeal. Assuming a linear correlation between selling price and volume, the respondent should have made a volume-based price adjustment of 34. 0% over the years under appeal.e.An adjustment for the credit risk exposure is also required. The credit risk exposure can be determined based on the actual losses generated by the appellant. The appellant has, however, determined that this credit exposure is limited, if one compares the credit exposure related to its Third Parties and does not propose an adjustment in relation thereto.f.An adjustment should be made for the difference in market prices. A selling price adjustment across the basket goods must be downward adjusted by, on average over the years under appeal, 43. 1%.

20. That in other words, the respondent should have made a selling price adjustment of approximately 95. 5%. That assuming an average selling price of the products falling into the controlled transaction was Kshs. 270, this would mean that the selling price would need to be adjusted by Kshs. 258. That this adjustment would, therefore, result in an adjusted selling price of Kshs. 12. That the average selling price of the products forming part of the controlled transaction was, in fact, Kshs. 135. That in other words, the adjusted CUP would result in Beta Kenya's selling price declining by Kshs. 123.

21. That for the foregoing reasons, it is the appellant's contention that the application of the CUP method would generate an absurd result and does not meet the guidance in Chapter II, Part I, Paragraph 2. 8 of the OECD TP Guidelines which states that; “...that the selection of a TP method always aims at finding the most appropriate method for each particular case does not mean that all the TP methods should be analysed in depth or tested in each case in arriving at the selection of the most appropriate method...” That it is for this reason that the appellant has never relied on the CUP method and has indicated why it disregards this method in its local file.

22. That consequently, the appellant chose the Transactional Net Margin Method (“TNMM") using Earnings Before Interest and Tax ("EBIT") as the Profit Level Indicator ("PLI”) to test the transaction. That this is because TNMM considers the full supply chain of the product until the point where the product is sold to third party customers.

23. That thus, the respondent erred by failing to acknowledge that by using EBIT, the revenues earned by Beta Uganda are used as a denominator in testing the operating profit margin (“OM") earned by Beta Uganda.

24. The appellant placed reliance on the High Court decision in India v Amphenol Interconnect India (Private) Ltd., March 2018, Bombay High Court, case No. 536. In its judgment, the High Court correctly concluded and affirmed the Tribunal's decision that after comparing the risk and functional differences involved in the finished goods being sold to related parties against those sold to third parties, the prices at which the finished goods were sold to the third parties were not comparable to the prices at which the goods were sold to the related parties. In making the decision, the High Court noted that due to geographical differences, volume differences, timing differences, risk differences and functional differences, the CUP method would not be the most appropriate method to determine the arm's length price. The Court therefore upheld the TNMM method as the most appropriate method to arrive at the arm's length price.

25. That the respondent has continuously only addressed product comparability but did not factor the other factors highlighted by the appellant. That the respondent has therefore proceeded on an incorrect assumption that other factors will not raise an economic difference between the controlled transactions and the Third Party transactions undertaken by the appellant.

26. That in terms of contractual terms, the respondent erred by not taking note of the fact that the appellant sells to Beta Uganda on free-on-board (FOB) terms while it sells to Shelys Tanzania on delivery on duty paid (DDP) terms. That the costs incurred by the appellant on sales made to Shelys Tanzania are however fully recovered. That on the other hand, for most sales to distributors in Kenya, the appellant incurs transportation costs in respect to delivering the products to the distributor's premises. That as such, delivery costs are factored into the price determination on sales to third party distributors in Kenya so as to ensure Beta Kenya earns an appropriate margin on its sales to third parties. That consequently, the price at which the appellant sells to third party distributors in Kenya is higher.

27. That the respondent erred in fact by stating that there are freight expense bookings regarding both third parties and related party customers. That the respondent further states that as a result of this, freight charges cannot be responsible for price differences between third party and related party sales as asserted by the appellant. The appellant stated that all freight expense bookings are in relation to transport to third parties and to this end it attached the freight expense ledgers.

28. That in relation to credit terms, and as evidenced by the invoices shared by the respondent, the credit terms enjoyed by the related parties range between 45 to 60 days. That on the other hand, the third parties credit terms fall within 45 to 90 days. The appellant stated that it attached sample related party invoices and sample third party invoices in support of this averment.

29. That the appellant carries the credit risk associated with the third parties for the period stated above by comparison to carrying no real credit risk in relation to its related parties. That although the related parties settle their invoices between 45 and 60 days, it does not truly bear this credit risk. That the appellant and its related parties form part of a multinational group with Aspen Holdings. That the holding company considers each of the related parties as important entities and will ensure that the appellant does not suffer any losses arising from the credit risk associated with its related parties. That the difference in credit terms is a differentiating factor between products sold to third parties and those sold to related parties. That the appellant however does not believe that the difference warrants an adjustment.

30. The appellant agreed with the respondent's understanding that third party credit bands are tailored depending on the customer, an indication of a background profiling of the credit-worthiness of a particular customer.

31. That in relation to free goods the respondent erred by stating that the appellant gives free goods to related parties. That the respondent only relied on the financial statements to support its assertion failing to review, in detail, the respective ledger. That contrary to this assertion, the appellant wishes to clarify that the it gives free goods to third parties in Kenya in order to draw in more sales. The appellant reiterated that the free goods are a business development, sales and marketing strategy in the Kenyan market. The appellant stated that it attached the free goods listings showing the recipients as third parties.

32. That it would only make commercial sense for the appellant to market its goods to third parties as there is no business sense in giving free goods to related parties. That in any case, the demand forecast that the appellant provided to support this averment, for the appellant's associated entities, are often planned for in advance.

33. The appellant stated that the respondent incorrectly placed reliance on the fact that free goods booked in the income statement under the account “Customers free goods – export” relates to sales made to related parties. The appellant clarified that the “Customers free goods - export” account is for free marketing and business development products given to third party customers outside Kenya.

34. That having made the clarifications above, the appellant asserted that the giving of free goods to third parties would have a direct impact on demand, which would consequently have an impact on prices.

35. That in relation to additional costs, the respondent argued that there are no additional costs such as handling costs and port levies incurred by a buyer when purchasing products from the appellant. The appellant, however, reiterated that there are additional costs separate from the cost of goods, that are necessary to get the products to the buyer's warehouse. That the additional cost is proportional to the type of sale.

36. That for local third party sales, there are no additional costs incurred following the purchase of the products. That however, for exports, associated enterprises incur these additional costs.

37. The appellant stated that Beta Uganda incurs handling and other costs ranging from 4% to 9% of the total product cost, while Shelys Tanzania incurs between 5% to 11% of the total landing cost for the products purchased.

38. That based on the above, the rational business consideration to maintain the market share is to charge a lower price to related parties as a result of the additional handling costs incurred by the related parties.

39. That in regard to sales volume, the respondent erred in fact by failing to consider the impact that sales volume has on the pricing strategy of a company. That the respondent also erred in fact by not considering the fact that economies of scale lie at the core of the operations of a company.

40. That the volumes that the appellant sells to individual related parties are significantly higher compared to the volume of products that Beta Kenya sells to individual third party distributors in Kenya. That this difference in volume accounts for one of the many variances in prices between the appellant’ sales to related parties and the price of similar products sold to third parties. That in relation to this, the appellant attached the sales ledger showing the volume of similar goods sold to third parties and related parties.

41. That in light of the foregoing, the respondent incorrectly determined the above referenced controlled and uncontrolled transactions as comparable. The appellant maintained that the two transactions are not comparable, more so in the absence of an appropriate adjustment.

42. That the importance of a sales volume analysis in the pricing of products is set in precedent in the Russia v Burdinsky A.V. where the Supreme Court of Russia determined that;“The difference between the price applied in a transaction and the market price level cannot serve as the sole basis for concluding that the taxpayer has received an unjustified tax benefit...the tax authorities did not establish comparability between the related and unrelated transactions, in particular the volume of goods sold to unrelated parties were significantly lower than the volumes sold to related parties. A relatively higher price to unrelated parties therefore had an economic justification.”

43. That therefore, the respondent misapplied itself in finding that there are no material differences in the contractual terms of the appellant's sale of pharmaceutical products to its related parties and sale of similar products to third party customers.

44. That additionally, the respondent incorrectly determined that third party sales volumes are always more than the related party sales volume. That the respondent argued that sales volumes to third parties are, on average, approximately 61% of the total sales hence no volume-based price adjustments should be provided to related parties.

45. That however, the appellant noted that the understanding of the respondent comes from treating the third party customers as a single customer and not treating them as discrete customers with different buying patterns.

46. That in regard to functional profile of the parties to the transaction, the respondent failed to note that there are functional differences between the controlled and uncontrolled transactions. The appellant highlighted as below the differences in the functional profile of the two transactions:

a. Business development, sales and marketing activities 47. That the appellant conducts the following key business development, sales and marketing activities in the Kenyan market:i.Managing relationships;ii.Running campaigns to attract potential customers;iii.Providing free goods to third party distributors and retailers; andiv.Customer relationship management.

48. That the appellant does not perform these functions in other countries where it sells its products (i.e. Ghana, Tanzania, Uganda and Nigeria). That in contrast, the appellant's related parties are wholly responsible for performing functions related to business development, sales and marketing in their respective markets and assuming the associated risks.

49. That the respondent erred in failing to take note of the fact that Shelys Tanzania and Beta Uganda spend an average of 11% of their turnover in selling and distribution activities as evidenced in their financial statements.

b) Market research and demand forecasts 50. That on a monthly basis, the appellant's related parties provide it with a rolling forecast based on their requirements for the products for a 12-month period. In contrast, third party distributors in Kenya only place orders on a need basis. The appellant stated that it attached a copy of a sample demand forecast for ease of reference shared by Shelys Tanzania and Beta Uganda, respectively, for the FYs 2016 to 2018.

51. That in order to avoid additional costs that are typically associated with spontaneous orders, the appellant conducts extensive market research and demand forecasting in the local market to enhance its business operations.

52. That the respondent erred in fact by failing to note that this results in additional expenditure being incurred by the appellant, subsequently reflected in the higher prices charged to local distributors as compared to prices charged to associated enterprises who undertake their own market research and demand planning functions.

53. That in regard to economic circumstance of the parties and the markets of operations, the respondent concluded that “all the sales are concluded within Kenya where market conditions are uniform and therefore the question of economic circumstance does not arise”.

54. That Chapter I, Paragraph 1. 130 of D.1. 4 of the OECD TP Guidelines provides that:“Arm's length prices may vary across different markets for transactions involving the same property or services...Economic circumstances that may be relevant to determining market comparability includes the geographic location; the size of markets; the extent of competition in the markets and the relative competitive positions of the buyers and sellers; the availability of substitute goods and services; the levels of supply and demand in the market, consumer purchasing power, the nature and extent of government regulation of the market, including the costs of land, labour, and capital; transport costs; the level of the market (e.g. retail or wholesale), the date and time of transactions; and so forth...”

55. That the appellant sells its products in various markets, including Kenya, Uganda, Tanzania, Ghana and Nigeria. In light of the above OECD provisions, the respondent erred in fact in failing to acknowledge that these markets differ from each other with respect to the economic circumstances highlighted in the preceding OECD TP Guidelines excerpt. That any direct comparison across the markets is over-simplistic, misleading and contravenes the OECD TP Guidelines and international best practices on TP.

56. That the respondent failed to acknowledge the World Bank's estimates in 2018 that put Kenya's, Tanzania's and Uganda's Gross Domestic Product (GDP) per capita at USD 2,006. 8, USD 1,135. 5and USD 858. 1 respectively. That the import of this is that Kenyans on average enjoy a higher standard of living. That this has a direct correlation to their purchasing power and affects the price at which products and services are sold in each of these countries.

57. That the respondent disregarded the fact that Kenya is currently the largest pharmaceutical product producer in the Common Market for Eastern and Southern Africa (COMESA) region, supplying about 50% of the region's market.

58. That owing to the factors above, the respondent wrongly deemed these markets to be comparable. That the prices of pharmaceutical products in these markets are significantly different. That for example, Beta Uganda and Shelys Tanzania sell Action tablets 100's to third party clients at a price that is on average lower by 27% and 23%, respectively, in comparison to the price charged by the appellant for local sales of the same product. That a similar difference exists on the sale of Cofta Tablets 100's.

59. That based on the above factors, the respondent incorrectly selected a CUP whose transaction prices are significantly higher than those in the tested transaction.

60. That Part B3, Paragraph 3. 4.5. 2 of the UN Manual onTP states that:“...Where there are such significant differences between the economic circumstances prevailing in different markets such that it is not possible to eliminate them by making reliable comparability adjustments, then companies from such different markets might not be retained as reliable comparables.”

61. That therefore, the respondent incorrectly deemed that the price charged for the appellant's products is comparable across the three markets and erred in passing an adjustment on the basis that an internal CUP is available, reliable and that it passes the comparability test.

62. That in regard to choice of tested party and tested party results, the respondent stated that the TP Policy failed to demonstrate whether the appellant achieved the 5%-8% on distribution to related parties on a segment-by-segment basis.

63. That the appellant disagrees with this assertion and, in particular, the respondent's interpretation of which entity is the tested party and therefore which entity the Aspen Group's TP policy should apply to.

64. That according to Chapter Ill, Paragraph 3. 18 of the OECD TP Guidelines:“When applying a cost plus, resale price or transactional net margin method as described in Chapter II, it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should be consistent with the functional analysis of the transaction. As a general rule, the tested party is the one to which a TP method can be applied in the most reliable manner and for which the most reliable comparables can be found, i.e., it will most often be the one that has the least complex functional analysis.”

65. That the above provision is cemented by Part B3, Paragraph 3. 5.1. 2 of the UN Manual on TP which states that:“The tested party normally should be the less complex party to the controlled transaction and should be the party in respect of which the most reliable data for comparing the results of similar independent transactions is available.”

66. The appellant asserted that the following key functional differences arise between the controlled transactions and similar transactions that are entered into with third parties:-Third Parties Related Parties

Functions

Product development Yes No

Product enhancement Yes No

Regulatory approval maintenance Yes No

Protection of IP Yes No

Exploitation of IP Yes No

Manufacturing1 and packaging of finished pharmaceutical products Yes Yes

Identifying new customers Yes No

Maintaining relationships with existing customers Yes No

Selling and promotion, including running campaigns Yes No

Product demand management Yes No

Transport Yes No

Debtors' management Yes No

Warehousing of raw materials and packaging Yes Yes

Warehousing of finished goods No Yes

Risks

Generic competition risk Yes Yes

Investment in sales force and material associated with the activities undertaken by the sales force risk Yes No

Quality risk Yes Yes

Demand estimation risk Yes No

Stock obsolescence risk associated with demand estimation risk Yes No

Transport risk Yes No

Inventory obsolescence risk Yes No

Product supply risk2 Yes Yes

Foreign exchange risk associated with raw materials and packaging Yes Yes

Foreign exchange risk associated with debtors Yes3 Yes4

Credit risk Yes No

Assets

IP Yes Yes

Manufacturing assets Yes Yes

Other assets Yes5 Yes

Debtors (working capital) 60-90 days 45-60 days

67. That as reflected in the table above, the related parties are the least complex entities in the transaction and the appellant has therefore correctly applied the arm's length test in its local file to Beta Uganda and Shelys Tanzania. That it is therefore incorrect for the respondent to indicate that the appellant is the tested party.

68. That this assumes that the transactions are limited to Hedex, Action, Cofta, Good Morning, Mara Moja, Salamia amongst others. That although this risk exists, it is insured so the economic risk that is borne by Beta Kenya is limited to the uninsured portion of the risk.

69. That in relation to foreign exchange risk associated with third parties located outside of Kenya and related parties as the transacting currency is USD, risk is borne by Beta Kenya and its related parties because the transacting currency is USD.

70. That the use of other assets in relation to third parties are more significant because additional assets are required by Beta Kenya to support its selling, promotion and distribution activities.

71. That even if the respondent is correct in determining the appellant to be the tested party, which the appellant categorically disagrees with, then the arguments presented by the respondent are also incorrect because a TP adjustment should be made in the related parties income because the appellant has earned an operating profit that is above the 75th percentile of the interquartile range. That during the 2018 fiscal year, the appellant earned an operating profit of 13. 4% whereas the 75th percentile was 6. 33%.

72. The appellant maintains that the most appropriate method to determine the arm's length price of its controlled transactions with relates parties is the TNMM using the OM as the PLI using the arguments presented throughout this Statement of Facts and not the CUP method as erroneously claimed by the respondent.

73. That while the respondent claims that evidence to show that the operating margin of 5% to 8% on distribution to parties was achieved was not provided by the appellant, the appellant states that information was shared with the respondent to support the margin earned of 1% to 4% on March 8, 2022.

74. That while the respondent claims that listing of costs related to business development activities in relation to third party sales was not provided by the appellant, the appellant states that the marketing and promotion ledgers were shared with the respondent and have been attached to its pleadings.

75. That while the respondent claimed that information used in determination of Aspen Nigeria as the tested party was not provided by the appellant, the appellant stated that the local file containing the functional and economic analysis with regard to sales made to Aspen Nigeria was shared with the respondent on March 8, 2022.

76. That while the respondent claims that segment information to help verify the choice of TNMM was not provided by the appellant, the segmented financials for Beta Uganda (2016-2018) and Shelys Tanzania (2017 & 2018 ) were shared with the respondent on 8th March, 2022.

77. That sales ledgers (volume & market conditions) and other ledgers (selling and promotion costs) were also shared with the respondent on 8th March, 2022.

78. That the respondent initially indicated its intention to raise an assessment against Beta Kenya using the CUP method and applying that method to Beta Kenya's third parties outside of Kenya. That the respondent has, during the process of the audit, abandoned this argument in its entirety.

79. The appellant was of the opinion that the respondent abandoned this line of assessing on the basis that it could not apply the CUP method as it was unable to make the necessary adjustments due to differences in market forces amongst other contractual differences. That therefore, the appellant believes that this is relevant to this matter and that this argument further reinforces the fact that the entire assessment should be set aside.

80. That the respondent misapplied itself in its findings, and the proposed TP adjustment is punitive and does not take into account that each of the group entities has paid its rightful share of taxes in their respective countries based on the appropriate arm's length principle.

81. That the respondent erred in law and fact in levying penalties and interest on the grounds that the appellant did not earn an arm's length price in relation to the transactions that it has entered into with its related parties.

appellant’s Prayers 82. The appellant prayed that:a.The objection decision confirming the assessment of Kshs. 486,451,143. 34 for the years 2016 to 2018 inclusive of penalties and interest be set aside in entirety;b.The Appeal be allowed with costs to the appellant; andc.The Honourable Tribunal be pleased to issue any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 83. The respondent’s case is premised on the hereunder filed documents:-i.The respondent’s statement of facts dated September 16, 2022 and filed on the same date together with the documents attached thereto.ii.The respondent’s witness statement of Clyde Oyola dated May 3, 2023 and filed on May 16, 2023, admitted in evidence under oath on October 17, 2023. iii.The respondent’s written submissions dated October 30, 2023 and filed on November 3, 2023 together with the authorities attached thereto.

84. That from its audit, the respondent established that the appellant was trading with both its subsidiaries and third parties. That however, the sales to the related enterprises were noted to have been concluded at significantly lower prices as compared to the pricing of similar products sold to third party distributors.

85. The respondent averred that Comparable Uncontrolled Pricing (CUP) method is a traditional transaction method which looks at the terms and conditions of transactions made between both related and unrelated organizations to ensure arm's­ length pricing across the board.

86. That to determine arm's-length transfer prices using the internal CUP method, a company must find examples of comparable transactions it has made with third parties. That in order to be compliant with transfer pricing regulations, the CUP method requires the terms of transactions with related parties must be the same as those of the third-party transactions.

87. The respondent averred that the appellant is in the business of manufacture and distribution of pharmaceutical products consisting mainly of over-the-counter (OTC) drugs manufactured and distributed in Kenya and also exported some to its associated parties namely; Beta Healthcare Uganda Ltd, Shelys Pharmaceuticals Limited Tanzania, KAMA Industries Ghana and Aspen Pharmacare Nigeria Limited (collectively referred to as associated enterprises).

88. That the controlled transaction subject of review is the sale of finished goods to the non­resident related companies on FOB terms which is similar to sales made to third parties at FOB (ex-factory) a price that did not include transport, insurance and distribution cost.

89. The respondent averred that the audit established that appellant sells similar products to independent third party distributors in Kenya, these have been identified as the comparable transactions. That by way of example, in the FY 2017, the appellant reported sales of "Hedex caplets 100's" worth Kshs. 159M, of these Kshs. 60M were sales to third parties. That with such findings, an internal comparable was established.

90. The respondent averred that from the invoices examined, it observed that the appellant extended credit terms of 60-90 days to its customers including the related entities, contrary to the appellant's assertion that the associated enterprises had a shorter credit period.

91. That contrary to the appellant's allegation that the related companies purchase more goods than the third party customers, the respondent averred that it analyzed the third party sales vis a vis the related party sales and the same were found to be comparable as demonstrated below:2016 2017 2018

Customer Type Value of Transactions Value of Transactions Value of Transactions

Related Party 313,411,506 753,104,260 632,981,972

Third Party 452,709,742 1,065,047,902 1,128,532,765

Ratio of related party to third party volume 41/59 41/59 36/64

92. That the appellant is related to and transacts with Beta Healthcare Uganda Ltd, Shelys Pharmaceuticals Limited Tanzania, KAMA Industries Ghana and Aspen Pharmacare Nigeria Limited. That an array of products is sold to the associated enterprises the main ones being Action, Hedex, Cofta, Good Morning, Salamia among others.

93. The respondent averred that the analysis established that the appellant's sales to the related entities were concluded on similar terms to the third party sales but at lower sales values. That in various instances, the prices charged to the related entities were at a fraction of the third party prices, in some instances, at half the third party prices.

94. The respondent averred that the appellant sells similar products to third party customers; the similarity of products and the underlying terms of sale set a clear presence of internal comparable which at Paragraph 2. 4 read together with Paragraph 2. 3 of the OECD TP Guidelines give preference to use of the Comparable Uncontrolled Price (CUP) method as the most appropriate method.

95. That Paragraph 2. 15 of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2017 Edition guides that an uncontrolled transaction is comparable to a controlled transaction (i.e. it is a comparable uncontrolled transaction) for purposes of the CUP method if one of two conditions is met:a.none of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market; or,b.reasonably accurate adjustments can be made to eliminate the material effects of such differences.

96. That the Paragraph concludes by stating, “Where it is possible to locate comparable uncontrolled transactions, the CUP method is the most direct and reliable way to apply the arm's length principle. Consequently, in such cases the CUP method is preferable over all other methods.”

97. That the industry and nature of the products manufactured and distributed by the appellant are specific products produced for a ready market or on order.

98. That in determining the degree of comparability between the controlled transactions and uncontrolled transactions the following factors were taken into account:i.Characteristics of the product or serviceii.Contractual terms,iii.Functional analysisiv.Economic circumstancesv.Business strategies.vi.The type and quality of the productsvii.Delivery terms.viii.All relevant information on the controlled and uncontrolled transactions and hence it is probable that all material differences between the transactions could be recognized.ix.Volume of sales and related discounts.

99. The respondent submitted that there is a bit of contradiction in the appellant's position. That on one hand it said that the third party transactions are limited to the orders the third party makes. That on the other hand, the appellant is claiming that one of the adjustments the respondent has to make is in respect to marketing services to the third party.

100. The respondent averred that by the time the third party is placing the order, the third party is sure and aware of the product they require and there is no need to market the same.

101. That the CUP method is the most appropriate method to be used as the sales in question are identical pharmaceutical products sold under similar terms to both the associated enterprises and the third party customers.

102. That the appellant is responsible for the performance of all the processes in the complex drug production cycle, utilizes its assets and assumes the associated risk as set out by the appellant in its transfer pricing policy document. That the activities range from raw material sourcing, registration and retention, production, research and development, sales and marketing and collection of accounts.

103. That in addition, the appellant has declared ownership of the IP which is not available for use by anyone within the pharmaceutical industry other than the appellant and its affiliates.

104. That that there is no functional difference with regard to both the controlled and uncontrolled transactions of the appellant.

105. The respondent maintained that there are no additional functions performed, assets used or risks borne by the appellant in its transaction with the third-parties compared to its transactions with its associated enterprises.

106. The respondent averred that it conducted functional, assets and risk (FAR) analysis with the aim of identifying the economically significant activities, responsibilities undertaken, assets used and risks assumed by the parties to the transaction as shown in the FAR analysis below:-FAR: Functions appellant Related party Comment

Distribution rights *

appellant grants RPs distribution rights and advertising materials. RPs develop marketing strategy/ plan.

Ordering

* RPs provide appellant with rolling forecast.

Manufacture, packaging and supply of products *

appellant fully responsible.

Delivery and insurance *

appellant is responsible for delivery.

Payments

* RPs pay within 60 days of invoice.

Inventory

* RPs monitor own stock levels.

Distribution

* RPs sell products in their markets.

RISKS

Generic competition risk *

Risk managed by appropriate product pricing

Investment in sales team

* RPs hire and train sales personnel. Set key performance indicators and incentives.

Quality *

appellant bears quality risk. Risk is low.

Demand estimation and inventory obsolescence risk

* RPs via rolling forecasts.

Product supply risk

* RPs provide rolling forecast. Risk is low.

Foreign exchange risk *

Credit risk *

60 day credit period. Risk is low.

ASSETS

Manufacturing plant *

appellant owned

Intangibles *

appellant owned appellant is responsible for Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) functions.

107. The respondent averred that going by the above analysis, there exist no economic difference between controlled and third party transactions.

108. That contrary to the appellant's assertions that the market conditions for the associated enterprises differ from the third party local comparable, the respondent submitted that the assertion can only hold water if supported by empirical data. That however, it would not be necessary to factor the economic circumstances of the associated enterprises in the current scenario, the controlled transaction is between the appellant and the associated enterprises on FOB terms which are akin to ex-factory pricing.

109. The respondent argued that from the review, it established that the prices are ex­ factory and therefore the sales are concluded within the Kenyan market and therefore the theory for supply and demand for third party goods cannot be sustained. That the van sales were inclusive of delivery; however, the prices were similar to other distributor prices.

110. That the respondent during its audit made the following findings;a.appellant sells mainly OTC drugs to its associated enterprises on FOB terms.b.appellant sells similar OTC drugs to independent third-party customers at prices nearly double the associated enterprises prices.c.appellant sells identical products to associated enterprises and third-parties, both sets of customers buy products available from appellant's product portfolio.d.appellant's production process and sale processes are homogeneous with respect to the associated enterprises and third-party sales.e.The price of products sold to associated enterprises are significantly lower compared to the prices of identical products sold to third parties.

111. That contrary to the appellant's allegation that the related companies purchase more goods than the third party customers, the respondent averred that it analyzed the third party sales vis a vis the related party sales and the same were found to be comparable.

112. The respondent averred that it considered the delivery charges for adjustment for comparability as guided by the OECD TP Guidelines Paragraph 2. 25. That however, the respondent noted that the delivery charges as booked in the financial records by the appellant were not material as to significantly impact the price even when factored for adjustment.

113. That the price charged on the products sold to the associated enterprises is significantly lower than the prices to the independent distributors the difference cannot be on account of distribution costs alone.

114. The respondent averred that it established that the third party customers just like the associated enterprises placed their purchase orders at least one month to delivery of the product,

115. The respondent averred that the appellant stated in its transfer pricing policy that the Comparable Uncontrolled Price (CUP) could not be applied because comparable transactions did not exist, "stating they are unable to obtain price data on similar products". This assertion is contrary to the audit findings which established existence of internal comparable information that lies in the sales to third parties.

116. The respondent submitted that the Aspen Group transfer pricing policy states that it has an operating margin of between 5% and 8% on distribution to related entities, however, the appellant did not demonstrate if this was achieved. That in fact the appellant stated that it did not have all the information due to a system upgrade.

117. The respondent stated that the appellant has the duty to provide all the documentation required by the respondent to aid in ascertaining the prices payable. That in this regard, the respondent averred that on February 18, 2022 and during the meeting held on April 9, 2022, it requested for the following documents which the appellant failed to provide;a.Evidence to show that the operating margin of 5% to 8 % on distribution to parties was achievedb.List of costs related to business development activities in relation to third party salesc.Information used in determination of Aspen Nigeria as the tested party.d.Segmented information to help verify the choice of TNMMe.Any other OECD comparability factors (ledgers) other than freight costs

118. That the appellant asserted that it is responsible for business development activities in relation to third party sales. That however no details as to costs and the support documentation for the same were provided to back this assertion.

119. That the appellant argued that the associated enterprise (parties outside Kenya) is the least complex party and hence the tested party. That there is however, scanty information on the associated enterprises to even attempt a basic functional analysis.

120. The respondent averred that the appellant alleged that its choice of the TNMM OM 5% is an arm's length charge for the controlled transaction but did not provide segment information to verify this assertion. That information available only indicates the prices charged to the related parties were significantly low compared to the third party prices.

121. The respondent averred that based on the information available, it reached the conclusion that Comparable Uncontrolled Transaction (CUT) existed. That in addition, the respondent informed the appellant of its willingness to consider reasonable adjustments in line with the OECD comparability factors. That however, the appellant only provided freight cost, which when adjusted does not materially affect the price.

122. That the difference between the prices charged to the third parties and the associated enterprises is an indication that the conditions of the commercial and financial relations of the associated enterprises are not at arm's length.

123. The respondent submitted that the OECD TP Guidelines at Paragraph 2. 3 outlines the preference of the Comparable Uncontrolled Price method (CUP) over other transfer pricing methods and further guides at Paragraph 2. 17 that practical considerations dictate a more flexible approach to enable the CUP method to be used and to be supplemented as necessary by other appropriate methods.

124. The respondent further stated that section 31(1) of the Tax Procedures Act, provides an avenue for the Commissioner to make alterations based on the available information and to the best of his judgment.

125. The respondent relied on the following case and authority to support its averments:a.KRA v. Man Diesel & Turbo SE,Kenya [2021] eKLR OECDb.OECD Guidelines 2017

respondent’s Prayers 126. The respondent prayed that:a.The Tribunal finds that Appeal is devoid of merit and proceeds to uphold the respondent’s objection decision.b.In the alternative, that the Tribunal directs the appellant to avail the information to the respondent to review and issue another decision based on the information availed before this Tribunal.

Issues For Determination 127. The Tribunal has carefully considered the pleadings and documentation filed by both parties and is of the view that the issue for its determination is:-Whether the change of Transfer Pricing method by the respondent was justified

Analysis And Findings 128. The Tribunal having established the issue for its determination proceeded to analyse it as hereunder.

129. The genesis of this dispute was the imposition of a different Transfer Pricing method by the respondent on the appellant’s transactions.

130. The respondent stated that the Comparable Uncontrolled Price ("CUP") method would be the most appropriate method to test the transaction between the appellant and its related parties. That this is because, according to the respondent, the transaction in question is the sale of goods which are similar in nature in both the controlled and uncontrolled transactions.

131. Further, the respondent submitted that the appellant did not produce certain information as follows:a.Evidence to show that the operating margin of 5% to 8 % on distribution to parties was achievedb.List of costs related to business development activities in relation to third party salesc.Information used in determination of Aspen Nigeria as the tested party.d.Segmented information to help verify the choice of TNMMe.Any other OECD comparability factors (Ledgers) other than freight costsThat this information was key in the review that the respondent undertook.

132. On its part, the appellant argued that it does not consider the CUP to be the most appropriate method in determining the arm's length nature of the transaction price of its products due to the low degree of comparability with the internal CUP proposed by the respondent. The appellant submitted that TNMM is the most appropriate Transfer Pricing method for its transactions.

133. Further, the appellant stated that it provided the information that the respondent stated was missing on March 8, 2022. According to the appellant, it provided detailed information, including the below, that the respondent stated it did not receive:a.Information to support the margin earned of 1% to 4% shared on March 8, 2022. b.Marketing and promotion ledgers shared on March 8, 2022. c.The local file containing the functional and economic analysis with regard to sales made to Aspen Nigeria shared with the respondent on March 8, 2022. d.Segmented financials for Beta Uganda (2016-2018) and Shelys Tanzania (2017 & 2018 ) shared with the respondent on March 8, 2022. e.Sales ledgers (Volume & Market conditions) and other ledgers (selling and promotion costs) shared with the respondent on March 8, 2022.

134. The Tribunal reviewed the parties’ pleadings and established that the appellant attached the disputed information to its pleadings. However, the respondent, both in its pleadings and orally at the hearing, urged that the information was never provided to it. Further, while the appellant stated that it submitted the disputed information on March 8, 2022, the Tribunal did not sight any document to confirm this averment.

135. In regard to selection of an appropriate Transfer Pricing method, Paragraph 2. 1 of the OECD Guidelines provides that the selection of the transfer pricing method should consider the following;a.the respective strengths and weaknesses of the OECD recognised methods;b.the appropriateness of the method considered in view of the nature of the controlled transaction, determined through a functional analysis;c.the availability of reliable information (on uncontrolled comparables) needed to apply the selected method and/or other methods; andd.the degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments that may be needed to eliminate material differences between them.

136. Additionally, Paragraph 3. 20 of the OECD Guidelines states that,“In order to select and apply the most appropriate transfer pricing method to the circumstances of the case, information is needed on the comparability factors in relation to the controlled transaction under review and in particular on the functions, assets and risks of all the parties to the controlled transaction, including the foreign associated enterprise(s).”

137. Paragraph 1. 35 and 1. 36 of the OECD Guidelines state as follows regarding comparable factors for the establishment of an appropriate Transfer Pricing method:“1. 35. …Before making comparisons with uncontrolled transactions, it is therefore vital to identify the economically relevant characteristics of the commercial or financial relations as expressed in the controlled transaction.

1. 36The economically relevant characteristics or comparability factors that need to be identified in the commercial or financial relations between the associated enterprises in order to accurately delineate the actual transaction can be broadly categorised as follows:i.The contractual terms of the transaction;ii.The functions performed by each of the parties to the transaction, taking into account assets used and risks assumed, including how those functions relate to the wider generation of value by the MNE group to which the parties belong, the circumstances surrounding the transaction, and industry practices;iii.The characteristics of property transferred, or services provided;iv.The economic circumstances of the parties and of the market in which the parties operate; andv.The business strategies pursued by the parties.”

138. The Tribunal further notes that Paragraph 2. 20 of the OECD Guidelines provides as follows in regard to application of the CUP method of Transfer Pricing:“For the CUP method to be reliably applied to commodity transactions, the economically relevant characteristics of the controlled transaction and the uncontrolled transactions or the uncontrolled arrangements represented by the quoted price need to be comparable. For commodities, the economically relevant characteristics include, among others, the physical features and quality of the commodity; the contractual terms of the controlled transaction, such as volumes traded, period of the arrangements, the timing and terms of delivery, transportation, insurance, and foreign currency terms. For some commodities, certain economically relevant characteristics (e.g. prompt delivery) may lead to a premium or a discount. If the quoted price is used as a reference for determining the arm’s length price or price range, the standardised contracts which stipulate specifications on the basis of which commodities are traded on the exchange and which result in a quoted price for the commodity may be relevant. Where there are differences between the conditions of the controlled transaction and the conditions of the uncontrolled transactions or the conditions determining the quoted price for the commodity that materially affect the price of the commodity transactions being examined, reasonably accurate adjustments should be made to ensure that the economically relevant characteristics of the transactions are comparable.Contributions made in the form of functions performed, assets used and risks assumed by other entities in the supply chain should be compensated in accordance with the guidance provided in these Guidelines.” (Emphasis ours)

139. Separately, Paragraph 2. 64 of the OECD Guidelines provide as follows regarding the application of the TNMM method:“The transactional net margin method examines the net profit relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realises from a controlled transaction (or transactions that are appropriate to aggregate under the principles of paragraphs 3. 9 -3. 12). Thus, a transactional net margin method operates in a manner similar to the cost plus and resale price methods. This similarity means that in order to be applied reliably, the transactional net margin method must be applied in a manner consistent with the manner in which the resale price or cost plus method is applied.This means in particular that the net profit indicator of the taxpayer from the controlled transaction (or transactions that are appropriate to aggregate under the principles of paragraphs 3. 9 -3. 12) should ideally be established by reference to the net profit indicator that the same taxpayer earns in comparable uncontrolled transactions, i.e. by reference to “internal comparables” (see paragraphs 3. 27-3. 28). Where this is not possible, the net margin that would have been earned in comparable transactions by an independent enterprise (“external comparables”) may serve as a guide (see paragraphs 3. 29-3. 35). A functional analysis of the controlled and uncontrolled transactions is required to determine whether the transactions are comparable and what adjustments may be necessary to obtain reliable results. Further, the other requirements for comparability, and in particular those of paragraphs 2. 74 -2. 81, must be applied.”

140. The Tribunal posits that in line with Paragraph 2. 20 of the OECD Guidelines on application of the CUP method and Paragraph 2. 64 on application of the TNMM method quoted earlier herein, the information in dispute by the parties is key in establishing a number of the comparable elements for the determination as of which Transfer Pricing method is the most appropriate to be applied on the appellant’s transaction.

141. The Tribunal notes that during the hearing, both parties admitted to having introduced further documentation and information in the course of the appeal and both parties confirmed that this information was not considered by the respondent in issuing its objection decision.

142. The Tribunal further notes that from the pleadings, and from the oral presentations, it is apparent that certain key documents were not provided during the objection and when requested by the respondent on February 18, 2022 and April 9, 2022.

143. Section of 6 of the Tax Appeals Tribunal Act provides as follows regarding grounds of appeal that the appellant should rely on in Appeals to the Tribunal:“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal to which the decision relates.”

144. The Tribunal posits that if the appellant provided all the documentation requested by the respondent prior to the issuance of the objection decision, it should have adduced evidence to show that indeed it provided the disputed information on March 8, 2022 as averred by it. To the extent that it did not provide this evidence, it did not exhaust its burden of proof under section 56(1) of the Tax Procedures Act.

145. Section 30 of the Tax Appeals Tribunal Act provides as follows regarding burden of proof in tax appeals to the Tribunal:“In a proceeding before the Tribunal, the appellant has the burden of proving —a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

146. The Tribunal is guided by the the case of Alfred Kioko Muteti v Timothy Miheso &another [2015] eKLR where the court held that:-“a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough”. In reaching its findings, the court stated that: “Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence....”

147. In view of the foregoing, the tribunal finds that the appeal fails.

Final Decision 148. The upshot of the foregoing is that the appeal lacks merit and consequently, the Tribunal proceeds to make the following orders: -a.The appeal is hereby dismissed.b.The respondent’s objection decision dated July 5, 2022 be and is hereby upheld.c.Each Party to bear its own costs.

149. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF FEBRUARY, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBEREUNICE NG’ANG’A - MEMBERBERNADETTE GITARI - MEMBER