This note covers only the financial transactions elements of a wider transfer pricing dispute. The primary issues concerned the pricing of fresh and processed pineapple sales from Kenya to a related Swiss distributor — a goods transfer pricing matter outside ajiho’s FT Cases scope. The intra-group loan was one of six issues before the Tribunal; it is covered here for its findings on loan substance, documentation, and the currency benchmark question.
The facts
Delmonte Kenya Limited (DMKL), a Kenyan pineapple producer, claimed interest deductions on two intra-group loans from Del Monte Fund B.V. (DMF B.V.), a Netherlands-incorporated entity. The first loan of KES 3,050,215,716 was advanced in September 2014; the second of KES 3,500,000,000 in October 2018. Both carried an interest rate of the 91-day Kenya Treasury bill rate plus 3 per cent, benchmarked by DMKL using an internal comparable — a Barclays Bank Kenya quotation on similar terms.
Both loans were denominated and disbursed in Kenyan shillings, though interest was paid in US dollars at the prevailing Central Bank of Kenya exchange rate. The Kenya Revenue Authority (KRA) disallowed the interest deductions in full, raising a liability of approximately KES 213 million on this issue. Its objections were threefold: that DMF B.V. lacked the financial capacity to advance the loans (share capital of US$1, a non-trading entity); that the base rate should have been LIBOR rather than the T-bill rate given the long-term nature of the loans and their dollar interest payments; and that intercompany payables from earlier years had been converted to loan balances without adequate documentation.
The determination
The Tribunal dismissed the interest deduction issue on substance and documentation grounds — it did not reach the arm’s length rate question.
On structure. The parties disputed whether DMF B.V. was owned by DMI GmbH or by Fresh Del Monte Produce Inc. DMKL failed to produce registry records or official searches to contradict the KRA’s position, and the Tribunal found accordingly that DMF B.V. was wholly owned by DMI GmbH — a finding that materially shaped the substance analysis.
On loan substance. The Tribunal was not satisfied the loan agreements had genuine commercial substance. The token share capital of DMF B.V., the conversion of pre-existing intercompany payables into loan balances, and the absence of source documentation evidencing those payables were all noted. Reconciliation schedules and bank statements showing interest payments were insufficient — the Tribunal required source documents establishing the existence and legitimacy of the underlying obligations.
On the internal CUP. DMKL stated it had obtained a Barclays Bank Kenya quotation at CBR + 3 per cent as its arm’s length benchmark. That quotation was never produced in evidence. The Tribunal noted that, had the loan been found to have substance, this document would have been essential to any rate analysis — its absence prevented comparison entirely.
ajiho commentary
Substance before pricing
The arm’s length rate question was never tested because the loan failed at the prior substance threshold. This is the correct analytical sequence — and it is one tax authorities globally are applying with increasing rigour. A well-constructed interest rate benchmark is necessary but not sufficient. The loan must first be shown to be a genuine financial instrument: a credible lender with real capital, properly documented loan agreements, and evidence of the economic reality of the advance. DMF B.V.’s US$1 share capital was a significant vulnerability that the documentation did not adequately address.
Conversion of payables to loans requires contemporaneous documentation
The conversion of intercompany trade payables to loan balances is a common treasury practice, particularly in markets where cash repatriation is restricted or delayed. This case illustrates that such conversions must be documented at the time they occur — with clear evidence of the pre-existing payables, the basis for conversion, and properly executed loan agreements. Retrospective reconstruction will not satisfy a Kenyan tribunal, and the same principle applies across most jurisdictions.
The currency benchmark question remains open
The KRA’s argument — that a KES-denominated loan with USD interest payments should use LIBOR rather than the 91-day T-bill as the base rate — was not resolved on the merits. It is a genuinely difficult question, and one that will recur in markets where loans are locally denominated but interest is paid in hard currency. Groups pricing such arrangements should take and document a clear position on the appropriate benchmark at inception rather than defending it retrospectively.
What this means for your business
Groups with Kenyan borrowing entities should treat this decision as a reminder that the interest rate is the second question, not the first. Before any benchmark is tested, the loan must survive a substance review: a lender with genuine financial capacity, executed agreements, and source documentation for the underlying obligations — especially where intercompany payables have been converted into loan balances. Where a comparable such as a bank quotation supports the rate, it must actually be placed in evidence. And where a loan is denominated in local currency but serviced in hard currency, the choice of base rate should be reasoned and documented at inception.
Case reference
Delmonte Kenya Limited v Commissioner of Legal Services & Board Co-ordination · Kenya Tax Appeals Tribunal · Tax Appeal No. E1263 of 2024 · 16 January 2026
Chairperson: Christine A. Muga. Primary source: official judgment. This note covers the financial transactions elements only; all other issues in the case are outside scope.