Question two

1. Multinational corporations may adopt certain pricing structures for their Kenyan subsidiaries that shift profits of Kenya to countries where profits are taxed best and the divert part of Kenyas revenue abroad

Required:

With reference to the statement above and Section 18(3) of the Income Tax Act (Cap 470):

1. Outline the characteristics of transactions that may constitute transfer pricing. (5 marks)

2. Identify and explain five methods for the provision of relief from international double taxation are the exemption method and the credit method.

1. Discuss how each of the above methods is applied in practice. (6 marks)
2. Discuss two advantages of credit method (4 marks)

(Total: 25 marks)