Transfer Pricing Audit and Corporate Income Tax Compliance Moderated by Technology Integration among Multinational Corporations in Westlands, Nairobi, Kenya

Abstract

Corporate income tax (CIT) compliance in Kenya remains low, with only 50.2% of the registered firms being tax compliant as of June 2024. Multinational corporations (MNCs) are of particular concern due to complex cross-border operations and transfer pricing (TP) practices that enable profit shifting. The government revised transfer pricing regulations (TPRs) and introduced technology measures, but their effectiveness is unclear. This study investigated the relationship between transfer pricing audit, technology integration and CIT compliance among MNCs in Westlands, Nairobi, Kenya. Theoretically, the study was underpinned by Deterrence Theory. The study adopted an explanatory design and targeted 55 MNCs through a census approach. Structured questionnaires were used to collect data. The pilot study comprising 10% of target population, was carried out in Upper Hill, Nairobi. Analysis involved descriptive and inferential statistics, with hypothesis testing conducted at a 0.05 significance level. Regression results showed that Transfer Pricing audits (β=0.241, p<0.05) positively influenced CIT compliance. Technology integration moderated the relationship, strengthening the effects of TP audits (ΔR²=0.03, β=0.185, p<0.05). The study concluded that Transfer Pricing Audits are significant drivers of CIT compliance and technology integration amplifies its impact. The study recommended that tax authorities provide clear TP guidelines, invest in digital systems and support audits with technology driven tools. MNCs should also strengthen audits while linking tax functions across departments. Future studies should examine additional TPR elements, cultural factors and the long-term effects of digitization on compliance.