Del Monte Kenya Limited has emerged victorious in a Sh270 million tax dispute with the Kenya Revenue Authority (KRA) concerning the deductibility of foreign exchange losses linked to shareholder loans worth Sh3.9 billion.
The Court of Appeal upheld earlier High Court findings in favour of the agribusiness firm, ruling that companies are entitled to claim tax deductions on foreign currency losses incurred when foreign-denominated loans are settled through share issuance rather than cash repayment. The court dismissed KRA’s appeal, effectively affirming Del Monte’s right to deduct Sh401.3 million arising from a debt-to-equity conversion arrangement.
The ruling protects Del Monte from additional tax demands amounting to Sh270.7 million, which KRA had sought after disallowing the deductions tied to the restructuring of the loans.
The dispute originated from foreign currency loans advanced in 2001 by Del Monte International, a related company incorporated in Panama. The financing package included $28.2 million (about Sh3.6 billion) and £1.46 million (approximately Sh253.5 million), all unsecured and interest-free, which Del Monte Kenya used to support day-to-day operations such as procurement, supplier payments and salary obligations.
Also Read: Keroche Breweries Suffers Another Court Loss in Sh45m Ex-CEO Payment Dispute
Over time, fluctuations in the Kenya shilling led to accounting gains and losses as the company revalued the outstanding foreign-denominated liabilities in its books. These were not realised in cash terms since the loans remained unpaid.
By 2008, the debt balance still stood at $28.25 million and £1.46 million. A year later, the obligation was transferred to Del Monte Kenya Holdings, after which the company partially offset the debt against intercompany receivables and converted the remaining balance into 41,625 ordinary shares issued to the related entity.
That restructuring triggered foreign exchange losses of Sh401.3 million, which Del Monte treated as allowable deductions in its 2009 tax filings.
However, KRA challenged the treatment during audits covering the 2009–2011 financial years, arguing that losses arising from the conversion of debt into equity were capital in nature and therefore not tax deductible. The court ultimately disagreed, siding with Del Monte and closing the long-running dispute in the company’s favour.
