Lancet denies shifting profit from Kenyan subsidiary
Thursday March 16 2023
Laboratory firm Lancet Service Company (PTY) Ltd has denied claims of repatriating profits from its Kenyan subsidiary through transfer-pricing and profit shifting as claimed by former chief executive officer Ahmed Kalebi who left the company in 2021.
The company says in response to a case filed by Dr Kalebi that the South African partners provided the Kenyan operations and the subsidiaries with monetary, intellectual, managerial, administrative, and other technical support, without billing the Kenyan offices.
The firm says after the incorporation of Cebra Lancet Africa, its board of directors decided to levy an annual management fee for the support services, hence a provision was made for this management fee within the Kenyan operations financials.
“I am aware that the entities in the East African Group were not profit-making enterprises,” says one of the directors in documents filed in court.
“The Plaintiff’s claim for annual dividends is therefore untenable as it is not based on the audited financial statements of the Kenyan Operations, nor has it been approved by the Board of Directors of the Kenyan Operations.”
Read: Ex-Lancet CEO tells court why he deserves Sh3.6bn from former partners
Dr Kalebi is demanding dividends of Sh100 million, share valuation of Sh919.7 million, pay in lieu of annual leave of Sh19.2 million, unpaid overtime (Sh643 million), leave allowance (Sh19.2 million), unpaid bonus (Sh54.8 million) and unpaid gratuity (Sh14.5 million).
But his former partners said the dividends could only be derived from distributable profits and any such distribution must not be prejudicial to the interests of the Kenyan operation.
“From the audited accounts for the material period, it is evident that no such dividends could be paid as the East African Group required the support of the 2nd Defendant (Lancet PTY) to continue operating as a going concern,” Lancet says.
Dr Kalebi, who in 2009 helped establish the laboratory firm, has sued the units –Pathologists Lancet Kenya Ltd and Lancet Services Company Kenya Ltd, and shareholders, French firm Cebra Healthcare and Lancet Service Company of South Africa, demanding Sh3.6 billion payout.
The French and South Africans revealed in court documents that it sustained heavy losses through the inter-company transactions as the Kenyan operations consistently failed to pay the Lancet PTY for the Stock within the mandatory 90-day window required by the South African tax authorities.
Read: Ex-Lancet CEO demands Sh3.5bn amid board row
Court documents further state that Lancet Service PTY Ltd consistently supported the East African Group through heavily discounted supplies for laboratory materials, testing equipment and technical support.
In 2019, France-based multinational Cerba Healthcare bought shares in South Africa’s Lancet Laboratories for an undisclosed amount in a deal that saw it take control of the East African unit that was headed by Dr Kalebi.