Inside the new tax disclosure rules for multinationals


KRA headquarters at Times Tower in Nairobi. FILE PHOTO | NMG

Kenya, like many other countries, is constantly in a race to grow its tax base. Domestically, this has become difficult due to the large informal sector.

Attention has now shifted to the exchange of information to enable the Kenya Revenue Authority (KRA) to obtain third-party information that it can use to verify taxpayer self-assessments and raise much-needed revenues.

The KRA will use this information to assess transfer pricing risks in transactions between local operations of foreign companies and their related non-resident entities.

In 2021, Kenya joined the Mutual Administrative Assistance Convention (MAAC). The MAAC, developed by the Organisation for Economic Cooperation and Development (OECD), allows Kenya to cooperate with other states to tackle tax evasion and avoidance.

The KRA has used this tool to request taxpayer information from other jurisdictions. On its part, Kenya is on course to commence the exchange of local taxpayer information with other jurisdictions.

In the Finance Act 2022, Kenya enacted the country-by-country reporting (CBCR) rules for multinational groups with turnover greater than Sh95 billion (about 750 million euros).

This is part of the Base Erosion and Profit Shifting (BEPS) agenda by the OECD to end the information asymmetry that arises when tax authorities do not have access to taxpayer information held in other countries.

The KRA has recently published mechanisms for notification of this financial information for all resident group entities in Kenya. Basically, the taxman will have a 360-degree view of the operations of a multinational entity.

This is set to change the global tax landscape by providing even more transparency.

Kenya and many other African countries are on a path to ensuring that they can tap information available in low-tax jurisdictions worldwide, and match this information against taxpayer self-assessment returns and other available information to ensure that the right amounts of taxes are paid.

Once Kenya signs the Competent Authority Agreement, the KRA will be able to exchange this information with over 90 other jurisdictions, including low-tax jurisdictions.

Multinationals that meet the CBCR threshold of Sh95 billion will be required to provide master files and local files which will include even more detailed group financial information for both their local and international operations.

The increased scrutiny could have the unintended effect of increased disputes which could increase the compliance burden for taxpayers.

For multinational companies, focus on tax compliance will be key to ensuring that they are not caught in the cross-hairs of the taxman.

The writer is a tax manager with KPMG Advisory Services Limited