Kenya targets large foreign companies in tax reforms

Multinational companies operating in Kenya will be required to disclose their financial records from January next year as part of changes proposed by the National Treasury aimed at eliminating tax evasion.

Cabinet Secretary to the Treasury Ukur Yatani said all multinationals with total group turnover exceeding 2.5 billion shillings will be required to provide the Kenya Revenue Authority (KRA) with details of their financial transactions. in each of the countries where they operate.

Regulations require companies to disclose the amount of income, profit or loss before income tax, income tax paid, accrued income tax, stated capital, accrued profits, number of ’employees and tangible assets other than cash or cash equivalents relating to each jurisdiction in which they operate.

“The Kenya Revenue Authority will use the country-by-country report only for the purpose of assessing high-level transfer pricing risks and other risks associated with base erosion and profit shifting. in Kenya, including the assessment of the risk of non-compliance by members of the MNE Group (multinational enterprise) with applicable transfer pricing rules and, where applicable, for economic and statistical analysis ”, Mr. Yatani said.

Country-by-country reporting differs from regular financial reporting in that companies are required to publish information for each country in which they operate rather than providing a single set globally.

Transparency activists have pushed multinationals to disclose country-by-country information as part of international tax rule reforms, but the move has clashed with many big business groups and some governments.

Tax evasion

Corporate tax evasion has become a hot issue internationally, and campaigners want companies to be forced to publish country-by-country financial information as they could show whether they are shifting profits from major markets and manufacturing centers. towards tax havens.

Kenya, desperate for cash to fund its development programs, has stepped up its pursuit of both domestic and foreign tax evaders.

For example, the country has introduced a 1.5% digital tax that targets foreign companies that accumulate income in Kenya through digital markets as the main driver of tax revenue in the years to come.

KRA has set a tax target of 13.9 billion shillings over the next three years through June 2022 with foreign companies using the internet to market and sell products in Kenya.

The digital services tax, which entered into force in early January, represents 1.5% of the gross value of the transaction. It is levied on the sale of e-books, movies, music, games and other digital content.

KRA reports that companies like Amazon and Netflix are expected to generate sales of around 926 billion shillings over the three years.

Kenya refrained from signing a global tax deal spearheaded by the Organization for Economic Co-operation and Development (OECD) last month as it is set to stop levying a digital services tax and is concerned about the settlement mechanism dispute the agreement.

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