What you need to know:
- Transparency campaigners have pushed for multinationals to disclose country-by-country information as part of reforms of international tax rules.
- Kenya, desperate for cash to finance its development programmes, has stepped up its pursuit of tax dodgers both domestic and foreign.
Multinational companies operating in Kenya will be compelled to disclose their financial records starting January next year in proposed changes by National Treasury aimed at eliminating tax avoidance.
Treasury Cabinet Secretary Ukur Yatani said all multinationals with total group revenues of above Sh2.5 billion will be required to provide the Kenya Revenue Authority (KRA) with details of their financial dealings in each of the countries where they have operations.
The regulations require the firms to disclose the amount of revenue, profit or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents concerning each jurisdiction in which they operate.
“The Kenya Revenue Authority shall use the country-by-country report only for purposes of assessing high-level transfer pricing risks and other base erosion and profit-shifting related risks in Kenya, including assessing the risk of non-compliance by members of the MNE (multinational enterprise) Group with applicable transfer pricing rules, and where appropriate for economic and statistical analysis,” Mr Yatani said.
Country-by-country reporting differs from regular financial reporting in that companies have to publish information for every country they operate in rather than providing a single set at the global level.
Transparency campaigners have pushed for multinationals to disclose country-by-country information as part of reforms of international tax rules, but the measure has been opposed by many big business groups and some governments.
Corporate tax avoidance has become a hot issue internationally and campaigners want companies obliged to publish country-by-country financial information because it could show whether they are shifting profits out of major markets and manufacturing centres, into tax havens.
Kenya, desperate for cash to finance its development programmes, has stepped up its pursuit of tax dodgers both domestic and foreign.
For instance, the country has introduced a 1.5 per cent digital tax that targets foreign firms that accrue income in Kenya through digital marketplaces as a major driver of tax receipts in coming years.
KRA has set a Sh13.9 billion tax goal in the next three years through June 2022 from foreign firms using the internet to market and sell products in Kenya.
The digital services tax, which came into effect at the start of January, is 1.5 per cent of the gross transaction value. It is levied on the sale of e-books, movies, music, games, and other digital content.
KRA signals that firms like Amazon and Netflix are forecast to generate sales of about Sh926 billion in the three years.
Kenya last month refrained from signing a global tax deal steered by the Organisation for Economic Co-operation and Development (OECD) because it would have to stop levying a digital services tax and worries about the agreement’s dispute resolution mechanism.