What you need to know:
- Rules to apply to offshore markets that do not tax incomes or earnings at a rate less than 20 per cent.
- Multinationals with group revenues of Sh95b will be required to provide details of their financial dealings.
The Kenya Revenue Authority (KRA) will get powers to determine the gains and profits expected from local businesses and individuals with ties in offshore tax havens if Parliament approves proposed changes to the law.
As part of a strategy to tighten the noose on tax cheats, Treasury Cabinet secretary Ukur Yatani said the gains and profits from tax haven dealings would be gauged against conventional performance expectations and taxes charged appropriately.
“Where the business produces no gains or produces less gains than those which would have been expected to accrue from that business if the business activity was not with a party in a preferential tax regime, the gains of that resident person from that business shall be deemed to be the amount, which would have been expected to accrue if that business had been conducted by an independent person dealing at arm’s length, or if none of the parties were located in a preferential tax regime” the Finance Bill 2022 reads in part.
These rules would apply to offshore markets that do not tax incomes or earnings at a rate less than 20 per cent and don’t have a framework for information exchange with other tax authorities.
The Treasury said these regulations would also apply to destinations that do not allow access to banking information or lack transparency on corporate structure, ownership of legal entities located therein, beneficial owners of income or capital, financial disclosure, or regulatory supervision.
In the Finance Bill 2022, the Treasury has also proposed to compel multinationals operating in Kenya to disclose their country-by-country financial information to help stamp out corporate tax avoidance.
Mr Yatani said all multinationals with total group revenues of Sh95 billion would be required to provide the KRA with details of their financial dealings in each of the countries where they have operations.
The newly published regulations require the multinationals 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.
Country-by-country reporting differs from regular financial reporting in that firms have to publish information for every country they operate in rather than provide a single set of information at the global level.
Transparency campaigners have advocated for multinationals to disclose country-by-country information as part of reforms of global tax rules, but many big business groups and some governments have rejected the measures.