December 7, 2022
Kenya signs MCAA for Exchange of Country-by-Country reports | Implications for MNEs operating in Kenya
Kenya has been actively monitoring international developments including the Base Erosion and Profit Shifting (BEPS) project led by the Organisation for Economic Co-operation and Development (OECD). The country's focus is on modernizing domestic tax legislation to align with the rapidly evolving business models driven by multinational enterprises (MNEs).
The influence of these international tax developments is evident in the recent tax legislation. The latest legislation being the introduction of Country-by-Country (CbC) reporting (CbCR) obligations effective for financial year 2022 (FY2022). For background, see EY Global Tax Alert, Kenya introduces Country-by-Country reporting requirements, dated 26 July 2022.
On 9 September 2022, Kenya signed the Multilateral Competent Authority Agreement for Exchange of Country-by-Country Reports (CbC MCAA). This step projects the country's intention to automatically exchange information with competent authorities in other jurisdictions under the CbC MCAA to foster transparency in MNEs' operations.
Kenya's CbCR legislation includes an exemption from filing CbCR reports for MNEs whose ultimate parent entity (UPE) or surrogate entity (responsible for filing the CbC report) is located in a jurisdiction that has a competent authority agreement with Kenya for the exchange of tax information.
Based on the CbCR legislation in Kenya, the CbC MCAA should qualify as an international agreement to which Kenya is a party providing for the exchange of tax information between Kenya and other jurisdictions. Hence, Kenya's signing of the CbC MCAA will allow for Kenya to receive and share information on MNEs' activities in and outside Kenya.
The move by Kenya to join the CbC MCAA will allow the Kenya Revenue Authority (KRA) to collect and have the authority to share CbC reports with other tax jurisdictions when collaborative requests are initiated by the other jurisdictions. Likewise, the KRA can and will be able to request CbC report data from other cooperative jurisdictions under the CbC MCAA framework.
The move will also reduce the administrative burden on Kenyan taxpayers to prepare CbC reports. It is however noteworthy that the United States (US) is not yet a signatory to the CbC MCAA. Kenyan members of US headquartered MNEs will therefore be required to file these reports under the current status.
As taxpayers anticipate more clarifications on CbCR compliance requirements in Kenya, MNEs should proactively review their global operations and tax reporting to ensure alignment with their economic value chain. This will also call for enhanced consistency and transparency in the reporting and documentation of the MNEs' economic activities globally.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York