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30 June 2023

Kenya rolls out new tax return template to capture data on intercompany transactions for MNEs

  • Multinational entities (MNEs) operating in Kenya will be obliged to disclose more information relating to their intercompany operations and financial value of the transactions in question.
  • A new tax return template seeks to gather more data on related-party transactions vis-à-vis their parent company or headquarters.

Executive summary

The Kenya Revenue Authority (KRA) has rolled out a new tax return template that expands the scope of compliance for taxpayers, requiring them to disclose related-party transactions. This change is aligned with efforts to curb Base Erosion and Profit Shifting (BEPS) by multinational enterprises operating in Kenya.

Detailed discussion

Background

To keep pace with global tax changes, Kenya has made efforts to adopt BEPS Pillar 13 action points, which promote transfer pricing documentation. The culmination of the efforts has been exhibited in Kenya's introducing country-by-country reporting (CbCR) and signing a Multilateral Competent Authority Agreement for Exchange of country-by-country (CbC) reports.

The updated tax return template seeks to gather the following information for entities with related parties outside Kenya:

  • Financial performance of the local entity in comparison to the parent entity
  • Intercompany transactions that generate tax-deductible expenses
  • Intercompany transactions that are capital in nature
  • Value of the amounts due to/due from related parties

Implications for taxpayers

  • Taxpayers will be required to share more details of their intercompany transactions with the KRA.
  • Taxpayers will be required to align their transfer pricing documentation with their tax returns.
  • The KRA is likely to use the additional data gathered as a baseline to assess transfer pricing risk, which will inform transfer pricing audits.

Next steps

Taxpayers should align their transfer pricing transactions with local rules and the Organization for Economic Co-operation and Development (OECD) Guidelines to mitigate the risk of transfer pricing adjustments.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2023-1170

 

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