What is country-by-country reporting?
Multinational Enterprise Groups (MNEs) that are tax resident in Kenya with gross revenues of KSh 95 billion or more are required to submit an annual return of income for the year 2022 and subsequent years. The return should detail the group’s financial activities in Kenya and other jurisdictions where the group has a taxable presence.
The filing requirement is consistent with the OECD’s base erosion and profit shifting (BEPS) Action 13 on country-by-country (CbC) reporting. It covers Kenyan-headquartered MNEs and subsidiaries and branches of MNEs with a taxable presence in Kenya.
An MNE is a group that includes two or more enterprises resident in different jurisdictions, including an enterprise that carries on business through a permanent establishment or any other entity in another jurisdiction.
- Country by Country Reporting Notification Form – filed no later than the MNE’s last day of the reporting financial year. This means 31st December, 2022, for MNEs with a financial year end of December. The notification will include details of the MNE, reporting entity, and the notifying entity.
- Master File – filed within six months after the last day of the reporting financial year of the MNE. The Master File contains standardized information about the MNE group relevant to all members of the MNE.
- Local File – filed within six months after the last day of the reporting financial year of the MNE. The Local File contains information specific to the local entity’s activities, structure, business strategies, and material transactions.
- Country-by-Country report – filed within 12 months after the MNE’s last day of the reporting financial year. The report contains specified details of each of the constituent entities of the MNE and the jurisdictions of their tax residence, financial activities, and resources, excluding cash and cash equivalent in the respective jurisdictions.
The Kenyan Income Tax Act exempts an MNE from filing a country-by-country report if:
- A non-resident surrogate parent entity files the country-by-country report on the group with the competent authority of the tax jurisdiction of the entity;
- the jurisdiction in which the non-resident surrogate parent entity is resident requires the filing of country-by-country reports;
- the competent authority of the jurisdiction in which the non-resident surrogate parent entity is resident, and Kenya has a competent authority agreement for the exchange of information;
- the competent authority in the jurisdiction where the non-resident surrogate parent is resident has not notified Kenya of a systemic failure; or
- the non-resident parent entity has notified the competent authority in the jurisdiction of its tax residence that the entity is the designated surrogate parent entity of the group.
A surrogate parent entity means one constituent entity of the multinational enterprise group appointed by such group to file the country-by-country report in that constituent entity’s jurisdiction of tax residence, on behalf of the group.
Failure to comply with the CbC reporting is an offence subject to a fine not exceeding KES 1 million, a prison term not exceeding three years, or both upon conviction.
Objectives of Country-by-Country reports
CbC reporting seeks to enhance the transparency of MNEs tax matters and enable tax authorities in different jurisdictions to share relevant tax information. Kenya is a signatory to The Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Information from CbC reporting will likely be used by the Kenya Revenue Authority (KRA) to collaborate with other countries on the exchange of information as well as in conducting transfer pricing risk assessments.
MNEs with operations in Kenya face increased compliance costs and tax and transfer pricing audits from the KRA. They should thus evaluate their operations to confirm whether they are covered for the CbC reporting requirement and comply.