Kenya Revenue Authority Enhances Transfer Pricing Compliance
In an effort to tighten the noose on tax evasion, the Kenya Revenue Authority (KRA) is set to introduce a sophisticated transfer pricing database. This strategic move aims to empower KRA agents with advanced tools for scrutinizing multinational firms’ transactions. The database will serve as a platform for compiling, analyzing, and managing data related to cross-border company activities, ensuring adherence to tax regulations.
Transfer pricing, a legitimate accounting practice, involves setting prices for transactions between company divisions or related entities in different countries. This method is often employed by multinational corporations to distribute earnings among their subsidiaries and affiliates. However, concerns arise when companies misuse this practice to minimize their tax liabilities by shifting profits to jurisdictions with lower tax rates.
The forthcoming KRA database is expected to be a comprehensive repository of financial statements, loan details, royalty and service agreements, all formatted for electronic analysis. It will provide insights into various transactions, including manufacturing and distribution of goods, financial dealings, and royalty agreements. The KRA’s initiative reflects a proactive approach to ensuring that transfer pricing audits of multinational enterprises and companies in the extractive industries are more effective.
Recent legislative developments have seen the National Treasury propose amendments to the Income Tax (Transfer Pricing) Rules, expanding the scope of transactions covered by these regulations. The draft rules published in September 2023 include provisions for insurance and reinsurance transactions, among others.
Additionally, the Tax Procedures (Common Reporting Standards) Regulations, 2023 signed by Treasury Cabinet Secretary Njuguna Ndung’u mandate local financial institutions to disclose detailed information on foreign account holders to the KRA. This regulation is part of a broader initiative to combat tax evasion and illicit wealth, with Kenya poised to exchange financial information with 106 countries.
The KRA’s commitment to curbing tax evasion is evident in its rigorous approach to monitoring transfer pricing practices and its collaboration with international partners. With these measures in place, the authority is set to close loopholes and enhance compliance, ensuring that multinational firms contribute their fair share to Kenya’s economy.
