Kenya Revenue Authority regularizes Country-by-Country Notification Requirements

published on 24 November 2022 | reading time approx. 2 minutes

The Kenya Revenue Authority (KRA) has issued Form CBCN1 to be populated and sent to the Commissioner by entities falling under the ambit of Country-by-Country (CbC) reporting requirements. The Form must be sent to the Commissioner before the last day of the financial year of the Multinational Enterprise (MNE) Group. This notification requirement will be applicable to tax returns for the year of income 2022 onwards.

In addition, an Ultimate Parent Entity (UPE) of a MNE group or a constituent entity of an MNE group will be required to file a master file and local file with the Commissioner within 6 months after the last day of the financial year.

Background
Taxpayers’ obligation
Penalties
Conclusion

Background

CbC reporting was first enacted into the Kenya Law through the Finance Act 2021. The Finance Act 2021 provided that, an UPE of MNEs resident in Kenya would submit returns not late than 12 months after the last day of the reporting financial year of the group. The reporting requirements would be on an annual basis and would highlight the group’s financial activities in Kenya and all other jurisdictions where the group entities have a taxable presence. The Legislation, however, did not provide a revenue threshold nor did it provide the reporting mechanisms although later that year the Cabinet Secretary for Finance did publish draft Regulations which were never gazetted into Law.

In 2022, CbC reporting requirements were further clarified through the Finance Act 2022. Among the notable clarifications was that the reporting requirements would be applicable. In addition there were a number of requirements implemented which borrowed heavily from Base Erosion and Profit Shifting (BEPS) Action Plan 13.

In terms of notification, the Act provided that all MNE groups or constituent entities of the MNE groups operating in Kenya notify the Commissioner by the last day of the reporting financial year of the group on whether:

It is the UPE of the group;
In case it is not the UPE of the group, whether or not it is a surrogate patent entity;
It is the nominated entity for purposes of filing CbC reports in Kenya; and
If it is neither of the above, the identity of the entity required to file CbC reports in Kenya.

Taxpayers’ obligation

The CBCN1 form to be filled contains the name of the MNE Group or UPE, consolidated group reporting period start date, consolidated group revenues of the MNE Group in the financial period immediately prior to the reporting period (in Kenya Shillings), reporting entity information, notifying entity information and contact information.

Penalties

A person who fails to submit the documents discussed above commits an offence of failure to submit a return or other document and shall be subject to a penalty of one thousand shillings for each day or part day of default, but the total penalty shall not exceed fifty thousand shillings as prescribed under the Tax Procedures Act, 2015.

Conclusion

CbC reporting requirements seek to enhance transparency of MNEs’ operating in Kenya through sharing of information on tax matters from different jurisdictions with a view of ensuring that MNEs pay a fair share of their taxes in the jurisdictions where the income has been generated.

We are available to assit all MNEs to comply with the CbC reporting requirements in Kenya.