Kenya has demonstrated a commitment to aligning its tax framework with international standards, including the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, particularly BEPS Action 13, which focuses on Country-by-Country Reporting (CbCR). The Kenyan government, through its tax authority, the Kenya Revenue Authority (KRA), has implemented CbCR requirements to ensure transparency and fairness in the taxation of multinational enterprises (MNEs). This guide provides Chief Financial Officers (CFOs) and financial executives in Kenya with an overview of the CbCR obligations, including applicability, reporting requirements, submission deadlines, penalties for non-compliance, and resources for compliance.

Applicability of CbCR in Kenya

Criteria for Reporting:

• CbCR applies to MNE groups with consolidated revenues of KES 95 billion (approximately €750 million) or more in the preceding fiscal year.
• The ultimate parent entity of the MNE group is responsible for filing the CbC report if it is tax resident in Kenya.
• A surrogate parent entity in Kenya may be required to file the CbC report if the ultimate parent is based in a jurisdiction that does not require CbCR or does not exchange CbC reports.

Relevant Legislation:

• CbCR regulations were introduced in Kenya through the Income Tax Act (Section 18F), following the enactment of Finance Act 2022.
• Kenya has adopted the OECD’s BEPS Action 13 framework into domestic law, ensuring consistency with international standards.

Reporting Requirements

Information to be Reported:

• The CbC report must include financial data for each tax jurisdiction in which the MNE operates. This includes:
  • Revenues (both related-party and third-party)
  • Profit (or loss) before tax
  • Income taxes paid and accrued
  • Stated capital
  • Accumulated earnings
  • Number of employees
  • Tangible assets (excluding cash or cash equivalents)
• Additionally, the report must provide details on all constituent entities in the MNE group, including their tax jurisdictions and main business activities.

Form and Submission:

• The CbC report must be prepared in XML format in accordance with the OECD’s CbCR schema.
• The report is submitted electronically via the Kenya Revenue Authority’s iTax platform.
  • Detailed instructions for filing can be found on the Kenya Revenue Authority website.

Filing Deadlines

• The CbC report must be filed within 12 months of the end of the MNE group’s fiscal year. For instance, if the fiscal year ends on 31 December 2023, the report is due by 31 December 2024.
• For MNEs in Kenya that are not required to file the CbC report, a notification must be provided to the KRA identifying the reporting entity and its jurisdiction. This notification must be submitted by the end of the fiscal year.

Penalties for Non-Compliance

Penalties:

• Kenya imposes penalties for non-compliance with CbCR obligations, which include:
  • KES 1 million for failure to submit a CbC report or filing incorrect or incomplete information.
  • Additional fines may apply for repeated non-compliance or failure to notify the KRA of the reporting entity.
• The KRA also has the authority to increase scrutiny on MNEs that fail to comply, potentially leading to audits and further investigations.

Defences:

• MNEs may avoid penalties if they can prove that non-compliance resulted from genuine errors or technical difficulties. However, these defences are reviewed on a case-by-case basis by the KRA.

Confidentiality and Use of Information

Data Protection:

• Kenya adheres to international standards regarding the confidentiality of CbCR data. Information in the CbC report is shared with other tax jurisdictions under mutual competent authority agreements (MCAAs), but only with jurisdictions that comply with the OECD’s confidentiality standards.
• The data is used primarily for assessing transfer pricing risks, base erosion, and profit shifting but is not made publicly available.