Kenya: Country-by-country reporting proposal in budget 2021-2022

Requirement for the ultimate parent entity (UPE) of a MNE to submit a return detailing the group’s financial activities

Requirement for UPE of a MNE to submit a return detailing group’s financial activities

The proposed introduction of country-by-country (CbC) reporting for multinational enterprises, as generally described below, was enacted by the Finance Act, 2021 (signed into law on 29 June 2021 and published in the official gazette on 1 July 2021). Read TaxNewsFlash

The budget for 2021-2022 includes a proposal to introduce a requirement for the ultimate parent entity (UPE) of a multinational enterprises group (MNE) to submit a return detailing the group’s financial activities in Kenya as well as in other jurisdictions where the group has a taxable presence.

The proposal has been introduced with a view to aligning with the OECD’s base erosion and profit shifting (BEPS) Action 13 on country-by-country (CbC) reporting. There is an expectation that the information from CbC reporting would be used by the Kenyan tax authorities to collaborate with other countries on the exchange of information as well as in conducting transfer pricing risk assessments. The introduction of CbC reporting thus would result in additional transfer pricing documentation and reporting requirements for MNEs. The measure is proposed to be effective 1 January 2022.

KPMG observation

Similar proposals for CbC reporting were included in the Finance Bill, 2021. Read TaxNewsFlash 

CbC reporting definitions, terms

For these purposes, the “ultimate parent entity” would be defined as an entity that:

  • Is resident in Kenya for tax purposes
  • Is not controlled by another entity, and
  • Owns and controls a multinational enterprise group

A “multinational enterprise group” would defined as a group that includes two or more enterprises that conduct business through a permanent establishment (PE) or through any other entity in another jurisdiction.

The return would need to include information relating to:

  • The amount of revenue
  • Profit or loss before tax
  • Income tax paid
  • Income tax accrued
  • Stated capital
  • Accumulated earnings
  • Number of employees and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the group operates

The return would be required not later than 12 months from the last day of the group’s financial year.

The proposed CbC reporting provision would apply to MNE groups with gross turnover exceeding a prescribed yet-to-be-announced revenue threshold.

Read a June 2021 report [PDF 6.1 MB] prepared by the KPMG member firm in Kenya


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