In a bid to strengthen Kenya’s position in sealing gaps and mismatches in tax rules that lead to revenue leakages running into billions of shillings, Kenya has signed an international agreement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS).The process will involve collaboration with 90 other countries to end tax evasion among multinationals. Kenya’s Ambassador to France Prof Judi Wakhungu signed the Convention in Paris recently.
Gaps in international rules are used by many multinationals to evade tax by hiding corporate profits or shift them to low or no tax environments. The mode of operation adopted by multinationals is to sell to subsidiaries in other countries at above or below market price thereby transferring profits and costs to other divisions internally to cut tax liability. These tax avoidance schemes inflict huge losses for developing countries like Kenya, who rely heavily on corporate income tax.
National Treasury and Kenya Revenue Authority (KRA) commissioner-general Githii Mburu said that joining the network will stop treaty shopping tendencies which promote double non-taxation. It is estimated that the withholding tax rate gets reduced from nearly eight percent to two percent. Being part of the treaty network will ensure that income will be taxed in at least one of the partner states.
The convention covers 1,600 bilateral tax treaties, Economic Co-operation and Development (OECD) estimates that base erosion and profit shifting lead to $100 billion and $240 billion in lost revenue annually.
