The Finance Act 2022 brought in a number of changes with respect to transfer pricing in Kenya. The changes were effective 1 July 2022 and apply for the financial year 2022. In this article, we summarise the new requirements below:
- Notification to the KRA on the ultimate parent or surrogate parent of the group – Effective 1 July 2022, multinational enterprises (MNE) or their constituent companies that are resident in Kenya are required to notify the Kenya Revenue Authority (KRA) whether or not they are the parent entity of the group or the surrogate parent entity of the group. In case the Kenyan resident entity is not the ultimate parent or surrogate parent of the group, the Kenya entity is required to notify the KRA the entity within the group that is the ultimate parent or surrogate parent entity of the group and the country of tax residence of the ultimate parent or surrogate parent.
This notification should be done by the last day of the financial year. Kenya Revenue Authority has already issued the Country by Country Reporting Notification Form (Form CBCN1) that should be completed by taxpayers and submitted to KRA through the email CBCR@kra.go.ke. - Submission of Country by Country Report (CbCR) – The ultimate parent entity (UPE) or the constituent entity resident in Kenya with a group turnover of more than KES 95 billion are required to prepare and submit the CbCR to Kenya Revenue Authority within twelve months after the end of the financial year.
- Master and local file – The ultimate parent entity and the constituent entity of the multinational enterprise group will be required to file both master and local file with the Commissioner within a period of six months after the end of the financial year.
The master file contains general information and transfer pricing practices of the group whereas the local file contains specific information and transfer pricing practices of the Kenyan company and demonstrates that the related party transactions of the Kenyan company are at arm’s length.
- Notification to the KRA on the ultimate parent or surrogate parent of the group – Effective 1 July 2022, multinational enterprises (MNE) or their constituent companies that are resident in Kenya are required to notify the Kenya Revenue Authority (KRA) whether or not they are the parent entity of the group or the surrogate parent entity of the group. In case the Kenyan resident entity is not the ultimate parent or surrogate parent of the group, the Kenya entity is required to notify the KRA the entity within the group that is the ultimate parent or surrogate parent entity of the group and the country of tax residence of the ultimate parent or surrogate parent.
Failure to abide by the new requirement would lead to the imposition of a penalty not exceeding KES 1 Million or imprisonment for a period of up to three years or both.
At MGK we have the capacity, relevant experience, and skills to assist your organisation in complying with the new requirements. For further details, kindly feel free to reach out to our tax department via Bkamau@mgkconsult.co.ke
