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10 February 2016

New Kenyan law seeks to tackle excessive tax avoidance through transfer pricing

Content team

Authorities in Kenya have passed a law designed to combat the abuse of transfer pricing practices by companies seeking to evade or excessively avoid tax.

The Tax Procedures Act will target foreign companies that try to reduce their domestic tax bills by allocating income to tax havens and attributing expenses to Kenya, reports Bloomberg.

With the enactment of the law, the Kenya Revenue Authority (KRA) will have more power to investigate pricing agreements between local units of multinational corporations and their parent companies.

The national tax agency will also be able to overturn any arrangements that seem structured to enable tax avoidance and to enforce penalties against those organisations involved in such practices.

"If the [KRA] commissioner has applied a tax avoidance provision in assessing a taxpayer, the taxpayer is liable for a tax avoidance penalty equal to double the amount of the tax that would have been avoided but for the application of the tax avoidance provision," the law states.

This is one of a number of measures being introduced by the Kenyan government as it seeks to maximise tax income and reduce its budget deficit, which is expected to be around 6.9 per cent of gross domestic product during the fiscal year starting 1st July 2016.

The KRA is working with authorities in Uganda, Rwanda and Tanzania to reduce revenue loss and tax evasion in eastern Africa, partly by tackling illegal trade in taxable goods.

Along with Burundi, these nations form the five-member East African Community, an intergovernmental organisation seeking to create a single customs territory that would make goods clearance easier and bring more revenue into the region.

A draft budget policy statement from Kenya's Treasury revealed that the KRA missed its half-year revenue collection targets by 47.6 billion shillings (£322 million).

Content team, Bureau van Dijk

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