Kenya has signed an international agreement to end tax avoidance among multinational firms.
The deal, dubbed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting Convention, was signed at the 10th Anniversary Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) in Paris this past November.
The Convention was the first multilateral treaty of its kind, allowing international collaboration initiatives to end tax avoidance among multinational firms under the Organisation for Economic Co-operation and Development (OECD)/G20 Search Results Web results Base Erosion and Profit Shifting (BEPS) Project.
The OECD/G20 BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to “disappear” or be artificially shifted to low or no tax environments, where companies have little or no economic activity.
Under the OECD/G20 Inclusive Framework on BEPS, more than 130 countries are collaborating to put an end to tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax.
Kenya’s Ambassador to France, Prof. Judi Wakhungu signed the Convention at a ceremony held in Paris and witnessed by officials from the country’s National Treasury and the Kenya Revenue Authority (KRA). By signing the international tax treaty, Kenya now becomes the 91st jurisdiction to join the Convention which covers over 1,600 bilateral tax treaties and seeks to put an end to tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax.
Speaking at the signing ceremony at the Organisation for Economic Co-operation and Development (OECD) headquarters, Prof. Wakhungu said Kenya’s signing of the Convention demonstrates the national commitment to put in place measures to Prevent Base Erosion and Profit Shifting (BEPS).
With the signing, Prof. Wakhungu further confirmed that Kenya would also be swiftly moving to deposit the Country’s Instrument of Ratification for the Convention in coming months.
She said the Convention will work to strengthen the existing international tax treaties network by ensuring that issues of treaty abuse are addressed, dispute resolution is strengthened. This will ultimately ensure that Kenya gets her fair share of taxes from multinational firms operating in the country.
According to the OECD, BEPS practices cost countries US$100 billion to $240 billion in lost revenue annually, which is the equivalent to 4-10% of the global corporate income tax revenue.
“The Global Forum has been a game-changer,” said OECD Secretary-General Angel Gurría.
“Thanks to international co‑operation, tax authorities now have access to a huge trove of information that was previously beyond reach. Tax authorities are talking to each other and taxpayers are starting to understand that there’s nowhere left to hide. The benefits to the tax system’s fairness are enormous,” Mr Gurría said.
Tax transparency is particularly important for developing countries. With support from the Global Forum, 85 developing country members have used the exchange of information to strengthen their tax collection capacity.
The Africa Initiative has helped African members identify over EUR 90 million ($99.74 million) in additional tax revenues in 2018, thanks to information exchanges and voluntary disclosures. To improve developing countries’ uptake of automatic exchange of financial information, the OECD-UNDP Tax Inspectors Without Borders Initiative today launched a pilot project aimed at supporting the effective use of the data.