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Kenya signs treaty to end tax avoidance among multinational firms

By signing the international tax treaty, Kenya now becomes the 91st jurisdiction to join the Convention/FILE

NAIROBI, Kenya, Nov 27 – The ongoing national efforts to strengthen the country’s bilateral tax treaties have received a boost with the signing of a multilateral Convention to end tax avoidance in France.

On Tuesday, Kenya signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting Convention.

Kenya’s Ambassador to France, Judi Wakhungu signed the Convention at ongoing 10th Anniversary Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Paris.

The Convention, the first multilateral treaty of its kind, allows international collaboration initiatives to end tax avoidance among multinational firms.

By signing the international tax treaty, Kenya now becomes the 91st jurisdiction to join the Convention.

It covers over 1600 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.

The Convention, Wakhugu said, 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$100-240 billion in lost revenue annually, which is the equivalent to 4-10 percent 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,” Gurría said.

On his part, KRA Commissioner General Githii Mburu said the signing of the Convention would put a stop to treaty shopping tendencies which have has been a major concern for many countries as it promotes double non-taxation. Treaty shopping is estimated to reduce the effective withholding tax rate by more than five percentage points from nearly 8 percent to 3 percent, generating large revenue losses for developed and developing countries alike.

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“The modifications introduced by the Convention serve to protect our treaty network by countering treaty shopping and ensuring that income will be taxed in at least one of the partner states,” Mburu said.

At the diplomatic level, Prof Wakhungu commended the OECD for continued technical and related support which has served to foster world-class tax administration in Kenya. OECD has been working closely with Kenya on several initiatives.

Said Prof. Wakhungu: “We, therefore, congratulate the OECD for spearheading the development of this very efficient instrument to ensure that treaty-related measures to prevent BEPS are swiftly implemented. The Convention has not only presented a platform to amend our existing treaties, but its provisions have also been incorporated in the current treaties being negotiated. Kenya remains committed to the work of the Inclusive Framework and reaffirms her commitment to implementing the BEPS minimum standards.”

The Convention became effective on 1 January 2019 and now applies to 99 tax treaties concluded among the 37 jurisdictions that have already deposited their instrument of acceptance, approval or ratification.

Domestic tax base erosion and profit shifting (BEPS) due to multinational enterprises exploiting gaps and mismatches between different countries’ tax systems affect all countries. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately.

Working together in the OECD/G20 Inclusive Framework on BEPS, over 130 countries are implementing 15 Actions to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

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 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.

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