Kenya opts to join con­ven­tion on tax mat­ters

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Celia Becker

ON FE­BRU­ARY 8 Kenya joined 93 other coun­tries around the world to sign the Mul­ti­lat­eral Con­ven­tion on Mu­tual Ad­min­is­tra­tive As­sis­tance in Tax Mat­ters (the con­ven­tion), thereby be­com­ing the 12th African coun­try to do so.

The con­ven­tion was de­vel­oped jointly by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD) and the Coun­cil of Europe and amended by pro­to­col in 2010.

It pro­vides for all forms of ad­min­is­tra­tive co-op­er­a­tion be­tween states in the as­sess­ment and col­lec­tion of taxes, in par­tic­u­lar with a view to com­bat­ing tax avoid­ance and eva­sion. This ranges from ex­change of in­for­ma­tion, in­clud­ing au­to­matic ex­changes, tax ex­am­i­na­tions abroad, si­mul­ta­ne­ous tax ex­am­i­na­tions and as­sis­tance in tax col­lec­tion.

The con­ven­tion has taken on in­creas­ing im­por­tance fol­low­ing the Group of 20’s call for au­to­matic ex­change to be­come the new in­ter­na­tional stan­dard of the ex­change of tax in­for­ma­tion, and the sub­se­quent de­vel­op­ment of the Stan­dard for Au­to­matic Ex­change of Fi­nan­cial Ac­count In­for­ma­tion in Tax Mat­ters (Com­mon Re­port­ing Stan­dard or CRS), which was ap­proved by the OECD Coun­cil on July 15 2014.

The Stan­dard re­quires ju­ris­dic­tions to ob­tain in­for­ma­tion from their fi­nan­cial in­sti­tu­tions and ex­change it with other ju­ris­dic­tions on an an­nual ba­sis. It sets out the fi­nan­cial ac­count in­for­ma­tion to be ex­changed, the fi­nan­cial in­sti­tu­tions re­quired to re­port and the dif­fer­ent types of ac­counts and tax­pay­ers cov­ered, as well as com­mon due dili­gence pro­ce­dures to be fol­lowed by fi­nan­cial in­sti­tu­tions.

SA was the first African coun­try to sign the con­ven­tion since it was opened for sig­na­ture in June 2011. Ghana and Tu­nisia fol­lowed in 2012, Nige­ria and Morocco in 2013, Gabon and Cameroon in 2014, Uganda, Mau­ri­tius and the Seychelles last year and Sene­gal and Kenya this year.

Com­pe­tent au­thor­i­ties from 79 ju­ris­dic­tions have also signed the Mul­ti­lat­eral Com­pe­tent Au­thor­ity Agree­ment on Au­to­matic Ex­change of Fi­nan­cial Ac­count In­for­ma­tion Agree­ment un­der the Con­ven­tion (MCAA), which im­ple­ments the Com­mon Re­port­ing Stan­dard.

The in­tro­duc­tion of the Stan­dard was met with some con­cern re­gard­ing the cost im­pli­ca­tions for fi­nan­cial in­sti­tu­tions. Richard Mur­phy of Tax Re­search LLP in the UK in Fe­bru­ary 2014 pre­dicted that the Stan­dard might be too com­pli­cated for some de­vel­op­ing coun­tries to im­ple­ment and “it’s not clear whether coun­tries will have an in­cen­tive to join this”.

Mur­phy’s pre­dic­tion seems to be ac­cu­rate in re­spect of the con­ti­nent — as at Jan­uary 27, Ghana, Mau­ri­tius, Seychelles and SA were the only African sig­na­to­ries of the MCAA; and even th­ese coun­tries seem to be grap­pling with the im­ple­men­ta­tion of the Stan­dard.

In terms of the MCAA, the first ex­change of in­for­ma­tion is sched­uled for Septem­ber next year for Mau­ri­tius, Seychelles and SA and for Septem­ber 2018 for Ghana. How­ever, the Mau­ri­tius Rev­enue Au­thor­ity on De­cem­ber 22 last year re­leased a com­mu­niqué di­rect­ing that the im­ple­men­ta­tion of the CRS is to be post­poned. On Jan­uary 15 it an­nounced that the first ex­change of in­for­ma­tion is to take place as from Septem­ber 2018 and the re­quire­ment to ap­ply due dili­gence pro­ce­dures to record tax res­i­dence of clients open­ing new ac­counts takes ef­fect on Jan­uary 1 next year.

The Mau­ri­tius Rev­enue Au­thor­ity will “in due course con­vene the tech­ni­cal com­mit­tee to dis­cuss and fi­nalise the guid­ance notes for the im­ple­men­ta­tion of CRS”. Nei­ther Ghana nor the Seychelles have is­sued any guid­ance for im­ple­men­ta­tion yet.

As at Fe­bru­ary 4, 32 ju­ris­dic­tions have signed the Mul­ti­lat­eral Com­pe­tent Au­thor­ity Agree­ment (2016) on the Au­to­matic Ex­change of Coun­try-by-Coun­try Re­ports (“CbC MCAA”), de­vel­oped un­der the OECD’s Base Ero­sion and Profit Shift­ing (“BEPS”) Ac­tion Plan 13: Re-ex­am­ine Trans­fer Pric­ing Doc­u­men­ta­tion, which rec­om­mends that all coun­tries should adopt a stan­dard­ised ap­proach to trans­fer pric­ing doc­u­men­ta­tion, fol­low­ing a three-tiered struc­ture con­sist­ing of a mas­ter file, a lo­cal file and coun­tryby-coun­try re­port.

Nige­ria, Sene­gal and SA are the only African sig­na­to­ries of the CbC MCAA. Un­der this agree­ment, tax ad­min­is­tra­tions where a com­pany op­er­ates will re­ceive ag­gre­gate in­for­ma­tion an­nu­ally, start­ing with the 2016 ac­counts, re­lat­ing to the global al­lo­ca­tion of in­come and taxes paid, to­gether with other in­di­ca­tors of eco­nomic ac­tiv­ity within a multi­na­tional en­ter­prise group. It will also cover in­for­ma­tion about which en­ti­ties do busi­ness in a par­tic­u­lar ju­ris­dic­tion and the busi­ness ac­tiv­i­ties each en­tity en­gages in.

The in­for­ma­tion will be col­lected by the coun­try of res­i­dence of the multi­na­tional en­ter­prise group and can be used by tax au­thor­i­ties to carry out high level trans­fer pric­ing, BEPS-re­lated risk, eco­nomic and sta­tis­ti­cal analy­ses.

KPMG Nige­ria in­di­cated that it is likely that Nige­ria will pro­mul­gate spe­cific leg­is­la­tion that will fa­cil­i­tate the ex­change of in­for­ma­tion with co-sig­na­to­ries, but high­lighted that in­for­ma­tion such as in­come earned and tax paid in dif­fer­ent ju­ris­dic­tions, will be avail­able, ir­re­spec­tive of whether such leg­is­la­tion is passed.

At the African Tax Ad­min­is­tra­tion Fo­rum’s Con­sul­ta­tive Con­fer­ence on New Rules of the Global Tax Agenda hosted last March, the fo­rum high­lighted is­sues to be con­sid­ered by African coun­tries, in­clud­ing the fea­si­bil­ity of the au­to­matic in­for­ma­tion ex­change on tax mat­ters, tak­ing into ac­count the dif­fi­cul­ties en­coun­tered in re­tain­ing ex­pe­ri­enced staff and the lack of ca­pac­ity to process third-party in­for­ma­tion; who will bear the in­creased ad­min­is­tra­tive bur­den as a re­sult of the new in­for­ma­tion ex­change re­quire­ments un­der BEPS and other prac­tices; how African coun­tries will in­cor­po­rate the new stan­dards as per the BEPS Ac­tion Plan into their le­gal sys­tems and how tax ad­min­is­tra­tions will im­ple­ment them.

The con­ven­tion pro­vides for co-op­er­a­tion be­tween states in the as­sess­ment and col­lec­tion of taxes

Celia Becker is an Africa Reg­u­la­tory and Busi­ness In­tel­li­gence ex­ec­u­tive at ENSafrica.

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