Kenya opts to join convention on tax matters
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.