On 28^th February 2024, KEPSA Public Finance Sector Board presented a memorandum to the National Assembly Committee for Finance and Economic Planning on the Multilateral Convention to Implement Tax Treaty Related Measures as a means of Preventing Base Erosion and Profit Shifting (BEPS), in a public hearing forum that was held in Parliament Building in Nairobi.

Multilateral instrument (MLI) is an instrument whose principal role is to combat tax avoidance by multinational enterprises (MNEs) through prevention of BEPS. This instrument aims at strengthening Double Taxation Agreements (DTAs) amongst jurisdictions and aid in dispute resolution processes. MLI jurisdictions like Kenya reserve the right not to apply some or all the MLI provisions that may conflict with her developmental goals or existing tax treaties until a comprehensive review is conducted. The instrument also maintains sovereignty over tax policy and ensure that international agreements align with national interests and developmental objectives.

Some of the key issues highlighted by the sector board include:

1. Scope of the Convention: Kenya maintains sovereignty over its tax policy by excluding specific taxes and tax regimes essential for economic stability from the Convention's scope. This strategic exclusion preserves the predictability and stability of Kenya's tax system, fostering an environment conducive to national development and investment.
2. Treatment of Transparent Entities: Despite the Convention's provisions, Kenya reserves the right to uphold its domestic laws regarding the transparency and taxation of entities. This proactive stance prevents hybrid mismatch arrangements and promotes tax fairness across jurisdictions.
3. Dual Resident Entities: Kenya asserts its authority to apply domestic law in resolving cases of dual resident entities, ensuring consistency with its economic interests and administrative practices.
4. Elimination of Double Taxation: Maintaining flexibility in eliminating double taxation allows Kenya to tailor methods that align with its existing tax policies, thereby fostering a balanced and fair approach to tax administration.
5. Switch-over Clause: Kenya exercises its prerogative not to apply the switch-over clause, preserving the exemption method for foreign income. This decision upholds Kenya's investment policy, ensuring stability for investors and maintaining its status as an attractive investment destination.
6. Rules on Capital Gains: Narrowing the scope of taxable capital gains to real property within Kenyan borders safeguards a significant source of tax revenue while providing clarity to investors.
7. Principal Purpose Test (PPT): Kenya advocates for a more objective 'Simplified Limitation on Benefits' (SLOB) provision in place of the PPT to enhance transparency and certainty for businesses operating in Kenya.
8. Controlled Foreign Companies (CFC): Kenya adopts CFC rules aligned with its economic and fiscal interests, effectively targeting profit shifting while providing certainty to multinational corporations operating within its jurisdiction.
9. Mutual Agreement Procedure (MAP): Kenya proposes alternative dispute resolution mechanisms alongside the MAP, promoting a conducive business environment through faster and less aggressive tax dispute resolution.
10. Global Anti-Base Erosion (Globe) Rules: Kenya emphasizes specific reservations on the application of Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR) to safeguard its right to adopt tax policies conducive to its development goals.

KEPSA was represented by Ms. Jilna Shah, Public Finance Sector Board Vice Chair, Mr. Steve Okoth, Public Finance Sector Board member and Mr. Joshua Oseko, PPD Office.