Disclosure Requirements

Kenya requires transfer pricing related disclosures to be filed on an online platform together with the tax return. Information to be disclosed includes identification details of related party, nature and value of the related party transactions. The non-filing of the disclosure may trigger a tax audit.

Standard Documentation

The rules do not require the spontaneous filing of transfer pricing documentation but documentation should be prepared to adequately demonstrate that related party transactions comply with the arm's length principle. The rules specify that the tax administration may require the submission of transfer pricing documentation at any time, hence, taxpayers should keep their documentation up to date to reflect any changes in their group structure or related party transactions. The documentation must be submitted typically within 14 to 21 days from the request of the tax administration.

Documentation typically requested by the tax authorities includes:

Details of the global organizational structure of the taxpayer's group;
Details of related party transactions;
The method used in determining an arm's length price and the reason for its selection;
Details of the application of the method including the calculations made and price adjustment factors considered; and
Other relevant information.

Effective 1 July 2022, taxpayers are required to maintain three-tiered documentation as per the requirements of OECD BEPS recommendations i.e., Master file, Local file, and Country-by-Country report.

Master File

The content of the Master file should include the following information regarding the taxpayer and the related parties:

Organizational structure;
Information on business(es);
Intangible assets;
Tax rulings, if any, made in respect of the group;
Financial activities;
Existing advance pricing agreements; and
Any other information that the tax authorities may require.

The Master file is required to be submitted within six months after the last day of the reporting fiscal year of the MNE group.

Local File

The content of the Local file should include the following information:

Details and information on the resident constituent entity’s activities within the MNE group;
Management structure of the resident constituent entity;
Business strategies including structuring, description of the material-controlled transactions, the resident constituent entity’s business and competitive environment;
The international transactions and amounts paid to the resident constituent entity or received by the entity; and
Any other information that the tax authorities may require.

The Local file is required to be submitted within six months after the last day of the reporting fiscal year of the MNE group.

Country-by-Country (CbC) Reporting

Effective 1 January 2022, Country-by-Country reporting requirements are introduced for ultimate parent entities in Kenya of MNE groups. Detailed guidelines including the turnover threshold are notified by the Finance Act, 2022 and they apply effective from the fiscal year 2022.

The CbC reporting requirement applies to taxpayers that are part of an MNE group meeting a consolidated revenue threshold of KES 95 billion (including extraordinary or investment income). The requirements are in line with the guidelines developed under BEPS Action 13.

The primary obligation to file a CbC report falls on the ultimate parent entity (UPE) of the MNE group resident in Kenya. Under a secondary filing obligation, resident constituent (non-UPE) entities are required to file locally in Kenya if:

The UPE of the MNE group is not a resident in Kenya and is not required to file a CbC report in its jurisdiction of residence;
The UPE jurisdiction of residence has a current international agreement for the exchange of information with Kenya, but does not have a qualifying competent authority agreement for the exchange of CbC reports in force with Kenya for the reporting fiscal year; or
An agreement is in place, but there has been a systemic failure for spontaneous exchange of CbC reports with the UPE jurisdiction of residence and the failure has been notified by the Commissioner to the constituent entity in Kenya.

Where there is more than one resident constituent entity of the same MNE group and one or more of the above conditions are met, the MNE group may designate one of such constituent entities to file the CbC report and notify the tax authority that the filing is done on behalf of all the constituent entities in Kenya.

Further, a constituent entity in Kenya may not be required to file a CbC report locally, if the MNE Group has made available a CbC report with respect to the relevant fiscal year through a surrogate parent entity (SPE) (i.e., a constituent entity appointed as a sole substitute for the ultimate parent company to file the CbC report). The SPE must file the CbC report with the tax authority of its jurisdiction of tax residence no later than 12 months after the last day of the reporting fiscal year of the MNE Group. The following conditions are required to be satisfied:

The jurisdiction of tax residence of the SPE requires the filing of CbC reports conforming to the requirements mentioned in Kenya’s tax regulations;
The jurisdiction of tax residence of the SPE has a Qualifying Competent Authority Agreement in effect to which Kenya is a party on or before 12 months after the last day of the reporting fiscal year of the MNE Group;
The jurisdiction of tax residence of the SPE has not notified the Kenyan tax authority of a systemic failure;
The SPE has notified in its jurisdiction of tax residence that it is designated as the SPE on behalf of the MNE Group; and
A notification has been provided by the Kenyan constituent entity to the Kenyan tax authority providing details of the SPE.

Where the CbC report is required to be filed locally in Kenya, the contents of the CbC report include the following for each jurisdiction:

Table 1:

revenues (unrelated parties, related parties, and total);
profit (loss) before tax;
income tax paid (cash basis);
income tax accrued - current year;
stated capital;
accumulated earnings;
number of employees; and
tangible assets - other than cash and cash equivalents.

Table 2:

constituent entities resident in each tax jurisdiction (including Tax ID and address);
jurisdiction of organization or incorporation if different from jurisdiction of residence; and
main business activities of each constituent entity.

Table 3:

additional information or explanation deemed necessary to understand the CbC report.

Where the CbC report is required to be filed locally in Kenya, the CbC report is required to be filed no later than 12 months after the last day of the reporting fiscal year of the MNE Group. All group members resident in Kenya must submit a notification by the last day of the reporting fiscal year of that group, including information on whether the entity is the ultimate or surrogate parent entity, or, if neither, information on the identity and country of residence of the reporting entity.

Language of Documentation

The documentation must be maintained in English.

Penalties

Kenya's transfer pricing rules do not include specific penalties for transfer pricing adjustments and the general penalty provisions apply (see Sec. 14.5.).

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