Effect of base erosion and profit shifting on corporation Tax performance, a case of multinational enterprises in Kenya
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Date
2018
Authors
Kiilu, Joseph Mutunga
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
The Revenue performance against the set target has been a big challenge. To overcome this revenue gap there is need to shift focus and look at the contemporary issues such as Base Erosion and Profit Shifting (BEPS) that affect Corporate Tax performance across the borders and beyond. Against this backdrop, the present study sought to establish the effect of Base Erosion and Profit Shifting on Corporation Tax performance with reference to Multinational Enterprises in Kenya. More specifically, the study sought to establish the correlation between Corporation Tax performance and Base Erosion and Profit Shifting; establish extent of Base Erosion and Profit Shifting by Multinational Enterprises in Kenya; determine the factors that influence the Differential Tax Rate in Kenya; and to establish the challenges facing Kenya Revenue Authority on dealing with BEPS. Descriptive research design was used in the study. The population of interest consisted of staff members working in the Kenya Revenue Authority in Nairobi, mainly Large Taxpayer Office and Medium Taxpayer Office. The population was divided into strata based on the industry and the recommended sample size was 42 respondents thus the whole population was used to give the intended data. The main technique applied by the study was of the use of questionnaires. Which was issued to the respondents and given enough time to answer the questionnaires. Open ended and close-ended questions were used. Both descriptive and inferential analysis were performed. Findings indicate that the problem of BEPS is wide spread and requires substantial human resource to address it, hence the number of officers. It was also found that among the factors that significantly influence the differential tax rate in Kenya in regards to BEPS is the top management commitment in policy formulation as well as efforts to build staff competencies at KRA. Findings further reveal that among the most significant challenges faced by KRA in their efforts to address BEPS include lack of appropriate work tools for instance a benchmarking database and lack of adequate capacity among tax officers in matters relating to transfer pricing. The study concludes that efforts by KRA to curb BEPS have a significant influence on the amount of revenue collected. This can largely be contributed by the considerable resource allocation including finances for capacity building as well as manpower. Recommendations, due to lack of adequate information about the tax performance by various MNE in Kenya. KRA should work with all OECD members, BEPS associates and any country willing to participate to publish, on a regular basis, a new corporate tax statistics publication which would compile a range of data and statistical analysis relevant to the economic analysis of BEPS in an internationally consistent format. Among other information, this publication would include aggregated and anonymized statistical analysis prepared by governments based on the data collected under the Action 13 country-by-country reports. Periodic reports on the estimated revenue impacts of the proposed and enacted BEPS counter Measures.
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Keywords
Base Erosion, Profit Shifting