A Critical Analysis of Kenya’s General Anti Avoidance Provision in Regulating Multinational Enterprises Transactions in Kenya

Abstract

This research explores section 23 of the Income Tax Act, Chapter 470, Laws of Kenya with a specific focus on its applicability as Kenya’s GAAR provision. It argues that although the ITA under section 23 provides for the GAAR provision, it’s use in curbing tax avoidance has been minimal by the tax authority. To further unpack section 23, the provision gives the commissioner general powers to flag transactions to which the primary objective of the transaction was to reduce or completely eliminate tax liabilities for any given fiscal year. Nevertheless, it’s wording seems to be broad and thus leaves lots of uncertainty in its application. The main issue that arises is on the definition of acceptable tax avoidance and unacceptable tax avoidance being employed by MNEs as the Kenyan GAAR framework as drafted does not offer a precise definition. Also it does not give guidance or define various words that can amount to tax avoidance and as such it remains to be broad which inevitably creates much uncertainty. The study draws a conclusion that the GAAR provision ought to definitively guide the tax payers on the acceptable tax planning which do constitute acceptable tax avoidance and vice versa. This study is thus inevitable as the area under study has not been explored in Kenya and what is available are briefs of Kenya being amongst the countries which have enacted a GAAR. Reference is also made to South Africa and United Kingdom GAAR provisions to establish principles that can be integrated into the Kenyan GAAR to enable it operate effectively