The-Accountant-Mar-Apr-2018

ECONOMY
profits to low or no-tax locations. Over 100
countries and jurisdictions are collaborating
to implement BEPS measures and tackle the
BEPS menace. Kenya has agreed to participate
in the Common Reporting Standards (CRS)
regime which is a global initiative developed by
the Organization for Economic Co-operation
and Development (OECD) to enhance tax
transparency and compliance across more
than 47 countries. Has this tax amnesty been
effective? Was it a ploy to laundering funds
to oil our politicians’ election machinery?
Will this fiscal move stimulate foreign direct
investments (FDIs)? Are there any further
regulatory interventions required before the
June 2018 deadline?
The recent Paradise Papers leak should
serve as an important acid test to the ongoing
tax amnesty. It refers to a published database
containing information on offshore entities
linked to people and companies in more than
200 countries and territories. The real value of
the database is that it strips away the secrecy
that cloaks companies and trusts incorporated
in tax havens and exposes the people behind
them. This includes the names of the real
owners of those opaque structures.
The publisher, International Consortium
of Investigative Journalists (ICIJ), released
the details on November 5, 2017 of some
politicians featured in the Paradise Papers
investigation. According to ICIJ, the database
neither discloses the totality of the leaked
records nor divulges raw documents or
personal information en masse. It contains
a great deal of information about company
owners, proxies and intermediaries in secrecy
jurisdictions, without disclosing bank accounts,
email exchanges and financial transactions
contained in the documents.
ICIJ insists that its actions are in public
interest and acknowledges that most activities
carried out through offshore entities are
perfectly legal. Contrarily, ICIJ affirms that
from its extensive reporting together with
its media partners in the last four years, the
anonymity granted by the offshore economy
facilitates money laundering, tax evasion, fraud
and other crimes.
Surprisingly, the only Kenyan so far
identified in the leaks is a former Minister in
the Coalition.
Government. Is it believable that even the
Asian tigers in Kenya, top rich families and
the entire list of ‘who’s who’ are missing in
this list? Was the Kenyan tax amnesty a timely
opportunity for Kenyans hiding their treasures
offshore to divest? The answers to these and
more questions may lie in the unraveling leaks.
On a different note, the impact on this
tax amnesty from some extraneous and legal
factors needs to be assessed. For instance, it
is important to consider whether the existing
anti-money laundering laws, law on economic
crimes, law on asset transfer and anti-double
taxation laws may impede on the objects
of the tax amnesty regulations. The general
purpose of most tax amnesties is to nab evasive
taxpayers who may wish to change to turn
to tax compliance. Tax authorities maintain
taxpayers’ information obtained during the
amnesties and follow up on their compliance
in future. However, the new tax amnesty
regulations bar the Kenya Revenue Authority
(KRA) from making enquiries on the sources
and nature of such income hence limiting its
usefulness for posterity. This paves way for
repatriation of illicit funds and other money
laundering activities. Whereas the amnesty
regulations do not exonerate taxpayers of any
criminal liability, the KRA has reiterated that
all information declared under the amnesty
will be confidential and not divulged to other
government agencies. It should be of interest
to taxpayers whether the existing anti-money
laundering laws are consistent with the
amnesty regulations in ensuring immunity. The
amnesty regulations may also seem unrealistic
in the requirement for repatriation of all
declared funds and assets. The period provided
for repatriation may discourage owners of
foreign held in liquid assets especially in real
estate. Furthermore, in the event of assets
held in foreign trusts by Kenyan tax residents
- which are often bound by the laws of the
specific jurisdiction they were formed in – may
not be easily repatriated. Even more equivocal
is the case of an irrevocable discretionary trust.
A Kenyan taxpayer may lack a fixed interest
hence unable to repatriate the trust assets.
Finally, most anti-double taxation treaties
provide solid cover against the taxation-ofworldwide-income
policy established under
local tax laws. These treaties have provided
for foreign tax credit or foreign tax relief
mechanisms that guide the tax jurisdictions
of the contracting states in taxing foreignrelated
incomes. Such treaties have rendered
tax amnesties on foreign-sourced incomes
redundant.
In conclusion, it is paramount that the KRA
provides regular updates on the uptake of the
amnesty by taxpayers. The amount of foreign
funds injected into the Kenyan economy
should be quantified and published. It will
also be hard to fight the negative perception
surrounding the secrecy of repatriated funds
and assets.
samuel.Okumu@roedl.com
MARCH - APRIL 2018 9