The proposed Finance Bill 2026 has introduced tougher country-by-country reporting rules for multinational companies in a move expected to strengthen the Kenya Revenue Authority’s (KRA) oversight of cross-border tax arrangements and profit allocation.

The proposed amendments to the Income Tax Act expand the scope of multinational entities that can be compelled to file reports locally while tightening the legal definition of an ultimate parent entity, signalling a more aggressive push by the government to curb tax base erosion and profit shifting.

The changes are contained in amendments to Sections 18D and 18F of the Income Tax Act and are expected to align Kenya’s tax framework more closely with global transparency standards championed by the Organisation for Economic Co-operation and Development (OECD).

Under the Bill, Section 18F is amended by changing the definition of a country-by-country report to include reports filed under section 18D(1) and (1A), instead of only Section 18D(1), effectively broadening the reporting obligations for multinational enterprise groups.

“Excluded multinational enterprise group by replacing references to section 18D(1) with section 18D(1B), a move likely to narrow exemptions previously enjoyed by some firms,” the bill reads.

More significantly, the Treasury has proposed a fresh and stricter definition of ultimate parent entity.

 “An ultimate parent entity shall mean a constituent entity of a multinational enterprise group where the entity owns directly or indirectly a sufficient interest in one or more other constituent entities of the multinational enterprise group,” the bill states.

“Entity must be required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of tax residence.”

Additionally, the proposed law provides that there should be no other constituent entity of the multinational enterprise group that owns directly or indirectly a sufficient interest in the other entities within the group structure.

Effect on firms

The amendments could significantly increase KRA’s ability to track how multinational corporations allocate revenues, expenses and profits between Kenyan subsidiaries and offshore parent companies.

The stricter disclosure rules are expected to particularly affect global technology firms, extractive industries, manufacturing multinationals and digital service providers operating in Kenya through complex corporate structures.

Country-by-country reporting requires multinational corporations to disclose detailed financial information, including revenues, profits, taxes paid and economic activity in every jurisdiction where they operate.

By widening the legal scope of the reporting framework, KRA could gain more visibility into transfer pricing practices that have historically allowed some firms to shift profits to low-tax jurisdictions while reporting lower taxable income in Kenya.

The proposed amendments also come as Kenya intensifies domestic revenue mobilisation efforts amid growing public debt pressures and rising expenditure demands.

Over the last few years, KRA has increasingly focused on transfer pricing audits and multinational tax compliance as part of broader reforms aimed at sealing revenue leakages.

The Finance Bill 2026 signals that the government now wants stronger legal backing to compel multinational groups to provide more transparent reporting structures and ownership disclosures.

The revised definition of an ultimate parent entity could eliminate loopholes where multinational groups designate intermediary holding companies in low-tax jurisdictions to avoid reporting obligations.

The changes could also strengthen Kenya’s position in tax information exchange arrangements with other jurisdictions, especially as governments globally tighten rules on multinational tax transparency.

If approved by Parliament, the amendments are expected to increase compliance costs for some multinational firms, particularly those with layered corporate structures spanning multiple jurisdictions.

However, the Treasury argues that the reforms are necessary to ensure multinational corporations pay their fair share of taxes in Kenya and to protect the country’s tax base from aggressive profit-shifting schemes.

The proposed rules now place multinational enterprises under sharper scrutiny as KRA seeks greater visibility into global corporate financial flows linked to Kenyan operations.