Kenya’s tax authority had big plans after signing onto a global agreement that would allow them to collect a 15% minimum tax from major tech giants like Google, Meta, and Amazon. The Kenya Revenue Authority (KRA) had hopes of generating billions in new revenue. But just as Kenya prepared to implement the Domestic Minimum Top-Up Tax in 2025, the US stepped in and shattered those dreams.
The US Deal That Shattered Kenya’s Tax Expectations
This week, the US brokered a deal with over 145 countries, which effectively exempts American companies from the global minimum tax they had previously agreed to as part of a 2021 OECD agreement. Treasury Secretary Scott Bessent framed the move as protecting American “tax sovereignty,” but the reality is that Kenya and dozens of other countries have now lost their ability to impose higher taxes on US multinationals.
Kenya had already made significant strides in preparing to enforce this tax. In 2024, the country passed the Domestic Minimum Top-Up Tax through the Tax Laws Amendment Act. The tax, designed to apply to any multinational making at least €750 million in annual revenue, was set to be implemented on January 1, 2025. A payment schedule had been set, with companies expected to pay by the end of the fourth month after their fiscal year closes, meaning many firms would face a deadline of April 30 this year.
Kenya was committed to the tax, even opening up the regulations for public comment in November 2024 and closing submissions in December. But with the US pulling out of the OECD framework and exempting its companies, all that effort seems wasted.
The OECD Framework and the Global Minimum Tax
The OECD’s agreement was part of the Base Erosion and Profit Shifting (BEPS) framework, designed to tackle the issue of companies shifting profits to low-tax jurisdictions like the British Virgin Islands while actually earning money in countries like Kenya. It was intended to be a global solution to a global problem.
But former US President Donald Trump didn’t see it that way. Last year, his administration pulled out of the OECD framework, arguing that it infringed on US sovereignty. Even more provocatively, Trump threatened “revenge taxes” on countries that tried to impose taxes on American companies in ways the US government didn’t like.
After months of negotiations, the US got what it wanted: an exemption for American companies from the global minimum tax. This move was complicated by China’s demands for similar exemptions and concerns from several EU countries about competitive disadvantages. In the end, the US managed to secure a deal that effectively shields its tech giants from additional taxes imposed by other countries.
The Bitter Irony for Kenya
Philip Muema from Andersen Kenya expressed the frustration of many in the region in an interview with Business Daily, stating: “We are following OECD rules, while they are not. That has an impact on global minimum tax and on revenue from multinationals in this part of the world.” He noted the bitter irony of developed countries like the US protecting their own interests while developing countries, including Kenya, were encouraged to play by the global tax rules.
Kenya’s tax strategy was built around the OECD framework, but with the US pulling out, the country now faces significant challenges. The KRA is left with two choices: accept the lost potential revenue or find an alternative way to tax American tech companies operating on Kenyan soil.
Options for KRA: Risk vs. Reward
KRA could try to craft a domestic tax framework outside the OECD structure, targeting American tech giants directly. This could include new withholding taxes or other measures specifically aimed at foreign companies. However, this approach comes with significant risks.
Such a move could provoke the US to retaliate, as it has done in the past with other countries that attempted to tax American multinationals. The US has already shown its willingness to use its economic leverage to pressure countries into backing down from such taxation efforts.
Kenya’s government would have to weigh the potential revenue from taxing US companies against the risk of economic retaliation from Washington.
The Global Fight for Tax Fairness
The OECD framework was meant to bring fairness to the global tax system, aligning the interests of both rich and poor countries on how to tax multinational companies. But when it came down to it, the US opted out, forcing other countries to grant American companies special treatment. This raises the question of whether the framework will remain effective without the participation of the US, the world’s largest economy.
Conclusion
Kenya’s tax strategy, which relied on the global minimum tax framework, has been undermined by the US’s exemption. The KRA now faces the difficult decision of how to proceed, with the possibility of economic retaliation from the US hanging over any potential tax adjustments. While the global minimum tax was meant to create fairness in a globalized economy, the US’s actions show that some countries are willing to protect their own interests at the expense of others.
