Abstract:
The government receives a significant portion of its funding from corporate tax contri
butions. Kenya’s bulk of revenue collection; about 40% is from corporate taxes. In
addition to missing its revenue targets, Kenya has witnessed a decline in corporate taxes
collection over the years. Various tax avoidance schemes create a positive impact on
companies in terms of corporate taxes saved, downside is that the minimum tax paid by
the multinational enterprises threatens the capability of the government to finance
public expenditure Since there is a shortfall in the amount of revenues collected. The
digital economy has created great trading opportunities to sell products and services to
people in a nation without having a significant physical presence, Facilitating eroding
of tax bases since requirements for a taxable presence under the current tax laws are
non-existent. Organisations such as OECD provide guidelines and recommendations
on business practices; however, Globalization and the swiftly evolving framework of
global business models combined with a Lack of alignment in choosing comparable
transactions for transfer pricing has seen an increase in transfer mispricing. A recent
increase in corporations relocating their headquarters has raised the inversions concern
giving ground for research into the matter. Past research studies on the subject focused
on developed countries This study sought to determine the effect of tax avoidance
schemes on corporate tax peformance of multinational corporations in Kenya. The
specific objectives included to examine the effect of tax base erosion, transfer pricing,
and inversions on corporate tax performance of multinational corporations in Kenya.
This study was anchored on deterrence theory and the institutional theory. Explanatory
research design was utilized. Target population was 78 KRA staff tasked with MNCs
corporate tax under KRA International Tax office. The International Tax office has four
departments: Intelligence & strategic operations, strategy innovation, risk management,
Investigations & Enforcement departments at the Nairobi KRA offices. This study
population is relatively small and hence the census design was necessary. Primary data
was collected using structured questionnaires. Data was analyzed using descriptive
statistics such as percentages and frequencies. Inferential statistics including correlation
and regression analysis were also used to test the relationship between the study
variables. The findings indicated that tax base erosion had a negative and significant
influence on corporate tax performance of multinational corporations in Kenya (β= -
0.318, p=0.002), transfer pricing had a negative and significant influence on corporate
tax performance of multinational corporations in Kenya (β= -0.285, p=0.010); and
inversions had a negative and significant influence on corporate tax performance of
multinational corporations in Kenya (β= -0.356, p=0.009). The study concluded that
tax avoidance schemes of tax base erosion, transfer pricing, and inversions have a
significantly negative influence on corporate tax performance of multinational
corporations in Kenya. Multinational companies should consider proper tax reporting
in host countries to improve capital inflows Tax authorities should put in place
competitive tax policies that encourage multinational companies to invest while
protecting local tax bases. KRA should put in place measures that will sufficiently deal
with all foreign-sourced incomes to enhance corporate tax performance. The study
makes a significant contribution to policy, practice, and theory in the field of tax
administration. This study is limited to tax base erosion, transfer pricing, and inversions
further research is required on related factors that affect tax base erosion, transfer
pricing, and inversions.