Kenya-Mauritius Double Tax Avoidance Treaty

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Introduction

Kenya, as is the case with other countries, has entered into a number of Double Tax Avoidance Treaties (DTAs) with an aim of avoiding or mitigating double taxation of persons (both legal and natural) residing in the contracting states but more importantly as a way of encouraging Foreign Direct Investments.

Kenya signed a DTA with Mauritius (a country that has a vast treaty network and favorable tax framework) which was subsequently gazetted by the Cabinet Secretary of Finance via Legal Notice Number 59 of 2014 issued under the Income Tax Act. The Tax Justice Network Africa challenged both the constitutionality of the DTA and Legal Notice before the High Court on multiple grounds including opacity of the process, the need for public participation in the exercise, that it was not for the benefit of Kenya and lack of Parliamentary scrutiny.

The High Court has now given its Judgment. The constitutional challenge to the DTA failed. The High Court found that the DTA had some form of ratification as required since both states agreed to be bound by it and that the process of its formulation was open and transparent. Further the court found there was no basis for faulting want of public participation. However, the Legal Notice that was intended to domesticate it was void because it was not tabled before Parliament within the time required by the Statutory Instruments Act.

Impact

The High court’s decision did not invalidate the Double Tax Avoidance Treaty by declaring it unconstitutional nor did it affect the propriety of anything done under it prior to the invalidation of the Legal Notice. It merely declared the Legal Notice as void for lack of parliamentary scrutiny. The impact of this is that though the DTA is still valid, it does not have legal effect in Kenya.

It is open to the Cabinet Secretary to issue a new Legal Notice in respect of this (and any other similar Legal Notices on any DTAs entered after 2013) and ensure full compliance with the Statutory Instruments Act including presenting it ; with all the required information, on time to Parliament.

Should you require further information on the DTA, please contact Walter Amoko (Partner) or Lena Onchwari (Partner):