By Julie Martin, MNE Tax
The Kenyan and Mauritius governments have signed a new tax treaty following the Kenya High Court invalidation last month of a 2012 treaty between two nations in an action brought by Tax Justice Network Africa
The new Kenya-Mauritius tax treaty, signed April 10, was one of six agreements struck during a visit by Kenyan President Uhuru Muigai Kenyatta to Port-Louis.
‘[T]he Mauritius-Kenya Double Taxation Avoidance Agreement and the Investment Protection and Promotion Agreement which our two countries have signed will be crucial mechanisms in shaping investments,” said Mauritius Prime Minister Pravind Jugnauth during a banquet held in Kenyatta’s honor.
A 2012 Kenya-Mauritius tax treaty, purportedly ratified by legal notice published in the Kenya Gazette in May 2014, became the subject of a lawsuit brought by Tax Justice Network Africa, the first such challenged to a tax treaty in Africa. That treaty never entered into force because Kenya did not notify Mauritius of the completion of the ratification procedures.
In a March 15 decision, Kenya’s High Court concluded that the 2012 tax treaty was invalid, agreeing with Tax Justice Network Africa that the Kenyan government did not follow ratification procedures required by law because the agreement was not properly laid before Parliament.
In its suit, Tax Justice Network Africa also said that the earlier treaty was harmful to Kenya because it reduced the withholding tax on services, management fees, and insurance commissions to zero percent from its current rate of 20 percent and, moreover, because Kenya gave away its right to tax capital gains from stock sales of Kenyan companies to Mauritius, which does not charge any capital gains tax.
The group said that the 2012 tax treaty would be abused in the same manner that the India-Mauritius tax treaty had been abused. The High Court did not address this aspect of Tax Justice Network Africa’s arguments, however.
As the new Kenya-Mauritius treaty has not yet been made public, it remains to be seen whether the disputed provisions in the nullified tax treaty are included in the new treaty.