KENYA: High Court ruling on Mauritius treaty

By ENS Africa update –

KENYA: High Court ruling on Mauritius treaty

On 15 March 2019, The High Court of Kenya gave its decision in the case of Tax Justice Network Africa (TJN-A) v. Cabinet Secretary for the National Treasury, The Kenya Revenue Authority and The Attorney General (Petition No 494 of 2014) regarding the constitutionality of the double tax agreement between Kenya and Mauritius.

Kenya and Mauritius concluded the treaty on 11 May 2012 and on 23 May 2014, the Cabinet Secretary to Treasury published Legal Notice No. 59 of 2014 on the enactment of the treaty.

TJN-A argued that the treaty was unconstitutional on the basis that:

• it limited Kenya’s taxing rights under various articles and, in doing so, undermined Kenya’s ability to attain sustainable development;
• the treaty contains a five-year restriction on its termination;
• the treaty waives a tax that is imposed by the Constitution and such waiving demands public participation, transparency and accountability; and
• its enactment failed to follow the process laid out in the Treaty Making and Ratification Act, 2012 (“TMRA”).

The Kenya Revenue Authority and Attorney General argued that:

• the limitation of Kenya’s taxing rights is necessary to attract investment;
• termination is allowed after five years so as to allow investors time to adjust and oversee the implementation of the treaty; and
• tax treaties are not treaties as defined under the TMRA and are therefore exempt from the process laid out by the TMRA.

The court held that:

• the involvement of the Kenya Revenue Authority and the Attorney General’s office met the requirement of public participation, as it showed openness and accountability;
• the treaty had some form of ratification as required since both states agreed to be bound by it, and the process of its formulation was open and transparent;
• 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, 2013.

Although the court’s decision did not invalidate the treaty, it does not have current legal effect in Kenya. The Cabinet Secretary is to issue a new Legal Notice and ensure full compliance with the Statutory Instruments Act, including presenting it; with all the required information, on time to parliament.

KENYA: New Treaty with Mauritius signed

Following the outcome of above court case, Kenya and Mauritius signed a new tax treaty in Port Louis on 10 April 2019. Details of the new treaty are yet to be published.