PRESS RELEASE

Kenya must review Double Tax Agreement with Mauritius

(Nairobi, November 2, 2015) Kenya is teetering on the brink of financial meltdown with the implosion
of at least two private commercial banks in the last few months and signing of loophole-ridden double
taxation agreements with tax havens Mauritius, United Arab Emirates and Qatar.
Tax havens are countries or states that position themselves as low tax jurisdictions allowing companies and
rich individuals to hide their wealth without paying appropriate taxes where they actually make their profits
or wealth.
Tax Justice Network-Africa (TJN-A) in October 2014 sued the Government of Kenya (specifically the
Cabinet Secretary to the Treasury, Kenya Revenue Authority and the Attorney-General) challenging the
constitutionality of the Kenya/Mauritius Double Taxation Avoidance Agreement signed in Port Louis,
Mauritius on May 11, 2012 and as contained in Legal Notice 59 published in the Kenya Gazette of May 23,
2014.
The Agreement significantly undermines Kenyas ability to raise domestic revenue to underpin the
countrys development by opening up loopholes for multinational companies operating in the country and
super- rich individuals to shift profits abroad through Mauritius to avoid paying appropriate taxes. For
example, provisions under Article 11 of the Agreement relating to interest limit Kenyas withholding tax to
10 per cent whereas the Kenyan domestic rate currently stands at 15 per cent. This will significantly affect
the tax base of the Kenya Revenue Authority (KRA).
The Agreement also sharply contravenes Articles 10 and 201 of the Constitution and is inconsistent with
the principles of good governance, sustainability and accountability. The Agreement is open to abuse and
this could endanger the growth and development of Kenya.
Three main reliefs sought by TJN-A are:
That the High Court declares the governments failure or neglect to subject the Kenya-Mauritius
Double Taxation Avoidance Agreement to ratification in line with the Treaty Making and
Ratification Act 2012 as a contravention of Articles 10 (a), (c) and (d) and 201 of the Constitution
of Kenya.
That the Court directs the Cabinet Secretary for Treasury to immediately withdraw Legal Notice 59
of 2014 and commence the process of ratification in conformity with the provisions of the Treaty
Making and Ratification Act 2012.
And award cost of the petition with interest against the Government of Kenya.
The case came up for mention at the Nairobi High Court today, November 2, 2015. The court will fix a
date for hearing the case on November 9, 2015. Speaking at a press briefing earlier today, the Executive
Director of TJN-A, Alvin Mosioma said there is need for public participation in the process of ratification
of double tax agreementsdouble tax agreements kill the competitive edge of local firms.

Senator Hassan Omar of Mombasa County who also addressed the press said Kenyas Parliament needs to
appreciate its responsibility in safeguarding the publics interests, adding that the reason people steal is
because there is complicity and people are aware of it.
Provisions under Article 12 of the Agreement which relates to royalties also restrict at- source withholding
tax to half (10 per cent) of Kenya domestic rate of 20 per cent. This will significantly weaken Kenyas ability
to raise revenue to finance its development.
Additionally provisions under Article 20 of the Agreement reserves all taxation of other income not dealt
with in specific Articles to the residence state. This effectively reduces withholding tax to zero per cent on
services, management fees, insurance commissions among others, whereas Kenyan domestic withholding
tax rate currently stands at 20 per cent. This is a major gap that will lead to massive revenue leakages.
The Agreement is neither United Nations nor OECD compliant and it also fails to address the issue of
disposal of shares in companies. The Agreement effectively reserves under Article 13.4 all taxation of capital
gains from selling shares in companies to Mauritius where the effective Capital Gains Tax is zero per cent.
Under the Agreement foreign investors in Kenya can acquire Kenyan companies through Mauritius holding
companies and Kenya cannot tax any of the gains when they sell these businesses again. This is open to
abuse. Similarly, domestic Kenyan investors can dodge Kenyan taxes by round-tripping their investments
illicitly through Mauritian shell companies. Kenyan companies can also easily avoid Kenyan taxes in
dividends paid to foreign investors through devices like share buy-backs therefore deny the government of
development funds.
The provision is very similar to the Capital Gains Tax Article in the India-Mauritius treaty which has
proved very controversial costing India an estimated US$600 million a year in revenues as a result of tax
avoidance and illicit round-tripping by Indian business executives driving the Government of India to
initiate steps to renegotiate its agreement with Mauritius.
Under the definition of bilateral treaty in Section 2 of the Treaty Making and Ratification Act an
agreement such as the one between Kenya and Mauritius and which is the subject matter of this legal case,
is a treaty subject to the Act and therefore requires that the Cabinet Secretary to the Treasury in
consultation with the Attorney General, submit to the Cabinet the treaty, together with a memorandum
outlining, inter alia
1. Policy and legislative considerations,
2. Financial implications
3. Implications on matters relating to counties,
4. The views of the public on the ratification of the treaty.
Mauritius presently has tax treaties with 13 African countries namely Botswana, Lesotho, Madagascar,
Mozambique, Namibia, Rwanda, Senegal, Seychelles, Swaziland, South Africa, Tunisia, Uganda and
Zimbabwe. Apart from Kenya, Mauritius also has signed Double Taxation Agreements with Congo, Zambia
and Nigeria. Currently Mauritius is negotiating DTAs with Algeria, Burkina Faso, Egypt, Gabon, Ghana,
Malawi and Tanzania.
Unlike Mauritius DTA with Uganda and Nigeria, for example, which have specific provisions for
withholding tax for management/technical services fees, Kenya failed to negotiate any such provisions.
In a related development, the Government of Kenya has signed an equally harmful Double Tax Agreement
with United Arab Emirates and Qatar both of which are tax havens in which Kenya further deems its
right to tax as unnecessary in a bid to attract investment from these two countries.
These agreements will deepen Kenyas current cash crunch by allowing the further erosion of the countrys
tax base. END.
ABOUT TJN-A:
Tax Justice Network-Africa (TJN-A) is a Pan-African initiative and a member of the Global Alliance for Tax Justice. It is a
network of 29 members in 16 African countries. TJN-A collaborates closely with these member organisations in tax justice

advocacy at the national and regional levels. TJN-A seeks to promote socially just and progressive taxation systems in Africa,
advocating for pro-poor tax policies and the strengthening of tax systems to promote domestic resource mobilisation. TJN-A
aims to challenge harmful tax policies and practices that favour the wealthy and aggravate and perpetuate inequality.

For further enquiries, please email Kwesi Obeng at kobeng@taxjusticeafrica.net (+254 726 804 400) and/or
Michelle Mbuthia at mmbuthia@taxjusticeafrica.net (+254 724 994 796).