The High Court has declared void and unconstitutional the Double Tax Avoidance Agreement (DTAA) between Kenya and Mauritius.
The treaty allows residents of a third country to design their business structures to take the advantage of DTAAs of a country with another country and avoid the payment of tax. Experts warn there is a very thin line between tax evasion and tax avoidance.
In reading the Judgment, Justice Korir granted Tax Justice Network Africa’s (TJNA) submission by declaring void Legal Notice No. 59 of 2014 which renders the Kenya/Mauritius DTA void and unconstitutional.
The judgment was in reference to TJNA’s challenge of the constitutionality of the Kenya-Mauritius DTAA signed in May 11, 2012 on grounds that the government failed to subject the tax agreement to the due ratification process in line with the Treaty Making and Ratification Act 2012.
The court ruled that due process as laid out in the Kenyan constitution was not followed and hence the Kenya Mauritius DTA ‘ceased to have effect and became void in accordance with the Kenyan law.
The ruling validates the call for African countries to review all their tax treaties particularly those signed with tax havens.
"Evidence has shown that contrary to their objectives, these DTAs have led to double non-taxation and resulted to massive revenue leakage for African countries,’’ said TJNA executive director Alvin Mosioma.
He added that the ruling underscores his organisation’s position that DTAs signed especially with tax havens have been avenues of tax avoidance practices denying African countries the much sought-after revenues to finance development.
"It rightly pushes us to rethink the costs, benefits and motivations around signing DTAs in the first place. We should therefore set up a DTA policy framework – which sets out the basic minimums the country should consider while signing bilateral tax agreements,’’ Mosioma said.
He further called on Kenya government to revisit all other recently signed DTAs including those with UAE, Netherlands, China and South Korea and those under negotiation to ensure that they are compliant with this new ruling.
