Kenya: NGO Moves to Court Over Double-Taxation Agreement
Tax Justice Network Africa, which campaigns against harmful tax policies that favour the wealthy and perpetuate inequality, has moved to the High Court to stop a double-taxation treaty between Kenya and Mauritius.
Mauritius is a popular tax haven for companies with multinational operations, tilting scales against countries that sign bilateral taxation agreements with it.
It has sued Cabinet Secretary Henry Rotich, Kenya Revenue Authority and the Attorney General on behalf of Kenyan taxpayers over the constitutionality of the treaty first signed in May 2012.
TJN-A says while international law allows taxation of foreign economic transactions when a sufficient connection exists between the taxpayer and the state, but this is affected where double-taxation treaties exist. It says the three respondents conspired against taxpayers.
It said the agreement breaches the principles of good governance, sustainable development and accountability, against Articles 10 and 20 of the constitutions as it “is open to abuse”.
The lobby group says the treaty will adversely affect KRA’s ability to raise revenues for development.
“Under the agreement, foreign investors in Kenya can buy Kenyan companies through Mauritius holding companies and Kenya cannot tax any of the gains when they sell these businesses again, and this opens avenues for abuse,” it states in the petition.
Kenyan citizens can also dodge taxes by “round-tripping” investments illicitly through shell companies in Mauritius. It says a similar agreement between India and Mauritius has proven quite controversial as it costs the sub-continent an estimated $600 million (Sh53.43 billion) annually.
The treaty in contention will be effected on July 1, 2015 as per a gazette notice by Rotich in May this year.