Tax Alert March 2019

Mauritius Double Taxation Agreement (DTA) Ruling and Housing Levy Update

01. The High Court of Kenya declares Legal Notice No. 59 of 2014 on the Kenya - Mauritius Double Taxation Agreement (DTA) invalid

The High Court of Kenya, Constitutional, Judicial Review and Human Rights Division, sitting in Nairobi, on 15 March 2019 delivered judgement declaring that Legal Notice No. 59 of 2014, gazetting the Kenya – Mauritius DTA, was not properly laid out before Parliament in accordance with Section 11(4) of the Statutory Instruments Act 2013 and is therefore null and void.

Background The Judgement of the High Court follows or neglect of the Respondents to subject orders directing the Cabinet Secretary a suit against the Cabinet Secretary for the Kenya – Mauritius DTA to ratification for National Treasury to withdraw Legal National Treasury, the Kenya Revenue in accordance with the Treaty Making Notice 59 of 2014 and commence the Authority and the Attorney General (“The and Ratification Act 2012 amounted to process of ratification in accordance with Respondents”) by the Tax Justice Network a contravention of Articles 10 ((a), (c) the Treaty Making and Ratification Act – Africa (“The Plaintiff”), which sought a and (d)) and 201 of the Constitution of 2012. declaration that the failure, refusal and Kenya 2010. Similarly, the Plaintiff sought Judgement and Determination to support the Government’s practice tax laws as well as the ongoing reforms In its Judgement and Determination, the in drafting, negotiating and concluding under the Base Erosion and Profit Shifting High Court sided with the Respondents bilateral tax agreements. (BEPS) initiative spearheaded by the in concluding that the Kenya – Mauritius Organisation for Economic Cooperation DTA was indeed constitutional as its However, the above notwithstanding, the and Development (OECD) to counter drafting, negotiation and ratification was Court declared Legal Notice No. 59 of 2014 treaty abuse. Specific provisions to in conformity with the relevant provisions null and void on the basis that it was not prevent treaty abuse include limitation of the Constitution of Kenya 2010, as read tabled before parliament in accordance of benefit clauses, beneficial ownership together with the relevant subordinate with Section 11 (4) of the Statutory requirements and provisions that address legislation, such as the Treaty Making and Instruments Act 2013. Consequently, we double non-taxation that have now been Ratification Act 2012. note that the Kenya – Mauritius DTA is included under updated treaties as well not currently in force as Section 41 of the as the Multilateral Instrument developed However, the Court held that Legal Notice Income Tax Act requires that the Cabinet by the OECD that many countries are now No. 59 of 2014 was not tabled before Secretary for National Treasury notifies adopting. parliament in accordance with Section 11 the public of the coming into force of any (4) of the Statutory Instruments Act 2013. taxation agreements through a notice in Accordingly, we are of the view that tax Consequently, the Court ordered that Legal the National Gazette. treaties are beneficial for Kenya (and the Notice No. 59 of 2014 be declared null partner states) as they are a key means of and void in line with Section 11 (4) of the We therefore contend that following relieving double-taxation and providing Statutory Instruments Act 2013. the Court’s judgement as discussed greater certainty on tax matters for hereinabove, the Cabinet Secretary for investors and taxpayers at large. As a Our view National Treasury would need to issue a matter of fact, Kenya has very few double We note that the Judgement of the High fresh Legal Notice in the National Gazette tax treaties and we believe the Government Court presents a win-lose situation for the and table the same before parliament should move fast to conclude more treaties Respondents. within 7 days of publication. with our trading and investment partners. For instance, ratification of the treaty with The judgement did not invalidate the Kenya Away from this particular judgement, East African member states is long overdue – Mauritius DTA but rather reaffirmed that there have been concerns raised by some and the result is that doing business in East constitutional principles were followed in stakeholders that the DTA would have Africa is more costly as businesses suffer the drafting, negotiation and ratification of adverse consequences for the country. double taxation and higher taxes when the Kenya – Mauritius DTA. This, we believe, We believe that this concern is addressed transacting within the region. is welcome by the Respondents and serves by the safeguards provided within our 02. The High Court of Kenya extends stay of National Housing Development Fund Levy

The Employment and Labour Relations We understand that Court, through the Should you wish to discuss the above Court, on 18 March 2019, extended extension of its stay orders, sought to grant further, kindly contact your relationship its stay orders granted with respect to additional time to the parties challenging manager at Deloitte who will be more than the application of the National Housing the legality of the National Housing glad to offer you guidance and assistance. Development Fund Levy introduced Development Fund as established under through an amendment of the Employment Section 31A of the Employment Act 2007 Act 2007 via the Finance Act 2018 to reach an out-of-court settlement on the and supported by the Housing Fund matter. Regulations. Contact us: The matter is scheduled for mention on 8 The order, initially granted to the April 2019 wherein the Court will determine Fred Omondi petitioner, Central Organisation of Trade the way forward, having considered the Tax & Legal Leader, Deloitte East Unions (COTU), on 19 December 2018, parties’ out of court negotiations. Africa suspended the implementation of Section Tel: +254 (0)20 423 0318 31A of the Employment Act 2007 which The National Housing Development Fund Email: [email protected] sought to establish the National Housing Levy, which was initially set to take effect Development Fund levy. upon the gazettement of the Housing Lilian Kubebea Fund Regulations, requires employers Tax Partner, Deloitte East Africa and employees to contribute 1.5% of an Tel: +254 (0)20 423 0113 employee’s monthly basic salary, with the Email: [email protected] combined contribution being capped at KES 5,000.