Kenya-Mauritius double Tax Agreement invalidated

TAX abstract

Court Judgment

The Kenya-Mauritius Double Tax Agreement (the DTA) was published by the Cabinet Secretary for Treasury on 23 May 2014 through Legal Notice 59 of 2014 (the Legal Notice). On 3 October 2014 the Tax Justice Network (the TJN or Appellant) filed a petition before the Constitutional, Judicial Review and Human Rights Division of the High Court (the Court) seeking orders against the Cabinet Secretary for Treasury, the Kenya Revenue Authority (KRA) and the Attorney General (the Respondents) that the court invalidate the DTA on the grounds that:

  1. it violates the Constitution of Kenya, 2010 (the Constitution); and
  2. it was not approved by the Cabinet and the National Assembly.

The relevant Articles of the Constitution cited as violated by the Respondent include:

  1. Article 10 which provides for national values and principles of governance which includes, as the crux of TJN’s argument, public participation;
  2. Article 20 which provides for the application of the Bill of Rights;
  3. Article 114 which provides for the dealing of money Bills; and
  4. Article 201 which provides for the principles of public finance.

The Court, in making its judgment, identified the following issues for determination:

  1. whether the making of the DTA was in violation of the Constitution;
  2. what are the laws that govern the making of DTAs; and
  3. whether the petition is merited.

On issue (a) the Court concedes that, being a constitutional court, it will only limit itself to matters touching on the violations of the Constitution as alleged in the petition. In coming to its conclusion, the Court pointed out that TJN did not indicate any specific violations or provide any statistical data that would demonstrate a violation of any constitutional provisions.

On issue (b) the Court found that TJN failed to show which law specifically provides for the involvement of Parliament in the process of making or entering bilateral agreements (such as the DTA).

The petition lacked merit on the two (2) issues above.

The DTA was, however, invalidated and found to be void on the basis that the Legal Notice, which gives effect to the DTA, was not tabled before the National Assembly pursuant to the Statutory Instruments Act, Act No. 23 of 2013, Laws of Kenya.

Putting it into Perspective

DTAs are generally bilateral agreements designed to allocate taxing rights between multiple jurisdictions.  DTAs aim to eliminate taxation of the same income in more than one jurisdiction and so effectively reduce schemes to avoid tax, encourage exchange of tax information and promote foreign direct investment.

The judgment of the Court in this Petition has been limited to issues of procedure in bringing the DTA into effect. This notwithstanding, there are a number of issues worth noting that were raised by the Appellant in their submissions on the substance of the DTA, that the judge did not address, since no attempt to substantiate the alleged potential loss in revenue for the KRA was made. The issues include:

  1. the Appellant was challenging the reduction of source withholding tax rate on interest to 10% in the DTA as opposed to the non-DTA withholding tax rate of 15%;
  2. the Appellant was challenging the reduction of source withholding tax rate on royalties to 10% in the DTA as opposed to the non-DTA withholding tax rate of 20%;
  3. the Appellant was challenging the reservation of the right to tax capital gains on the transfer of shares to the state where the transferor is resident; and
  4. the Appellant was challenging the reservation of the right to tax all other income not otherwise specifically provided for in the DTA to the resident State.

These provisions of the DTA are standard in most DTAs and perhaps the reason they were raised, is that Mauritius is a low tax jurisdiction. 

Conclusion

The above ruling demonstrates the importance of the following of proper procedures in bringing into force DTAs that Kenya enters into. The Kenya-Mauritius DTA is quite important to foreign investment in Kenya as a huge number of investments, particularly from Europe, are made through Mauritius. The Cabinet Secretary for Treasury should now table the Legal Notice giving effect to the DTA before the National Assembly pursuant to the Statutory Instruments Act to bring it into force.

Kenya: Amendments to the Anti-Counterfeit Act come into force

Kenya has stepped up the battle against counterfeit goods by granting additional powers to the Anti-Counterfeit Authority and expanding the meaning and scope of counterfeit enforcement. This is the intended effect of several amendments to the Anti-Counterfeit Act (13/2008), made through the Statute Law (Miscellaneous Amendment) Act of 2018.

Here are some of the more noteworthy amendments:

  1. The Anti-Counterfeit Agency is now known as the Anti-Counterfeit Authority (the Authority or ACA) and will advise the government on the protection of intellectual property rights (IPRs), as well as counterfeiting;
  2. The definition of counterfeiting has expanded the meaning of counterfeit enforcement, which will now include IPR existing outside Kenya. Previously, the Authority could only enforce an IP owner’s rights if they had registered their IPRs in Kenya. This provides comfort to brand owners who wish to enter the Kenyan market but have not registered their IPRs in the country.
  3. The law now recognises counterfeit marks. These are spurious marks used in connection with any goods, label, emblem, packaging, etc. of any nature, which are identical to and used for the same purpose as a registered mark and which are likely to cause confusion or mistaken perceptions or are deliberately meant to deceive consumers.
  4. Claims against the ACA can now only be instituted within a period of 12 months from the date of the seizure, removal or detention of goods. This is a move away from the previous position whereby a claim could be initiated against the ACA at any time (subject to the limitations of other relevant legislation).
  5. The Authority’s inspectors have been granted additional powers and can now do the following:
    1. investigate any offence related to counterfeiting even though the offence is not defined under the Anti-Counterfeit Act;
    2. exercise similar powers as customs officers in relation to the importation of counterfeit goods under the East African Community Customs Management Act;
    3. with the appropriate warrant, enter any premises where it is suspected that an offence under the Anti-Counterfeit Act is being or is about to be committed (the owner of the premises does not have to be present but the inspectors must leave the premises as secure as they found them); and
    4. receive and act on consumer complaints as consumers are now allowed to lodge complaints.
  6. The amendments specify the following additional offences:
    1. being in possession or control in the course of trade of any labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, hand tags, documentation or packaging of any type or nature, with a counterfeit mark applied thereto, the use of which is likely to cause mistaken perceptions or is purposefully meant to deceive consumers;
    2. aiding, abetting or conspiring in the commission of any offence under the Anti-Counterfeit Act;
    3. importing any goods or items bearing a trade mark, trade name or copyright that has not been recorded with the ACA;
    4. importing, in the course of trade, any goods or items except raw, unbranded materials;
    5. failing to declare the quantity of or the IPRs subsisting in any goods being imported into Kenya;
    6. falsely declaring the quantity or the IPRs subsisting in any goods being imported into Kenya; or
    7. importing or transiting (through Kenya) any labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, hand tags, documentation or packaging of any type or nature, with a counterfeit mark applied thereto, the use of which is likely to cause confusion or mistaken perceptions or is purposefully meant to deceive consumers.
  7. In the event that a court of law finds that a suspect has obtained a monetary benefit from dealing in counterfeit goods, the Authority can now redirect the monetary benefit in question towards the funds of the Authority itself. This is an important addition to the Act as it ensures that those who commit counterfeiting offences do not benefit from their crimes; instead, the Authority can use the funds to combat counterfeit issues and offences.
  8. The addition of section 34B to the Anti-Counterfeit Act is arguably the most significant amendment as it introduces a recordal system for IPRs. The ACA must now record IPRs that relate to goods being imported into Kenya, whether an IPR is registered in or outside Kenya. A successful recordal will result in an IPR owner being issued with a certification mark in the form of an anti-counterfeit device.

The ACA anticipates that the recordal system will be implemented during July 2019. There are currently ongoing discussions on the recordal system, as well as decisions to be made on prescribed fees and other matters related to the system. Upon the conclusion of the ongoing discussions, the ACA will commence a sensitisation process to create awareness to IPR owners and the public at large on the recordal system.

The advent of this recordal system is welcome as it will strengthen and improve the enforcement of the Anti-Counterfeit Act in Kenya. It could also result in IPR owners spending less on battling counterfeit goods. As soon as this recordal system is implemented, IPR owners must ensure that they are fully compliant with the requirements for the importation of goods into Kenya.

In other news, the Bowmans Anti-Counterfeits team has been invited by the ACA to train their new team of inspectors on conducting effective raids on 6 March 2019 which will take place at the Kenya School of Law.

Chambers and Partners 2019 ranked Bowmans Band 1 in Intellectual Property in Kenya.