Controversy stalks international corporate taxation. With the integration of national economies and the promotion of Foreign Development Investments (FDIs), international corporations’ presence in multiple jurisdictions with different tax regimes has resulted in various arrangements in an effort to avoid inequitable or commercially deleterious multiple taxation.

Some have been direct arrangements between multi-nationals and countries (so-called sweetheart deals) which have landed top American technology giants in trouble as both the European Union Commission as well as individual European countries responding to public outcry have targeted Apple, Google, Facebook and Amazon. Rather ironically in some instances the Commission is investigating deals between individual countries to recover unpaid back taxes such as in the case of the UK and Google.

While not always enjoying some public prominence, in the case of developing countries bilateral double taxation agreements (DTAs) or treaties (also referred to rather pejoratively as double taxation avoidance agreements) are more common. It is estimated that there are between 2,500 and 2,600 (others claim there are more than 3,000) such bilateral agreements with about 1,600 between developing countries and developed countries. While proponents hail them as enablers of international commerce, promoting investment by equitably and efficiently allotting the tax burden while at the same time ensuring business certainty, critics contend that they are devices by which rich countries exploit Less Developed Countries (LDCs) for the benefit of their multi-nationals. In fact, the more vociferous critics detect the hand of big business behind these treaties.

In 2014 the International Monetary Fund Policy Paper (yet to be officially adopted) urged caution on the part of LDCs when it comes to DTAs, while a 2016 report by ActionAid accused DTAs of costing developing countries more in tax revenue than they receive in FDI. Some academics have also questioned the utility of DTAs, suggesting that they do not achieve what they set out to — though these results are far from conclusive.

In response to complaints, the United Nations has published the United Nations Model Double Taxation Convention between developing and developed countries. This is yet to gain as much traction as the so-called rich countries’ Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Tax which has been in place since 1977 as the accepted international benchmark for DTAs.

Some of these controversies have now come to a head in Kenya as the Tax Justice Network-Africa (TJN-A), an affiliate of the international non-governmental organisation Global Alliance for Tax Justice, instituted proceedings challenging the provisions of the DTA between Kenya and Mauritius. This agreement is similar to the previous eight DTAs that Kenya already has in place, all of which were based on the OECD model. None of these eight DTAs was ever submitted to Parliament for review or subjected to any public scrutiny and debate before they were ratified and promulgated as part of Kenyan law.

The Legal Framework

On 27 August 2010, Kenya entered into a different constitutional dispensation with the promulgation of a new Constitution, which marked a decisive break from the country’s autocratic past and sought to be transformative, creating a new political culture with a “government based on the essential values of human rights, equality, freedom, democracy, social justice and the rule of law.” Article 2(6) of the Constitution provides that “any treaty or convention ratified by Kenya shall form part of the law of Kenya under this Constitution.” The Treaty Making and Ratification Act, 2012 was enacted to give effect to it. Consistent with Article 10 of the Constitution, the Act gives procedure for the ratification of treaties by making it more participatory and accountable:

  • Section 6(1) provides that “…In negotiating treaties, the national executive or the relevant State department shall be bound by the values and principles of the Constitution; and shall take into account the regulatory impact of any proposed treaty.”
  • Section 7 requires the Cabinet Secretary of the relevant ministry, in consultation with the Attorney General, to submit a memorandum outlining the objects and subject matter of the treaty, any constitutional implications including the fact that the treaty is consistent with the Constitution and promotes constitutional values and objectives.
  • Section 8 requires the Cabinet Secretary to submit the treaty and a memorandum on it to the Speaker of the National Assembly for consideration by both or the relevant House of Parliament. It is at this stage that the relevant parliamentary committee shall, during its consideration of the Treaty, ensure public participation in the ratification process in accordance with established parliamentary procedures.

Article 201 of the Constitution further provides that “…The following principles shall guide all aspects of public finance in the Republic—(b) the public finance system shall promote an equitable society, and in particular— (i) the burden of taxation shall be shared fairly; (ii) revenue raised nationally shall be shared equitably among national and county governments; and…” It is noteworthy that, subject to DTAs, different parties in similar circumstances will be taxed at different rates. For instance, if a non-resident receives royalty payments from a Kenyan company, the same will usually be taxed at the rate of 20% but, subject to treaties, it is reduced to 10%. It can be argued that this in turn results in unfair taxation.

The lawsuit by the TJN-A challenging the constitutionality of the Kenya/Mauritius DTA is based on these constitutional and statutory requirements. As far as we are aware, this is the first case in Africa to be filed, which challenges the constitutionality of a DTA. It was TJN-A’s assertion that the Kenya/Mauritius DTA contravened Articles 10 and 201 of the Constitution, thereby going against the constitutional principles of good governance, sustainability and accountability. The Court is being called upon to adjudicate upon the procedural aspects of the treaty, including the propriety of the ratification process, as well as its substance, and whether or not it conforms to the principles of public finance enshrined in the Constitution.

TJN-A sought two main reliefs from the Court:

  • A declaration that the Kenyan Government failed to subject the Kenya/Mauritius DTA to ratification in accordance 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.
  • A withdrawal of Legal Notice 59 of 2014 by the Cabinet Secretary to the Ministry of Finance and to embark on a new process of ratification as required by the provisions of the Treaty Making and Ratification Act, 2012.

It is without doubt that the outcome of the Kenya/Mauritius DTA court case will have an effect on the treaty-making and ratification process, not just in Kenya but other African countries. It may also result in the withdrawal or renegotiation of treaties that have already been signed, such as the much anticipated treaties between Kenya and both Qatar and the UAE, which are aimed at attracting investment into Kenya from the Middle East. In this context it is worth noting that the other developing countries are either withdrawing from or renegotiating DTAs with various Western countries.


The divergent views on the shifting of profits from developing countries through DTAs and treaty shopping are endless. The issue, therefore, concerns the compromise that developing countries such as Kenya have to make, on the one hand to foster economic growth by creating a favourable tax environment to attract FDIs and on the other to comply with the supreme law of the land.