Unprecedented: Kenya-Mauritius tax treaty ratification struck down in court

Back in 2014 I was in touch with Nairobi-based Tax Justice Network Africa, as they prepared to take the Kenyan government to court over its tax treaty with Mauritius, signed in 2012. The treaty seemed a pretty poor deal for Kenya, lacking adequate anti-abuse protection, preventing Kenya from imposing withholding tax on technical fees, and restricting its ability to impose capital gains tax, which it was in the process of introducing. It has taken more than four years, but on Friday the High Court ruled, and it has declared the ratification of the treaty in Kenya to be invalid.

This is a landmark case, because tax treaties are usually technical instruments that undergo only cursory parliamentary scrutiny, if any at all. For a civil society organisation to challenge one in court, let alone win, is quite astonishing. Kenyans I know were excited by the possibilities of the country’s new constitution, and this shows their optimism was not misplaced!

TJN-A argued that the treaty was unconstitutional for two reasons: in content terms, the treaty would lead to an unacceptable loss of revenue; in process terms, it should have been subject to public consultation and approval by parliament. The court actually sided against TJN-A on both counts, stating among other things that it should have provided figures for the revenue lost (which should make it untenable for governments to refuse to do the same) and that consultation with Kenya Revenue Authority constituted adequate public participation. The ruling is that the statutory instrument giving effect to the treaty should have been laid before parliament, and was not. I disagree with a lot if what is in this judgement, but its political impact is nonetheless huge and welcome, as this message from TJN-A’s Alvin Mosioma illustrates:

Here are a few documents for reference:

TJN-A’s press release summarising their argument

My expert opinion submitted to the court by TJN-A (pdf)

The court ruling (pdf)

TJN-A’s press release on the judgement

Did you spot the double taxation storyline in Mad Men?

Mad Men’s Lane Pryce

I’m a big fan of AMC’s Mad Men, and have only been more greatly endeared to it by the realisation that one of its most heartbreaking storylines was in fact all about double taxation.

In season five, Lane Pryce, the Englishman in New York, is caught out by an unexpected tax bill, with tragic consequences. Here is the dialogue with a man we must assume is his accountant:

Accountant: The Hansard procedure negotiations have concluded as promised, you need only wire the full £2900 by Thursday and your slate will be clean with the Inland Revenue.

Lane Pryce: As promised? Your promise was to extricate me from this situation altogether!

A: My promise was to keep you out of prison.

LP: Thursday! How am I supposed to find 8000 dollars by Thursday? That’s no help at all.

A: Look, Lane, you gave Her Majesty’s portion to a foreign power, and the tax man is keen to make an example of an expatriate. This is the very best news there could be.

Next time I need to explain international tax first principles to a  non-tax audience, I will have a whole new point of reference! “Her Majesty’s portion…”