Kenya negotiates new double taxation deals to pull investors

Kenya is negotiating new double taxation agreements (DTA) with several countries as the country moves to expand investment space.

Draft DTAs have already been prepared for negotiation with Seychelles, Nigeria, United Arab Emirates, Spain, South Africa, Iran, Finland and Russia.

Under the DTAs, a firm or its subsidiary which has paid taxes to a host government cannot be asked to pay levies of similar nature on proceeds repatriated back home.

If approved, the new agreements will significantly change the investment profile of Kenya, which currently has only 10 enforceable DTAs with India, France, Germany, UK, Canada, Sweden, Norway, Zambia, Denmark and Mauritius.

Of these Mauritius is sometimes regarded as a tax haven because income tax is at a maximum of 15 per cent while Kenya’s is 30 per cent.

While Kenya is pursuing more treaties, it is also trying to ensure the ones in force are not abused by taxpayers as has happened with some of the existing DTAs, said Patrick Chege, Kenya Revenue Authority (KRA) manager for transfer pricing audits. (SEE VIDEO)

“We are seeking to have more DTAs with improved terms in order to seal the loopholes we have identified,” said Mr Chege.

He said some taxpayers have been evading the levies by taking advantage of provisions in the existing DTAs, making KRA seek improved terms.

READ: Rules on transfer pricing to rein in rogue global firms

Due to the exploitation of the current transfer pricing regime (transaction between related firms located in different States), Kenya has been losing billions of shilling.

Mr Chege said this had forced KRA to carry out impromptu audits of some 40 suspected multinational firms.

The revenue authority estimates that as much as Sh30 billion is currently recoverable from the multinationals that have evaded tax through transfer pricing. (SEE VIDEO)

READ: KRA opens new battlefront with multinationals

But the KRA manager said, apart from the figure on audited companies, it was impossible to tell how much could have gone unpaid through transfer pricing.

Mr Chege said some companies that had been caught with transfer tax-related evasion had already paid up, though he declined to reveal the amount.

Global Financial Integrity, a US-based watchdog on transfer pricing, said Kenya could have lost well over Sh115 billion in the decade between 2000 and 2010.

Mr Chege spoke at a seminar organised by the Association of Chartered Certified Accountants of Kenya (ACCA) held at the Norfolk Hotel in Nairobi Tuesday. On the sidelines of the meeting, ACCA chairman Charles Ringera noted only a few countries had DTAs with Kenya.

“We need to sign more DTAs with other countries because it has been a major cost for firms having to pay tax to more than one jurisdiction,” said Mr Ringera.