The New Kenya - India Double Tax Avoidance … · The New Kenya - India Double Tax Avoidance...
Transcript of The New Kenya - India Double Tax Avoidance … · The New Kenya - India Double Tax Avoidance...
The New Kenya - India Double Tax Avoidance
Agreement & Trade Relations
Presentation by:Robert Waruiru
Associate Director, KPMG Advisory Services LimitedCCPA-KNov 2017
Presentation Outline
Introduction - Double Tax Avoidance Agreements (DTAs)F
New WHT rates…a reason to smile?F
Kenya - India TradeF
Q&AF
Salient features of New Kenya - India DTAF
Introduction - DTAs
• Earliest form of DTAs in Austria
• Build up of DTAs in early 20th Century witha spurt after the US Great Depression of1929
• More than 3,000 DTAs in place globally
• Fundamental objective: reduce and eliminatedouble taxation
Introduction - DTAs
• Double taxation pre-supposes
üCross-border trade
üMutuality of fiscal interest between countries…“prevention of fiscal evasion with respect to taxes on income”
üAbsence of tax arbitrage
ü Sovereignty of nations
ü Implicit acknowledgement of international law and the place of municipal law
ü No profit shifting!
Kenya - India Trade (USD Billion)
Year Indian Exports
Indian Imports
Total
2008/09 1.362 0.082 1.444
2009/10 1.452 0.079 1.530
2010/11 2.182 0.124 2.305
2011/12 2.277 0.119 2.396
2012/13 3.770 0.105 3.870Source: Department of Commerce, India, July 2013
Kenya - India Trade
• Kenya - India Trade Agreement, 1981: Most Favoured Nation Status
• Joint Trade Committee, 1983
• Kenya - India DTA, signed 12th April 1985, ratified 20th Feb 1989
• Indian firms investing in Kenya
üTelecommunications & Petro-chemicals and chemicals
üAutomotive & Agriculture
üEnergy, particularly in power construction projects
• Kenya - India DTA reviewed in November 2006 and November2010
New Kenya - India DTA
• Reviewed and concluded on 11th July 2016, ratified 29th June 2017
• Review drivers
üAttract more foreign direct investment
üAnti- tax arbitrage and anti-treaty shopping
üBase Erosion and Profit Shifting initiatives - Action Plan 6
üEvolution of global commerce - digital commerce
ü India’s revision of its 1995 bilateral investment treaty
• New DTA has 32 articles, one more than the old DTA
LoB in the New Kenya -India DTA
• Reservation of right to implement domestic law to prevent “taxavoidance or tax evasion”
• Section 41(5) of the Income Tax Act - LoB is applicable because it
ü Is a carve-out provision under Sec 41 that donates power toenter into DTAs
üPreceded the DTA in time and
ü Is a reserved right in the new DTA
• Introduces the Principle Purpose Test (PPT) - BEPS Action Plan 12
• Introduces the Bonafide Business Test (BBT) to access DTA benefits
New Kenya - India DTA
• Enhanced Place of Effective Management tests for residentcompanies
• Permanent Establishments (PEs)
ü 90 days for consultancies
üDependent Agent PE - habitual securing of orders
• Enhanced beneficial owner tests to access treaty advantages
• Pensions - a welcome break
• Apprenticeships - 6 years as opposed to previous 3
New Kenya - India DTA
• Enhanced Exchange of Information!
• Assistance in collecting taxes - pursuant to a court order
First DTA to be reviewed in light of the BEPSframework…Netherlands, Italy following closely
New WHT Rates
Particulars New rate (%)
Old rate (%)
Management, professional and technical fees
10 17.5
Royalties 10 20
Interest 10 15
Dividends 10 10
Pensions Nil 5