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November 25, 2024 Kenya Revenue Authority issues comprehensive guidance on MAP in resolving international tax disputes
Executive summary The Kenya Revenue Authority (KRA) has issued comprehensive guidance on the process for seeking resolution of international tax disputes through the Mutual Agreement Procedure (MAP). Taxpayers may submit an application to the Competent Authority (CA) if they believe that they have been subjected to taxation contrary to the provisions of a Double Taxation Agreement (DTA) or to inconsistencies in the interpretation and application of the DTA. Taxpayers may also request guidance regarding the elimination of double taxation in cases not provided for in the DTA. Background A MAP is a process that allows CAs of Contracting States to discuss and seek remedy on the allocation of taxation rights between two states pursuant to the provisions of the DTA. The MAP process is available irrespective of the remedies provided under domestic tax laws of the respective jurisdictions. However, if a domestic court has reached a decision on the matter, the Kenya CA is bound by that decision. The taxpayer is not a party to the process; rather, their participation is limited to providing required information and responding to questions raised by the CA. To initiate the MAP process, a taxpayer must submit an application to the CA in their jurisdiction of residence and provide relevant supporting documentation. The taxpayer must present this application to the CA within three years of being notified of the action that resulted in taxation that the taxpayer asserts is not in line with the DTA provisions. Some of the matters that may be addressed through a MAP process are:
Criteria for applying MAP MAP is available where Kenya has signed a DTA with another contracting state that contains an Article on MAP. The CAs are not compelled to reach an agreement or to resolve a tax dispute but are required to use their best efforts to reach an agreement. Filing a MAP request A taxpayer who is resident in Kenya may submit a MAP request through the Kenyan CA where the taxpayer is established indicating that an action of one or both contracting states will result in taxation that is not in accordance with a DTA in force between the two jurisdictions. A taxpayer may also file a protective MAP request to ensure that the request is made within the timeframe permitted under the relevant DTA. The request should be made in writing and addressed to the KRA Commissioner in charge of Domestic Taxes. After receiving a request containing all the relevant information, the CA will assess whether the request qualifies for admission to MAP. The CA will notify the taxpayer regarding whether (or not) the MAP request qualifies for admission, including the reasons for the conclusion. Contents of a MAP request A taxpayer is required to provide certain information, including:
Steps in the MAP process
Additional considerations Simultaneous remedies. A taxpayer may pursue MAP and domestic legal remedies simultaneously. However, MAP discussions may be suspended pending the outcome of domestic remedies. A MAP agreement cannot override a judicial decision made by a domestic court. Multilateral MAP. In cases involving more than two jurisdictions, the Kenyan CA may enter into a series of bilateral MAPs. Suspension of tax collection. Tax collection may be suspended if the taxpayer has appealed the assessment and paid any undisputed amounts. Implications The guidance provides clarity and a structured process for taxpayers seeking to resolve international tax disputes through MAP. The possible outcomes of a MAP request include:
The MAP guidance is a significant development for Kenyan taxpayers who are dealing with international tax disputes. Taxpayers should consider all available options, including MAP, for preventing and resolving international tax disputes.
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