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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:

• Dual residency
• Application of withholding tax rates
• Existence of a permanent establishment
• Transfer pricing adjustments
• Profit attribution
• Anti-abuse
• Interpretation and application of the DTA

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:

• Taxpayer details
• The basis of the request
• Facts of the case
• Analysis of the issue(s) requested to be resolved through MAP
• A statement indicating whether the taxpayer has submitted the request to another authority, such as the tribunal or a court

Steps in the MAP process

1. The taxpayer identifies an issue that results in taxation that is not in accordance with the DTA.
2. The taxpayer submits a MAP request to the Kenyan CA.
3. The CA conducts a preliminary validation of the MAP request.
4. If additional information is required, the CA requests it from the taxpayer. The taxpayer provides the additional information within the specified timeframe. If no further details are needed, the process moves forward.
5. If the MAP request qualifies, the CA will evaluate whether the issue can be resolved unilaterally. If it can, the taxpayer will be notified of the resolution.
6. If the issue cannot be resolved unilaterally, the process proceeds to bilateral consultations between the CAs of both Contracting States. During the bilateral consultations, the CAs of both Contracting States consult with the aim of reaching an agreement.
7. If an agreement is reached, the taxpayer is notified of the agreement within 30 days of the proposed agreement.
8. The taxpayer may then accept the agreement, in which case it will be implemented. If the taxpayer rejects the proposed agreement, the Kenyan CA will notify the treaty partner's CA, and the case will be closed.

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 case is denied MAP access.
• The taxpayer's objection is not justified.
• The taxpayer withdraws the case.
• The case is closed with unilateral relief granted.
• The case is resolved via domestic remedy.
• An agreement partially or fully eliminating double taxation is reached.
• An agreement is reached that there is no taxation not in accordance with the DTA (i.e., taxation at issue complies with the DTA).
• No agreement is reached, or the parties "agree to disagree."

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.