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 and Trade

Uphold public interest

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…the opportunities…

Kenya - India Trade

Kenya - India Trade

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

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

New Kenya - India DTASalient features

Uphold public interest

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

Kenya - India DTA: The Rates

Uphold public interest

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

INTERACTIVE SESSION