prpri Mutual Exchange Procedure remedy, Kenya – France DTA Mutual Exchange Procedure remedy, Kenya – France DTA

The mutual exchange procedure was invoked in the Kenya France DTA in the case analysed below. This is an interesting remedy that taxpayers in Kenya should adopted regularly. This is especially taxpayers making payment to a country which Kholds a Doubel Tax Agreement with Kenya. Kenya has 15 effective Double Tax Agreements. This includes Kenya – India DTA that was renegotiated in 2017.

Let’s consider this remedy as presented in Total Kenya Ltd v Commissioner of Domestic Taxes. This was a decision by the Kenya Tax Appeals Tribunal in February 2020.

Total Kenya Ltd v Commissioner of Domestic Taxes (February 2020)

This is an interesting case on the Kenya – France Double Tax Agreement (‘DTA’). In particular, the case dealt with Article 24 of the Kenya – France DTA. Article 24 deals with mutual exchange procedure.

To provide a brief background, the Kenya Revenue Authority (‘KRA’) has taken the position that where an item of income is not included under a DTA then the same should be subject to tax in Kenya at the applicable domestic rate for non-residents. For instance, recent DTAs signed by Kenya do not have an article dealing with taxation of management or professional fee[1]. Hence, where a person is paying a management, technical or similar fee to a resident of a country with such a DTA, then the KRA argues that the fee should be subject to the domestic rate of tax on non-residents.

Of note, the position by the KRA is contrary to the interpretation adopted by the OECD in its interpretation of on the OCED model DTA. Additionally, it ignores the Article in the DTA that would deal with ‘other income’. In the case of France, the relevant Article is 21. Under Article 21(1) states that ‘items of income of a resident of a contracting state, wherever arsing, not dealt with in the foregoing Articles of the DTA shall only be taxable in that state’ (i.e. in the state of residence of the person).  The position taken by KRA in this issue is contrary to Kenya’s obligations under the DTAs. Nonetheless, the KRA still adopts this approach.

Now we turn to this case.


The KRA raised an additional tax assessment on Total Kenya relating to withholding tax. It related to technical fee paid to Total Outre – Mer (TOM) a related company based in France. The KRA was adopting its argument stated earlier. Thus, in the absence of an item dealing with technical fee in the Kenya – France DTA the technical fee was subject to withholding tax. Hence, KRA sought to apply withholding tax on the technical fee at the domestic non-resident rate of 20%. The additional assessment was quite significant at about KShs. 311 Million (Appx. USD. . The Total Kenya invoked Article 24 of the Kenya – France DTA seeking to apply the Mutual Exchange Procedures. Thus, Total presented the dispute to the competent authority of the country of residence of TOM i.e. France. The French Tax Authority was mandated (Article 24(2) Kenya France DTA) to try to settle the dispute with the KRA. Well aware of this, the KRA went ahead and confirmed the additional assessment against TOM and demanded payment. Total Kenya then moved to the Tax Appeals Tribunal.

Issue dealt with by TAT: Doctrine of exhaustion of dispute resolution mechanism.

The TAT took the approach of determining the preliminary issue of whether there were other remedies available to settled the dispute outside the TAT. The TAT then considered whether these remedies had been exhausted. The remedy that the TAT had in mind in this case was the Mutual Exchange Procedure. Total had initiated and the KRA had overlooked this.


The TAT held that the remedy under the mutual exchange procedure had not been exhausted before the matter came to the TAT. Hence, the TAT ordered the matter to go back to the process of mutual exchange procedure.

Legal basis for doctrine of exhaustion of dispute resolution mechanism

The remedy available under mutual exchange procedure may be invoked irrespective of other domestic remedies. This is based on Article 24(1) of the Kenya France DTA.

Article 165 (2) of the Kenya Constitution lays the basis for doctrine of exhaustion of. Based on this Article Courts and tribunals are required to promote,

‘alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms’.

Both the Court of Appeal of Kenya[2] and the High Court[3] have upheld this principle.


The approach taken by Total Kenya in this case is plausible. This is because the KRA has been acting contrary to the DTAs signed by Kenya. Granted, it is likely that the approach taken by the KRA might be warranted in future. This is in areas like taxation of the digital economy. This is in line pillar 2 proposal by OECD on taxing the digital economy. In particular, on applying a minimum tax to deal with Global Anti-Base Erosion (‘GloBE’) for digital MNEs. You can read more on Kenya on this at

Nonetheless, the current position by the KRA is unwarranted. More taxpayers should consider adopting this remedy of mutual exchange procedures. This is since the KRA is unrelenting in its unlawful position. We will keep an eye out for the outcome of this case and provide an update in future.

[1]Example of recent DTA without such a clause is  Kenya – South Africa DTA.

[2] See Geoffrey Muthinja & another v Samuel Muguna Henry & 1756 others [2015] eKLR

[3] See Republic v Kenya Revenue Authority Ex Parte Style Industries Limited  (Miscellaneous Application No. 45 of 2019)


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Qualification: LL.B / Advocate
Company: Yazi Tax Africa
Location: Nairobi, Other, KE
Member Since: 04 Sep 2020 | Total Posts: 4

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August 2021