The Netherlands and Kenya conclude a DTA

On July 28, 2015 the Dutch Government published the English text of the Convention between the Kingdom of the Netherlands and the Republic of Kenya for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (hereafter: the DTA) and a relating Protocol, which were signed in Nairobi on July 22, 2015. Although signed, the DTA has not yet entered into force. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

Below we will discuss some of the regulations included in the DTA of which we think they might interest our readers.

According to Article 2, Paragraph 3 of the DTA (“Taxes covered”) the existing taxes to which the Convention shall apply are in particular:
a) in the case of the Netherlands:
– de inkomstenbelasting (income tax);
– de loonbelasting (wages tax);
– de vennootschapsbelasting (company tax) including the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mijnbouwwet (the Mining Act);
– de dividendbelasting (dividend tax);
b) in the case of Kenya the income tax chargeable in accordance with the provisions of the Income Tax Act, Cap. 470;

Article 2, Paragraph 4 of the DTA subsequently determines that the Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.

Aticle 3, Paragraph 1, sub b of the DTA (“General definitions”) defines the term “The Netherlands” as the part of the Kingdom of the Netherlands that is situated in Europe, including its territorial sea, and any area beyond the territorial sea within which the Netherlands, in accordance with international law, exercises jurisdiction or sovereign rights. NB Note that the definition differs from the definition of the The Neterlands as used in the Dutch – Zambian tax treaty on which we have reported earlier today.

Article 5, Paragraph 3 of the DTA (“Permanent establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than nine months.

According to Paragraph 6 of Article 5 of the DTA (“Permanent establishment”) notwithstanding the preceding provisions of Article 5, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 of Article 5 of the DTA applies.

Paragraph 2 of Article 9 of the DTA (“Associated enterprises”) contains a so-called appropriate adjustment clause.

With respect to the applicable rates of dividend withholding taxes that a Source State is allowed to withhold over dividend distributions made, Paragraphs 2 and 3 of Article 10 of the DTA (“Dividends”) arrange the following:
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed
a) 10% of the gross amount of the dividends in case the company paying the dividends is a resident of Kenya; and
b) 15% of the gross amount of the dividends in case the company paying the dividends is a resident of the Netherlands.
3. Notwithstanding the provisions of paragraph 2, the Contracting State of which the company is a resident shall not levy a tax on dividends paid by that company, if the beneficial owner of the dividends is:
a) a company the capital of which is wholly or partly divided into shares and which is a resident of the other Contracting State and holds directly at least 10 per cent of the capital of the company paying the dividends; or
b) a pension fund that is recognised and controlled according to the statutory provisions of the other Contracting State.

With respect to the term dividends Paragraph 5 of Article 10 of the DTA (“Dividends”) determines the following:
“The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the Contracting State of which the company making the distribution is a resident.”

Paragraph 8 of Article 10 of the DTA (“Dividends”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with an assignment of the dividends, or with the creation or assignment of the shares or other rights in respect of which the dividend is paid, or with the establishment, acquisition or maintenance of the company that is the beneficial owner of the dividends and the conduct of its operations, to take advantage of this Article.”

Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the interest withholding taxes that a Source State is allowed to withhold to 10% of the gross amount of the interest.

Paragraph 8 of Article 11 of the DTA (“Interest”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with an assignment of the interest, or with the creation or assignment of the debt-claim in respect of which the interest is paid, or with the establishment, acquisition or maintenance of the company that is the beneficial owner of the interest and the conduct of its operations, to take advantage of this Article. ”

Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the royalty withholding taxes that a Source State is allowed to withhold to 10% of the gross amount of the royalties.

Paragraph 7 of Article 12 of the DTA (“Royalties”) contains the following anti-abuse clause:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the assignment of the royalties, or with the creation or assignment of the rights in respect of which the royalties are paid, or with the establishment, acquisition or maintenance of the company that is the beneficial owner of the royalties and the conduct of its operations, to take advantage of this Article.”

The DTA contains an Article 29 (“Territorial extension”) which reads as follows:
1. This Convention may be extended, either in its entirety or with any necessary modifications, to Aruba, Curaçao, Sint Maarten, or any other part of the Kingdom of the Netherlands (Bonaire, Saba and Sint Eustatius), if the part concerned imposes taxes substantially similar in character to those to which the Convention applies. Any such extension shall take effect from such date and shall be subject to such modifications and conditions, including conditions as to termination, as may be specified and agreed in notes to be exchanged through diplomatic channels.
2. Unless otherwise agreed, the termination of the Convention shall not also terminate any extension of the Convention to any part of the Kingdom of the Netherlands to which it has been extended under this Article.

The DTA furthermore includes an article arranging for a mutual agreement procedure (Article 25 of DTA), article on the exchange of information (Article 26 of the DTA) and an article arranging the assistance in the collection of taxes (Article 27 of the DTA).