Parliament approves Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

  • 26 Apr 2024
  • 3 Mins Read
  • 〜 by Naisiae Simiren

In March 2023, the Cabinet approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) for ratification by Parliament. The Cabinet Memoranda, which accompanies any treaty, including the MLI, noted that there have been growing concerns over the use of tax avoidance strategies i.e., Base Erosion and Profit Shifting (BEPS) by multinational enterprises.

BEPS results in little or no corporate tax being paid, ultimately weakening the integrity of the tax system. The Organization for Economic Cooperation and Development (OECD), together with the G20, advanced and developing countries and regional tax bodies have been working to develop new rules to strengthen the international tax system that will tackle tax avoidance. Together, the countries are known as the Inclusive Framework on BEPS. Kenya became a member in January 2017.

The MLI was developed as a result of the new rules and as a BEPS Action 15 to modify existing bilateral agreements for the avoidance of Double Taxation Agreements (DTAs). Taxation is a critical source of revenue for all governments, in particular, for developing countries where revenue mobilisation efforts produce far less tax revenue as compared to developed countries.

In November 2016, over 100 jurisdictions concluded negotiations on the MLI. The first signing ceremony for the MLI was held on 7th June 2017 and it entered into force on 1st  July 2018. H.E. Professor Judi Wakhungu, Ambassador of Kenya to France at the time signed the MLI on 26th November 2019. Upon signing of the MLI, Kenya provided a list of expected reservations and notifications.

Article 2 (5) of the Constitution provides that any treaty or convention ratified by Kenya shall form part of the law of Kenya under the Constitution. The Treaty-Making and Ratification Act provides that, where the Cabinet approves the ratification of a treaty, the Cabinet Secretary shall submit the treaty and a memorandum on the treaty to the Speaker of the National Assembly for consideration. Parliament may approve the ratification of a treaty with or without reservations to specific provisions of the treaty.

Articles of MLI

Below is a brief highlight of Articles reserved and applied by Kenya under the MLI.

The MLI has 39 articles in total. Kenya provides a list of countries with which it has entered into DTAs and whose the agreements will be covered by the MLI. The MLI provisions will update the Articles in the listed DTAs and allow Kenya to appropriate the benefits of the MLI where both Contracting Jurisdictions have adopted matching provisions.

Kenya chooses to apply the provision of the MLI that provides for taxation of Fiscally Transparent Entities. This provision will prevent double non-taxation or reduced taxation caused by the mismatch of rules. BEPS Action 2 seeks to deal with the effects of hybrid mismatch arrangements.

Additionally, Kenya chooses to apply the provision on the tie-breaker test that denies treaty benefits where the entity’s residence cannot be determined. This will ensure that multi-national companies make it clear on their residency.  This is further enhanced by Kenya’s choice to apply the provisions of MLI that expand the definition of permanent establishment to include where value is created in Kenya. This will capture commissionaire arrangements by multinational enterprises.

Further, under the MLI Kenya places a reservation against the provision to file a Mutual Agreement Procedure case in either of the Contracting States. Instead, the taxpayer will be allowed to file the case where he is a resident, and that State will notify the other. This is because the State to which a case has been filed can offer unilateral relief.

Finally, Kenya reserves the right not to apply the provisions of mandatory binding arbitration. This is due to the challenges of costs and capacity for negotiations, which more often than not favour advanced or developed countries.


The National Assembly has approved the ratification of the MLI which will form part of the laws of Kenya. The MLI will be beneficial to Kenya as it will allow the country to quickly and efficiently amend the DTAs that it is party to, putting in place measures to curb abuse of DTAs and broaden the tax base by ensuring that multinational enterprises do not avoid taxation on their activities in the country, through avoidance of permanent establishment status.