Kenya has been thrown into a legal battle with continental insurance agency Africa Reinsurance Corporation (Africa Re), which claims to enjoy diplomatic immunity, over a tax bill of up to Sh12 billion.
In a case whose outcome will be closely monitored by all organisations that enjoy diplomatic immunity in Kenya, Kenya Revenue Authority seeks corporation tax on rental income amounting to Sh6.09 billion, withholding income tax (Sh830 million) and Pay as You Earn (Sh5.94 billion).
DEFAULTERS
Kenya hosts several international agencies, including the only United Nations offices in the developing world, all of which enjoy diplomatic immunity.
KRA has been under immense pressure from the government to meet its own tax collection targets, which has seen unprecedented assault on tax defaulters.
On Thursday, Africa Re through the law firm MMC Africa, obtained conservatory orders from the High Court barring KRA from implementing agency notices to the bankers of the continental outfit.
Justice Aaron Makau also certified the case as urgent.
“That pending the hearing and determination of this application, the honourable court issues conservatory orders in the nature of an injunction restraining the respondent from issuing further agency notices to any other institution which may owe KRA money now or in the future or demanding payment of the sum of Sh12.8 billion or any other amount on account of taxes allegedly due from Africa Re,” ruled the judge. KRA had issued agency notices to Citibank, the bankers of Africa Re, asking them to pay up the money they held for the continental insurance body.
INTERFERED
The taxman has already received Sh1.6 billion from Citibank and two other insurance companies pursuant to the Agency Notice dated September 18, 2019.
Africa Re states that on September 12, 2018, KRA issued it with a default assessment Notice for the sum demanded, which it immediately opposed.
A flurry of letters followed back and forth, all being copied to the Ministry of Foreign Affairs, which is listed as an interested party in the suit. The diplomatic efforts did not yield any fruit and on September 18, KRA issued agency notices to Citibank, UAP Insurance Company and CIC General Insurance under the provisions of Section 42 of the Tax Procedures Act, No. 29 of 2015, declaring them as taxpayers and demanding that they pay the respondent the billions from the monies they hold on behalf of Africa Re. Demands for the withdrawal of the agency notices by Africa Re did not yield fruit.
An affidavit filed by Africa Re regional director Kiiza Bichetero stated the agency notices grossly interfered with the corporation’s obligations in 12 other countries in regard to payment of claims to its clients, salaries, payment of suppliers and service providers and payment of dividends due to other African union member countries.
RIPPLE EFFECT
“Needless to say, failure by Africa Re to make the aforesaid payment, especially its reinsurance obligations, will have an adverse ripple effect across the insurance industry,” he states.
He adds that besides its dedication to insurance capacity building and technical assistance to African insurers, Africa Re participates in the equity of major regional institutions namely: Afreximbank, Shelter Afrique, African Trade Insurance Agency and PTA Bank.
Africa Re argues that any disputes between the corporation and Kenya shall be settled through conciliation or referred for final decision to arbitration by a tribunal of three arbitrators, which was not the case in the dispute with KRA.
“Africa Re had expected the Ministry of Foreign Affairs, being the government representative on matters diplomatic, and which ratified the Establishment Agreement and signed the Host Agreement, would schedule a meeting to discuss the appointment a conciliator, which is a condition precedent to arbitration. If reconciliation fails, then we should proceed to arbitration. This has not happened,” reads the court papers.
EXEMPTIONS
Africa Re was set up by 36 African states under the African Union in 1976, following a recommendation by the African Development Bank, with the mission of developing the insurance and reinsurance industry in Africa through increased underwriting and retention capacities, and support to African economic development.
Kenya ratified the Establishment Agreement through an instrument of Ratification dated February 22, 1977, which was signed by the then Minister for Foreign Affairs, Dr Munyua Waiyaki, on behalf of the Republic of Kenya. It has 36 members.
Africa Re argues that the Establishment Agreement offers it immunities, exemptions and privileges.
“To enable the corporation effectively fulfil its purpose and carry out the functions entrusted to it, the status, immunities exemptions and privileges set forth in this Chapter shall be accorded to the Corporation in the territory of each member state and each member state shall inform the Corporation of the Specific action which it has taken for such purpose,” reads the agreement.
It further argues that its property and assets shall be immune from search, requisition, confiscation, expropriation or any form of taking or foreclosure by the authorities of any member.