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Rwandan Court hands down important decision on double taxation treaty with Mauritius

On 14 February 2022, the Rwandan Commercial High Court handed down its decision on the appeal lodged by the Rwanda Revenue Authority (“RRA” or “tax administration”) in its dispute with a Mauritian resident company (the “defendant”) over the taxation of business profits under the double tax treaty (“DTT”) between Rwanda and Mauritius*.

The defendant supplied various medical and lab equipment and consumables to various governmental institutions (“Rwandan purchasers”). When paying the defendant’s invoices, the Rwandan purchasers withheld 15% of the invoiced amount, and remitted the amount withheld (ie, USD 188 948.46 and EUR 106 735.92) as withholding tax to the RRA. 

The defendant relied upon article 7 of the DTT, which provides that business profits of an enterprise of a contracting state shall be only taxable in that contracting state, unless such an enterprise has a permanent establishment (“PE”) in the other contracting state (absence of which in this case was not disputed), and requested the RRA to refund the tax amount as it did not have a PE in Rwanda. The RRA refused to make the refund requested by the defendant which pushed the latter to refer the matter to the Commercial Court. The Commercial Court decided in favour of the defendant and ordered the RRA to refund the tax amount.

The RRA was not contented with the decision of the Commercial Court and appealed against such decision before the Commercial High Court advancing two main arguments. The first argument was that the defendant did not use the mutual agreement procedure (“MAP”) before referring the matter to Rwandan courts, and therefore its claim should not have been admitted. The second argument was that the defendant did not prove that it declared and/or paid taxes (in Mauritius) on the income/business profits taxed in Rwanda.

On the first issue, the Commercial High Court held that article 24 of the DTT does not oblige the defendant to use MAP but instead (by using the expression “that person may”) provided them with a leeway to choose between MAP and domestic law remedies, and therefore rejected the objection raised by the RRA.

On the second issue, the Commercial High Court also dismissed the argument of the tax administration. In his judgment, Mutajiri M J stated that according to article 7 of the DTT it was only Mauritius that had the right to tax the defendant’s business profits considering that the latter did not have a PE in Rwanda.

Mutajiri M J further stated that the defendant does not have the obligation to prove that it paid taxes in Mauritius, and in case it did not comply that should be a concern of the Mauritian tax administration especially that Rwanda does not have the power to charge or collect taxes for and on behalf of Mauritius.

While the decision of the Commercial High Court is what would have been expected (considering the principles underlying international taxation), the application of DTTs is rarely litigated before Rwandan courts, and unless successfully appealed against by the tax administration before the Court of Appeal, this case would be a precedent on the right to tax business profits and interaction between MAP and domestic law remedies under various DTTs signed and ratified by Rwanda.

*The defendant was represented by ENSafrica.

Dieudonné Nzafashwanayo

ENSafrica Rwanda | Senior Associate