Does Rwanda really benefit from double taxation treaties?

Rwanda Revenue Authority recently suffered a setback in a legal battle against a Mauritian company over a double taxation treaty, raising important questions about the right to tax business profits under such agreements. Dieudonné Nzafashwanayo, Senior Associate at ENAfrica, discussed the implications of this case with CNBC Africa. The dispute centered around the taxation of business profits by a Mauritian-registered company operating in Rwanda. The company supplied goods to various institutions in Rwanda, and when these institutions made payments to the Mauritian entity, a 15% withholding tax was imposed, limiting it to Rwandan Francs. However, under the double tax treaty between Rwanda and Mauritius, Rwanda could only tax the business profits of the Mauritian company if it had a permanent establishment in Rwanda, which was not the case. As a result, Rwanda did not have the right to tax the profits derived by the Mauritian entity from transactions in Rwanda. The Mauritian company sought a refund of the tax and initiated legal proceedings, which culminated in a court ruling in their favor. The commercial court and the commercial high court both upheld the interpretation of the double tax treaty, stating that Rwanda did not have taxing rights over the business profits in this scenario. Additionally, the Mauritian entity was awarded damages for the delay in receiving the tax refund from the Rwanda Revenue Authority. This case, although not commonly litigated in Rwanda, garnered significant attention among business lawyers due to its implications. Nzafashwanayo highlighted the importance of the case in clarifying the interpretation of double tax treaties and reaffirming Rwanda's commitment to international tax principles. The ruling was seen as a positive step towards attracting foreign investment by providing a clear and stable legal framework for investors. Regarding the broader implications of double tax treaties, Nzafashwanayo emphasized their importance in promoting cross-border trade and investment by ensuring that income is not subject to double taxation. While some African countries have faced challenges with treaty overrides that prioritize domestic laws over international agreements, he did not believe this was a significant issue for Rwanda. In fact, Rwanda has actively pursued double tax treaties to encourage foreign investment and has seen tangible benefits in terms of increased investment flows. By expanding its network of tax treaties, Rwanda has positioned itself as an attractive destination for investors looking to establish operations in the region. The recent ruling in the case against the Mauritian company further solidifies Rwanda's commitment to honoring its double tax treaties and providing a conducive environment for international business. As Rwanda continues to strengthen its ties with other countries through double tax treaties, it is expected to see continued growth in foreign investment and economic development.