The paper then illustrates the distortions that the imposition of withholding tax on service fees on a gross basis, which Article 12AA provides for, could have on the economies of developing countries like South Africa as well as its impact on foreign direct investment into such countries, particularly given the interplay of such a tax with domestic transfer pricing rules. The paper briefly examines some proposals from other academics and scholars to address these distortions caused by a gross withholding tax on service fees. The paper concludes that a withholding tax on service fees should not be imposed as a final tax on a gross basis. Provision should instead be made in domestic law to permit non-resident service providers to register voluntarily for tax, in order that they may file a tax return, claim allowable deductions and accordingly pay their tax on a net basis. The paper ends with a call for more research on strategies to streamline administrative hurdles resulting from registration for foreign service providers before the new Article 12AA is widely implemented in Africa.

(1) Is Kenya’s SEP constitutionally sound under the fairness principle articulated in Article 201(b)(i) of the Constitution of Kenya 2010?

 (2) How does the SEP interact with Kenya’s existing double taxation agreements (DTAs), and what treaty conflicts may arise?

 (3) What lessons can Kenya draw from comparative African experiences, specifically Nigeria’s pioneering SEP model? 

This article argues that the SEP represents a formal doctrinal advance over the DST in two legally significant respects. First, by situating the levy within the income tax framework and applying the corporate rate to a deemed profit base, the SEP is capable in principle of engaging Kenya’s treaty network in a manner that the DST as a standalone gross-basis turnover tax was not. Second, the SEP’s deemed profit structure provides a constitutional foundation under Article 201(b)(i) of the Constitution of Kenya 2010 that the DST wholly lacked following the high court’s decision in Kenya Revenue Authority (KRA) v. Stanley Waweru and Six Others. The two regimes are functionally equivalent in all other material respects, economic incidence, effective rate calculated by reference to gross receipts, and administrative reliance on turnover data. The shift from DSTs to the SEP is therefore characterized as a formal legal advance with significant implications for treaty interaction and constitutional defensibility rather than a substantive change in the economic burden imposed on digital service providers. The article includes a detailed legal analysis that evaluates the SEP’s deemed profit methodology (10% of gross turnover taxed at 30% yielding an effective 3% levy), its compatibility with Organization for Economic Co-operation and Development (OECD)/United Nations (UN) international tax frameworks, and administrative challenges facing the KRA.

The contribution concludes that, while Kenya’s SEP represents a pragmatic assertion of fiscal sovereignty addressing immediate revenue needs, its long-term success depends on strengthening domestic administration, managing treaty conflicts through strategic renegotiation, and contributing to global tax reform that is more equitable. The SEP should be viewed not as a final destination but as a transitional measure to secure immediate revenue and leverage in global negotiations while Kenya continues to advocate for a more equitable multilateral solution.

However, the pragmatic approach applied by the German fiscal authorities contrasts with the broader interpretation in the OECD MC Commentary 2017 which may lead to unintended PE creation and double taxation. Through a comparative analysis, including selected national practices from other European countries and a case study, the article advocates for the OECD MC Commentary 2017 to integrate similar delimitation criteria to enhance legal certainty, reduce compliance burdens, and better align international tax rules with modern remote work realities.