International Consortium Of Investigative Journalists Publishes 'Mauritius Leaks' Data

; posted on
July 25th, 2019

The International Consortium of Investigative Journalists (ICIJ) has published data on over 200 companies as part of its 'Mauritius Leaks' investigation. The report found that multinational companies abuse the favorable tax treaty of Mauritius to avoid paying taxes.

Overview of Mauritius’ International Taxation

The island, which sells itself as a “gateway” for corporations to the developing world, has two main selling points: bargain-basement tax rates and, crucially, a battery of “tax treaties” with 46 mostly poorer countries. Pushed by Western financial institutions in the 1990s, the treaties have proved a boon for Western corporations, their legal and financial advisers, and Mauritius itself — and a disaster for most of the countries that are its treaty partners.

Further to attract more investors, Mauritius introduced a flat corporate income tax rate of 15% with foreign tax credits that can drive that down to an effective rate of 3%. Mauritius rolled out Global Business Licence 1, which allows companies with operations elsewhere to be “resident” in Mauritius for tax purposes and pay its low rates. It went on to sign dozens of tax treaties with countries around the world, including 15 in sub-Saharan Africa.

As an example, A Pegasus fund created a company, Sustainable Luxury Mauritius Ltd, which had no employees, received management income and fees from other Pegasus’s entity, includes entity located in Oman. Further, as a “resident” firm of Mauritius, Sustainable Luxury could take advantage of the country’s super-low, effective maximum corporate tax rate: 3%. Sustainable Luxury also applied for — and received — special legal status from the government of Mauritius, allowing it to benefit from tax treaties. Treaties allow companies to reduce or entirely avoid common taxes received on cross-border payments, including interest, dividends and royalties.

Treaty partners push back

Mauritius’s treaty partners have attempted to push back and proposed renegotiation. One of the countries that has tried is India. Successive Indian governments for years challenged the legality of the Mauritius 1982 treaty. And they kept losing. In a landmark 2012 case, India’s Supreme Court held that the tax office could not question U.K. telecom giant Vodafone’s $11 billion acquisition of an Indian rival through a Mauritius company. The decision cost India $2.2 billion in lost tax revenue.

It took 20 rounds of negotiations over 20 years for India to prod Mauritius in 2016 to remove the abusive provisions of the original 1982 treaty, one Indian official told ICIJ.

The reform

OECD, European Commission, and Mauritius treaty partners put pressure to Mauritius to reform the law and coping with the long standing tax treaty shopping. In response to such pressure, in January, Mauritius overhauled the tax laws governing its offshore sector including introduced the requirement of substance for tax residence. However, the report suspected that such reforms may be little more than box-checking designed to keep the country off international blacklists.

The island reluctantly agreed, for example, to a rule that allows a Mauritius treaty partner to deny tax-treaty benefits to a multinational corporation that opens in Mauritius with the “principal purpose” of exploiting those benefits. The report argued that poorer countries will rarely be able to make use of that provision: Denying treaty benefits to a corporation will require technical, financial and political resources that a developing country may not have.

Source: International Consortium of Investigative Journalists

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