Mauritius Signs OECD’s Multilateral Instrument on Taxation

Upon signing the OECD’s multilateral instrument (MLI) on taxation on July 5th, Mauritius notified 23 of its bilateral non-double taxation treaties with other countries. This MLI is meant to bring an alignment in taxation policies of signatory countries to prevent Base Erosion and Profit Shifting (BEPS). This refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.

The conventions that fall within the MLI are the ones that Mauritius signed with Belgium, Croatia, Cyprus, France, Germany, Italy, Kuwait, Malta, Luxembourg, Monaco, Seychelles, South Africa, Sweden, Guernsey and the United Kingdom.

A list of 19 other treaties have been kept outside the scope of this MLI, including the non-double taxation treaty with India and the ones with other African countries. While these 19 treaties are not immediately impacted by the MLI, Mauritius nonetheless committed to run bilateral talks with these countries to implement the basic BEPS standards before the end of 2018.

In his June 2017 budget speech, Mauritius’ Prime Minister and Minister of Finance, Pravind Jugnauth, stated that Mauritius opted for the Principal Purpose Test, a requirement that falls within the basic BEPS standards, aiming at combating treaty abuse. Under this rule, treaty benefit is denied where the principal purpose of investment is to gain a tax benefit.

Thus, companies falling into the Global Business 1 category (the ones that can claim the benefits of non-double taxation agreements) as well as offshore funds and other entities will now have to satisfy any two of the secondary substance conditions instead of just one to prove they have adequate commercial substance in Mauritius and are not just shell companies or post-box entities.

Such conditions could be an office in Mauritius, an administrative full-time employee, resolution of disputes arising out of the constitution of the company via arbitration, holding of assets other than cash or securities of $100,000, listing on a recognised exchange or having reasonable yearly expenditure.

“We are gearing up our services to support our clients in meeting the Principal Purpose Test”, said Julien Hoareau, CEO and Chairman of the Navitas Group. “Using Mauritius as a business centre can bring more than just tax benefits to our clients as the country now provides world-class services that can effectively support any company running regional operations.”

Mauritian offshore industry operators welcomed the signing of the MLI and more specifically the government’s choice to maintain flexibility in developing bilateral agreements with targeted African countries with whom Mauritius wants to nurture strong ties.

The Mauritius financial centre has developed a large range of specialised services aiming at facilitation the flow of funds into mainland Africa in support of the continent’s economic development. Vishnu Lutchmeenaraidoo, Mauritius’s foreign minister, insisted on strengthening ties with Kenya, Mozambique, Zambia, Tanzania, Madagascar, Senegal and Ghana, where Mauritian businesses are already actively engaged.