Mauritius: Tax Advisers Wary Of New OECD Rules

Last Updated: 25 May 2017
Article by Marc Hein

In this opinion paper, lawyer Marc Hein, partner at Jurisconsult, warns that new OECD rules on Base Erosion and Profit Shifting could cripple the Mauritian financial services industry.



The annual conference of the Mauritius Branch of the International Fiscal Association (IFA) is being held on Thursday and Friday. There are a number of expert foreign participants and such conferences are opportunities for Mauritians involved in financial, corporate, accountancy and legal services to deepen their knowledge and expertise. It is important to understand the dynamic worldwide context and its issues, how Mauritian businesses and services can grow, how to grab opportunities so as to plan ahead and develop a vision for our international financial and corporate services centre. This is as much valid for operators in the private sector as also for Government and governmental authorities.

It should not be forgotten that the Mauritius Revenue Authority (MRA) perceives huge sums in the taxation of global business companies and other ancillary corporations operating within that sector, notably, banks, financial institutions, management companies, brokers, accountancy firms, law firms. The MRA also perceives significant sums through income tax imposed on well-paid Mauritians and expatriates operating in that sector. It is estimated that as many as 13,000 persons work directly or indirectly in the field of financial and corporate services and that sector today represents around 12% of our GDP. In fact, the future of many diverse activities such as international arbitration, the audit of international companies, the development of banking, insurance and law firms are all today interlinked and interwoven.

But there are dark clouds looming on those services as orchestrated by the Organisation for Economic Cooperation and Development (OECD). We recently have had to implement the Common Reporting Standard (CRS) sponsored by the OECD. Basically, this means that bank confidentiality is gone and foreigners having bank accounts here are to be reported, via our MRA, to their home countries. Similarly, Mauritians with accounts overseas will be reported to the MRA through an automatic exchange of information. We have fully cooperated with the OECD in this matter by fully implementing the CRS. We are a solidly regulated jurisdiction except for certain mishaps which happen everywhere. We are a business-friendly nation with an independent judiciary and we should normally score good marks with institutions like the OECD.

What is not nice though is that many countries have refused to sign the international agreements of the OECD and many international financial centres are not complying with same. This, in our view, amounts to an unfair and imbalanced competition. Other countries which have signed the said agreements are not showing any willingness to implement what they ought to have implemented. We may have to wonder if it is in our island's best interest to be one of the best students in the classroom of the OECD!

What is further not nice is that certain USA states, such as Delaware and Nevada are openly doing the contrary and attracting at any cost business from other jurisdictions. Many clients from various financial centres have thus migrated to the USA. It would be interesting to see if the USA under President Donald Trump is at all bothered by the diktats of the OECD in that field. It is easy to incorporate a company in Delaware or Nevada without the need to disclose the relevant information which one would need to disclose in a well-regulated place like Mauritius. If well advised, The Know Your Client (KYC) process is so simple there that you may incorporate a company in 48 hours. It is openly rumoured that such a company may then open a bank account with a minimum of KYC compliance and operate on a worldwide basis. And we are not here talking of some rogue nation but of the United States of America.

CYCLONE WARNING

But let us come back to the cyclone approaching bearing the name of BEPS (Base Erosion and Profit Shifting), the new scheme of the OECD. The official motivation behind the scheme is for companies to stop paying taxes in low tax jurisdictions and rather pay their taxes in their home countries which are members of the OECD. We will not here go into the details of the BEPS project which consists of 15 action points which are extremely complex and which will have extreme consequences on world taxation. The aim is to establish supra-national standards which shall apply to all signatory countries and which will render the local laws and rules of taxation inoperative.

Unlike certain uncooperative countries, Mauritius has chosen again to fully collaborate with the OECD by actively participating in the committees in charge of the future implementation of the BEPS project.

BEPS attacks directly and indirectly low tax countries like ours and has the clear intent of influencing our international clients not to use Mauritius as a platform for structuring their cross-border transactions. As such, the project would diminish the advantages of the Mauritian jurisdiction. What I personally see as intolerable is the way the OECD is bluntly interfering with our sovereignty and our freedom of deciding how and who we tax in our country. This is our fundamental right as an independent state.

Most occidental states spend so much on welfare, have become so inefficient and so indebted that they want to tax as much as possible, as far as possible their corporations and citizens doing business elsewhere. The message of these countries to their companies is basically: "go to the world, do business globally, make money, exploit as much as you want but come back to pay your taxes home". To them, a jurisdiction like Mauritius has no place in this vision of what should be globalisation. This hypocritical stance baffles me.

We have transformed Mauritius from being a monolithic sugar cane economy to a nation where 70% of its GDP is based on the services sector. Some 47 years ago, we started the export processing zone with tax holidays in order to attract foreign investors, give jobs to our people, develop value added in our economy and encourage exports. This worked well, mainly in the manufacturing field and we were requested by institutions like the World Bank to get into the business of providing services to international clients in order to attract them here in Mauritius. We even enacted new laws to establish the export services zone, again with tax holidays. We went further and after many years of trial and error, much soul searching and the vision of dedicated Mauritians from the public and private sector, we developed our international financial and corporate centre as we know it today.

We are now being told that this is wrong, that low taxation is immoral and that other persons elsewhere, who know better, should dictate to us the way we ought to tax our taxpayers. This is annoying to say the least and there is no way out from the system apparently. The instructions from overseas are clear: comply or your country will be blacklisted and potentially amenable to direct and indirect sanctions. I would in legal terms put it this way: under public international law, this attitude amounts to an illicit abuse of power of an international organisation in a dominant position. This attitude has been described as a new form of imperialism and neocolonialism whereby new rules are imposed upon countries like ours for the good health of rich countries, members of the OECD. Not for our own good health.

What a strange coincidence that all is fine when international companies come here, pay low wages and low taxes, use our blue collar workers to manufacture Tshirts, jeans or pull-overs and sell them to rich countries. However, when we happen to have a number of white collar workers who are apt and able to provide and sell professional, administrative, secretarial, fiscal, audit and legal services to international companies at a low cost and with low taxes, it seems that this becomes wrong.

Is it because we are entering the "chasse gardée" of the OECD's elite? Simply stated, we should be content with manufacturing textiles and be privileged to be allowed to sell them overseas to rich countries!

But so be it! We have chosen to collaborate in the establishment of the new taxation norms and we have to live with our times. However we have to innovate. We need to find the silver linings in the new clouds. We need to see how we may turn new constraints into opportunities. Not simply for the sake of money, but more to safeguard jobs, open avenues for the next generation and maintain our reputation as the best jurisdiction to do business in Africa.

The OECD, the World Bank and the IMF should understand the real and serious consequences the implementation of the BEPS project will have on our economy. They should allow us the time to change, help us to find new perspectives, train our workforce and enable us to gain a better access to the digital world.

Mauritius has survived many cyclones. Let us be aware that there is a big one coming and let us see how we can adapt and innovate.

WHAT IS BASE EROSION AND PROFIT SHIFTING?



BEPS refers to tax planning strategies that exploit international tax rules to shift profits to low or no-tax locations. Although some of the schemes used are illegal, most are not.

The OECD produced an action plan to fight these tax-planning strategies at the request of the G20. They were introduced at the G20 Finance Ministers' meeting in Moscow in 2013. It comprises of an action plan that identifies 15 specific actions. It includes closer international co-operation between governments to close gaps that, on paper, allow income to 'disappear' for tax purposes by using multiple deductions for the same expense and "treaty-shopping".

Action 15 of these measures would require Mauritius to renegotiate the existing bilateral tax treaties. Such a measure has to be addressed with caution warns Jurisconsult

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.