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
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions