The recent Supreme Court decision in Alteo Energy Ltd ("AEL") v Assessment Review Committee & Anor (2025 SCJ 47) provides welcome clarity on the application of Mauritius' partial exemption regime for interest income. The ruling has direct implications for businesses navigating the conditions required for claiming the 80% exemption under the Income Tax Act 1995 ("ITA 95").
It sets a significant precedent in tax interpretation, reaffirming that statutory provisions must be applied as written without additional unwarranted conditions. This decision provides businesses with much-needed certainty on the application of the partial exemption regime and will likely influence the Mauritius Revenue Authority's ("MRA") future interpretation and application of its Statement of Practice on Partial Exemption ("SP 22/21").
What happened?
AEL's core business activity consists of the production and sale of electricity. The company deposited the surplus cash generated from its sales with a sister company, thereby earning interest income in the financial year 2019.
AEL claimed an 80% exemption on this interest income under item 7, Sub-Part B, Part II of the Second Schedule of ITA 95 and Regulation 23D(2) of the Income Tax Regulations 1996 ("ITR 96"). The latter is commonly referred to as the "substance conditions" and is reproduced below:
- Carrying out its core income-generating activities ("CIGA") in Mauritius;
- Employing directly or indirectly an adequate number of suitably qualified persons to conduct its CIGA; and
- Incurring a minimum level of expenditure proportionate to its level of activities.
ITR 96 further states that in the context of interest income, CIGA includes agreeing on funding terms, setting the terms and duration of any financing, monitoring, and revising any agreements, and managing any risks.
The MRA disagreed with AEL's partial exemption claim on the basis that interest income, representing only 0.25% of the company's total income, did not constitute the company's core income. The Assessment Review Committee ("ARC") upheld the MRA's contention.
What were the key points?
- Plain meaning of the law should prevail
The Supreme Court reaffirmed the principle that tax legislation must be interpreted strictly and that the language of tax texts should not be strained to extend its meaning. In cases of ambiguity, interpretation should favour the taxpayer. As a result, a plain reading of the legislative provisions at ITA 95 and ITR 96 indicates that interest income is not required to form part of the CIGA of the company.
- The substance conditions
The Supreme Court clarified that applying the same strict reading, the 3 substance conditions are exhaustive and do not include an additional condition linking CIGA to interest income. It therefore disagreed with the ARC's additional requirement that interest income must be linked to CIGA
- The use of the term "includes" in CIGA
The Supreme Court found that the word "includes" in ITR 96 does not limit the scope of CIGA but rather expands it. This interpretation ensures that the list of CIGA activities provided is non-exhaustive and allows for broader application of the exemption.
- Overall legislative intent
The Supreme Court also referred to the historical context and parliamentary debates (Hansard) to support the broader application of the partial exemption for interest income instead of the MRA's and ARC's interpretation. The ruling states that a partial exemption regime was introduced to apply to all companies in Mauritius, not just to companies with a Global Business Licence ("GBC"). The exemption should therefore extend to local companies that satisfy the substance requirements, regardless of their primary business activity.
What does this mean?
This judgment is a landmark decision for companies operating in Mauritius, particularly those with diversified income streams. It is allowing both domestic and GBCs to claim partial exemption on interest income, for example from excess cash deposits or intercompany loans, on a firmer legal basis. However, while the ruling removes an unnecessary restriction, companies must still satisfy all 3 substance conditions, including employment and level of expenditure.
The claim for partial exemption on interest income has frequently been the subject of dispute between the MRA and taxpayers. In most cases, the MRA would refer the taxpayer to the MRA's Statement of Practice on partial exemption, SP 22/21. The Supreme Court ruling directly challenges the MRA's interpretation in SP 22/21, which has sought to impose restrictive conditions on the applicability of the 80% partial exemption. The ruling also reinforces the fact that tax legislation must be interpreted as written, without straining the words to add further meaning. We hope that the clarity provided by the Court reduces disputes between taxpayers and the MRA on this issue, as businesses can now rely on this precedent to challenge such assessments.
Given Mauritius's role as an international financial centre, businesses, especially those engaged in cross-border transactions such as GBCs, require certainty to structure their operations efficiently and remain compliant with global tax standards. In the current economic and regulatory climate, including increased scrutiny from international bodies such as the OECD and the EU, clear and consistent tax policies help maintain Mauritius' competitiveness as a reputable jurisdiction. Whilst it remains to be seen whether the MRA will seek special leave to appeal to the Judicial Committee of the Privy Council, this ruling reinforces the importance of legal certainty in tax matters, ensuring that businesses can operate confidently without the risk of arbitrary interpretations that could deter investment.
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