Landmark Mauritian Judgment From The Judicial Committee Of The Privy Council

On 30 June 2026, the Judicial Committee of the Privy Council (“JCPC”) ruled in favour of  Alteo Energy Ltd (“Alteo” or the “Company”), confirming that the latter was eligible to apply 80% exemption on interest income under item 7(b) of Sub-part B of Part II of the Second Schedule of the Income Tax Act (“ITA”).

Background

1. The main business activity of Alteo, a company incorporated in Mauritius, is the production and sale of electricity.
2. In the year of assessment 2019/2020, along with income from sale of electricity, Alteo also received interest income on loans, which is incidental to its main business activity.
3. Alteo applied 80% exemption on the interest income derived in the year of assessment 2019/2020, under item 7 of Sub-part B of Part II of the Second Schedule of ITA (“ Item 7”).
4. Regulation 23D(2)(a) and Regulation 23D(2)(b)(i) of the Income Tax Regulations 1996 (“ITR”) sets out the conditions (the “Conditions”) that a company (other than companies excluded in Item 7) needs to satisfy in order be eligible for the 80% exemption on interest income.
5. The following Conditions must be met for a company to be eligible for the 80% exemption:
   1. The company carries out its core income generating activities in Mauritius which includes agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks (“First Condition”);
   2. The company employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities (“Second Condition”); and
   3. The company incurs a minimum expenditure proportionate to its level of activities (“Third Condition”).

6. The Mauritius Revenue Authority (“MRA”) issued an assessment to the company for the year of assessment 2019/2020 whereby the 80% exemption on interest income was refused. The position of the MRA was that the interest income of the Company was not derived from its core business activities (which is production of electricity) and therefore it does not meet the First Condition to be eligible for the 80% exemption on interest income
7. Alteo objected to the assessment on the basis that its core income generating activities are in Mauritius and that under the First Condition, it is not required the activities which generate interest income to be the core business activities of the Company.
8. The Objections, Appeals, Dispute Resolutions Department and the Assessment Review Committee both ruled in favour of the MRA.
9. However, the Supreme Court of Mauritius (“Supreme Court”) allowed the appeal on the basis that the First Condition is met by the Company since its core income generating activities are carried out in Mauritius
10. Following the decision of the Supreme Court, the MRA appealed to the JCPC.

Decision of the JCPC

The JPCP has dismissed the appeal further to analysis the background of the applicable legislation which includes (i) Harmful Tax Competition: An Emerging Global Issue published by the Economic Co-operation and Development (“OECD”), (ii) Base Erosion and Profit Shifting - Action 5 of OECD’s Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance as well as the applicable legislation under the ITA and the ITR.  

The key takeaways have been summarised below:

1. The word “income” in the First Condition refers expressly to “interest income” and not to all income generated by a company (as has been wrongly interpreted by the Supreme Court), for the following reasons:
   1. Regulation 23D(2)(a) of the ITR refers only to activities generating income which is eligible for the exemption which is interest income;
   2. the substantial activity requirement is met when there is a direct link between the interest income qualifying for the exemption and the core activities that generate that income, regardless of any other income the company may earn; and
   3. The term “core income generating activities” should be interpreted consistently across all tax exemption provisions, as it is used throughout the Regulations for different types of exempt income, with only the specific qualifying activities differing for each type of exempt income.

2. Regulation 23D(2) of the ITR does not require a company’s core business to be lending or financing. Rather, it required that the core activities which generate the qualifying interest income be conducted in Mauritius. This interpretation aligns with the OECD’s substantial activity requirement, which focuses on the link between the exempt income and the activities that produce it.
3. Although the Regulation 23D(2)(b)(i) of the ITR lists certain financing-related activities as examples of core income generating activities, it does not restrict the exemption to companies whose principal business is financing. The key consideration is where the core activities generating interest income are performed and not the overall nature of the Company’s business.
4. A broader substance-based approach was adopted by the JCPC, focusing on whether the Company’s income generating activities were conducted in Mauritius. It also noted that the Second Condition and Third Condition were of limited relevance when assessing compliance of the Company with Regulation 23D(2) of the ITR since the interest income was incidental to the business of the Company.

The JCPC’s decision provides much-needed clarity on the interpretation of the substantial activity requirement under Regulation 23D(2) of the ITR, particularly in relation to interest income. By confirming that the relevant test focuses on the activities generating the qualifying income rather than whether such activities constitute the company’s core business, the judgment establishes a clearer framework for applying the 80%  exemption on interest income. This increased certainty should assist taxpayers in assessing their eligibility for the exemption, reduce interpretative disputes with the MRA, and facilitate the resolution of long-standing controversies concerning the application of the 80% exemption regime to interest income.