On June 10, 2019, the Hon. Prime Minister and Ministry of Finance & Economic Development of Mauritius presented the 2019-20 Budget. In the Annex to the Budget Speech, it was indicated that the arm's length standard in the Income Tax Act (section 75) will be revised to eliminate any doubts or uncertainty as to its application. Among the other important measures, this was a signal that transfer pricing will become more of a focus in the coming years in Mauritius.
For transfer pricing professionals, this signal follows another step taken by Mauritius in transfer pricing as Mauritius expands its reputation as an international financial center. It came on the back of some recent, sizeable transfer pricing assessments made by the Mauritius Revenue Authority (MRA) and the willingness of the MRA to take high profile cases to the Assessment Review Committee where transfer pricing documentation, factual evidence, and the coherent commercial rationales have been rigorously tested before the Assessment Review Committee.
In that same regard, some of the actions Mauritius and the MRA have taken in the last few years include:
- In 2018, the deemed foreign tax credit regime was abolished to address concerns that it may have constituted harmful tax practice. A partial exemption system was introduced in its place, that is applicable to certain types of income, provided certain substance requirements (that are consistent with OECD requirements) are satisfied. As a result of these changes, in November 2018, the OECD confirmed that Mauritius does not have any harmful tax practices in its tax law.
- In 2018, the MRA effected its first exchange of information agreement with over 50 other countries under the Common Reporting Standard (CRS) for Automatic Exchange of Information. As one of the only 3 African countries to have implemented CRS to date, Mauritius has demonstrated that it is committed to being a transparent, compliant and reputable international financial center.
- As Mauritius is a member of the OECD BEPS Inclusive Framework, the MRA has pledged to implement the BEPS actions, the minimum standards relating to harmful tax practices, treaty abuse, CbC reporting, and in 2017 Mauritius signed the MLI to implement treaty measures in the BEPS framework.
We have seen all of these developments impacting the day-to-day operations of our clients.
For companies operating in Mauritius, the combination of these legislative developments and the Mauritian transfer pricing controversies, means attention to your transfer pricing policy and transfer pricing documentation is required.. Couple these Mauritian developments with all the transfer pricing developments in Africa, multinational groups need to review their transfer pricing policies in their regional tax structures.
As the fine-tuning process for the application of the arm's length principle continues to take place in Mauritius, there is still time for further transfer pricing guidelines. For example, advanced pricing agreements (APAs) and mutual agreement procedures (MAPs), as well as further guidelines on substance requirements associated with core income generating activities (akin to those adopted by the Channel Islands). There is also a need to continue to invest in capacity building at the MRA to be able to manage the broad and expansive range of new transfer pricing expectations following the OECD guidelines.
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.