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OECD and its tax climate over Africa and Mauritius

Mauritius thirty years back was in its early days of a newly born financial services sector. The country started to build a reputation for itself with the hospitality and textile industries growing steadily, coupled with a banking system fiddling through international networks of developed countries. A strong agro-based economy and a resilient population that time brought the country towards a glorious path, almost a breakthrough for a small island state without much resources. Contemplating further progress for its financial sector through a network of tax treaties was on the cards during the 1990’s but an absolute underestimation to where the road will lead years later, albeit various international acclaims worldwide and for Africa.

Mauritius during these three decades became a favourite location for investment from different jurisdictions around the world and for Africa, Mauritius was its blue-eyed boy. Many African countries in awe towards the country’s economic, social and political progress, wanted to avail themselves of the bilateral agreements with Mauritius, opening the door to international investors via Mauritius.

The road to a valuable network of Double Tax Avoidance Agreements (DTAAs) and Investment Promotion and Protection Agreements (IPPAs) was long with some 44 DTA treaties signed so far (out of which 7 African countries are signatories of our DTA agreements) and nearly 17 African countries have bilaterally agreed to protect investments through an IPPA. In its making, the island built a robust regulatory framework, a skilled workforce, political and economic stability which is rare for an African country and compliance with international standards as sine qua non.

DTAs & IPPAs

DTAs are international agreements which aim at reducing or eliminating the burden of double taxation between two countries when they engage in trade. The key characteristics of DTAs are;

  • Sources rules define the agreed source of various income
  • Assignment rules allocate taxing rights
  • Relief rule eliminate or relieve judicial double taxations

IPPAs, on the other hand, offers a pack of guarantees to investors going for cross-border transactions and deals and the key elements of an IPPA are the following;

  • Free repatriation of investment capital and returns
  • Guarantee against expropriation
  • Most favoured nation rule with respect to the treatment of investment, compensation for losses, in case of war or armed conflict or riot etc.
  • Arrangement for settlement of disputes between investors and the contracting states

OECD

As from the 1990’s OECD has been educating various African countries about tax treaties and how they eventually facilitate cross-border investments. Other international organisations like the UNCTAD, UN trade and investment body also promoted treaties favouring intra-country investment relations.

Back in the 1990’s Mauritius started to engage in DTAAs based on the OECD and UN model and as a matter of fact, some of them are nearly crossing thirty years of prevalence. As for IPPAs, which are international bilateral agreements between governments, these are based on the UNCTAD model.

During those decades, there have been virulent cases of treaty abuses around the world affecting almost all jurisdictions and combatting tax abuse and treaty shopping was high on the agenda. OECD had no other choice than to promote a new package of international agreements and initiatives which will also comprise tax treaties as a key component for the new OECD tax landscape. Eventually, in July 2017, Mauritius positively responded to the application of OECD measures and signed the multilateral Convention to implement BEPS and the MLI. The MLI has been effective for Mauritius since the 1st of February 2020. The MLI is a successful project of the OECD enabling the swift implementation of a series of tax treaty measures, updating international tax rules and lessening the opportunity for tax avoidance by multinational enterprises. As at 29 June 2021, the MLI covered 95 jurisdictions which in fact represent dozens of permutations within countries. This excludes prospective jurisdictions which are actually working towards acceptance of the MLI through rounds of negotiations.

Mauritius Covered Tax Agreements

With Mauritius as signatory to the MLI, most of its DTAs have a status of covered tax agreements which in fact means that the assent from both parties to modify their existing agreements using the MLI is already a fact and are aligned with the OECD new rulebook.

Mauritius has joined the inclusive framework on BEPS and militate for a more transparent tax eco-system within Africa. The commitment towards more transparency is factually concrete through international reporting obligations adopted by the country and they are as follows;

  • CRS – Common Reporting Standards
  • CbCr – Country by Country reporting
  • FATCA – Foreign Account Tax Compliance Act
  • GDPR – General Data Protection Regulations
  • TIEA –Tax Information Exchange Agreements

Mauritius wishes to find itself in an ideal landscape of financial players for Africa open to businesses for the world, but within a harmonised tax system and tax considerations for other jurisdictions vouching for fairness and constant mitigation process of treaty abuses. In this wake, Mauritius through its global business sector and its Mauritius resident companies continue to promote investment benefits from a fiscal point of view as well, in perfect alignment with OECD guidelines. Investors considering the island obviously promotes mobility of labour, bring a boost to economic and social growth, as we have in our midst on the island recent settlors who have found their second innings by voting to stay longer here and reap the benefits of live, play and work on the idyllic island.  Mauritius is toiling hard to keep its reputation of a paradise island, a perpetual task to build and rebuild the country in a sustainable manner for future generations.

DTOS is a management company of choice for the jurisdiction of Mauritius. The group has been present in the day to day administration of hundreds of corporates so far, either for expansion into emerging markets or for those looking to invest in Mauritius and other jurisdictions. We are here to serve the community of investors with the commitment and passion which has paved our reputation for the past 27 years.

Surya P. Foollee
18 August 2021