Mauritius’ financial centre has been plagued for years by criticisms raised by tax authorities and rival operators in different jurisdictions. Earlier there had been the long-drawn tug of war engaged between Indian tax officials and those on the Mauritian side with regard to the Double Tax Avoidance Treaty (DTAT) with India, which was ratified as far back as in 1983. A succession of claims was put up in different quarters with a view to undermining the Treaty, and which posed a serious risk of eroding the credibility of Mauritius as a host of an international financial centre of substance.
In fact, once the DTAT started being implemented, it proved very successful. This can be gauged from the fact that Mauritius had been able to tap an average 38% of the total annual FDI going into India over more than a decade. The scale of success drew attention – and criticisms and attacks from tax officials and rivals in other jurisdictions who could not bring themselves to accept that a small country like Mauritius could score such an amount of success in mobilising funds for India from the world outside.
It was initially claimed that Indian tax evaders would be moving funds unlawfully out of India for them to bring them back into India as investment into India by employing the favourable terms of the DTAT – operations which are usually referred to as “round-tripping”. It was also alleged that Mauritius would not be willing to exchange information about alleged illicit investments undertaken through the Mauritian “tax haven” by way of the so-called “round-tripping”.
Other objections were raised too, including the one which pointedly accused Mauritius of “treaty-shopping” – the instrument by which citizens of countries other than Mauritius were employing Mauritius to send their investments into India in order to enjoy the advantages conferred by the DTAT. But it certainly is not the unique privilege of Mauritius to host such investors who want to minimize their tax liabilities like any rational investor. It is done by investors wholesale, whether they are going through Singapore, Dubai, London, New York, Luxembourg, Switzerland, etc., i.e., all financial hubs.
The inevitable eventually happened when a delegation of Mauritian officials to India in July 2015, accompanied by the then Minister of Good Governance, agreed to do away with what constituted the DTAT’s main attraction to our offshore clients investing in India – namely that, in accordance with its Clause 13, they were being taxed in Mauritius on capital gains achieved on their investments. The overturning of that clause meant that investors from Mauritius going into India would henceforth be taxed on their capital gains not by Mauritius – the case so far – but by India, and which emptied the DTAT of its substance to the detriment of our financial centre.
International finance is a ruthless world, and if we want to progress in this field, we have to build up on what we already have patiently built up, not by dismantling its pillars. Unfortunately, this is what the then Governance minister-led delegation succeeded in doing.
Another attack has been directed against our international financial centre in the form of a report, titled (‘Mauritius Leaks’, by the International Consortium of Investigative Journalists (ICIJ), this week, following an investigation by the Consortium on the basis of documents contained in a USB key that was forwarded to it anonymously.
The ICIJ in its own report admits that the Mauritius International Financial Centre has not been used for the conduct of any illegal activities. However the Association of Trust and Management Companies and Global Finance Mauritius (ATMC-GFM) have through a press release taken issue with “the way in which the ICIJ articles have been couched, the headlines that have been used (“Mauritius Siphonstax from poor nations”, “It takes a village to create a Tax Dodge”)… and information taken out of context susceptibly creates a false perception of wrongdoing.”
ATMC-GFM notes that the articles which “derogatively describe Mauritius as a ‘tiny Indian Ocean tax haven’ supposedly assisting multinational companies to avoid paying tax in Africa… is a complete fallacy and at best demonstrates that the authors are totally misguided about the role that Mauritius plays in promoting trade and investments into Africa. As an IFC, Mauritius has positively contributed to the growth of many developing nations in the region. For example, the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2019, has confirmed that Mauritius is contributing its part to roughly $46bn worth of FDI flowing into Africa in 2018. UNCTAD also recognised the role of Mauritius as actively participating in the development of the continent through Special Economic Zones (SEZs) in various African countries and continuing to innovate in this area. This has resulted in creation of jobs and development of infrastructure and business in these countries. Last but not least, all these businesses in Africa which are the recipient of FDI pay taxes locally, irrespective of whether the investments are being made from Mauritius.’
On the local front, ATMC-GFM adds, ‘the global business sector has succeeded in generating high value-added employment. It is estimated that the sector, including banking, directly employs more than 15,000 professionals. Indirectly, it contributes to the general economy by providing work and opportunities to taxi drivers, restaurants, hotels and also the press through advertising. More importantly the financial sector has contributed to boosting the country’s foreign exchange reserves, thereby contributing positively to the balance of payments and preserving the stability of the Mauritian rupee.’ Furthermore ‘Mauritius has always been committed to full compliance with international standards and best practices in the global business and the wider financial sector. It is rated as fully compliant with the OECD standards on transparency and exchange of information for tax purposes. In the ESAAMLG Follow Up report, in May 2019, Mauritius successfully obtained an upgrade of 11 FATF recommendations, demonstrating significant progress in meeting technical compliance.’
Such criticisms as levelled against our international financial centre in the ‘Mauritius Leaks’ are bound to happen again, and with disastrous effect on the country’s reputation especially when it is depicted as operations deemed to be depriving the rich and poor countries alike of their tax revenues. A country like Mauritius will have to show, as it has done several times in the past that it is continuing to operate by the highest standards of international good governance, like the other jurisdictions which too are active in same financial activities and use similar strategies and tactics.
* Published in print edition on 26 July 2019
65 years ago Mauritius Times was founded with a resolve to fight for justice and fairness and the advancement of the public good. It has never deviated from this principle no matter how daunting the challenges and how costly the price it has had to pay at different times of our history.
With print journalism struggling to keep afloat due to falling advertising revenues and the wide availability of free sources of information, it is crucially important for the Mauritius Times to survive and prosper. We can only continue doing it with the support of our readers.
The best way you can support our efforts is to take a subscription or by making a recurring donation through a Standing Order to our non-profit Foundation.