It would be naïve to consider that the wild accusations against Mauritius following the publication of the Paradise Papers and Oxfam report are totally devoid of malice
Financial Services Industry
The restrictions and limitations imposed by the amendments to the longstanding Double Taxation Avoidance Agreement (DTAA) with India, last year, initially seemed to have really sounded the death knell of the ambitions of Mauritius to position itself as a Regional Financial Services Centre. With time, however, it has become more evident that there was more resilience built in the system than it was first believed. Building on the experience acquired after almost 30 years of the Double Taxation Avoidance Agreement with India, Mauritius now legitimately feels that it has developed sufficient knowledge capital and human resources to embark on the albeit challenging tasks of upgrading its role in the regional/global financial services industry.
Even as the actors of the private sector and the government are engaged in this daunting task of initiating a re-invention of the industry, the publication of the Paradise papers and the latest report by Oxfam classifying Mauritius as a “tax haven” could not have come at a worse time. While not necessarily being adept of conspiracy theories, it would be rather naïve to consider that the wild accusations against Mauritius following the publication of these documents are totally devoid of malice if not outright “fake news.” It is here worth mentioning that an unfortunate feature of this whole affair — and it is certainly not the first time that we have to deplore such reactions –, has been the way in which some local commentators have been only too happy to jump on the bandwagon and indiscriminately accept the views expressed therein. The end result is that these events have again created a cloud of controversy around the nature of our existing industry that could eventually negatively impact our legitimate aspirations of positioning our Regional Financial Services Centre as a major player in this part of the world.
One of the serious flaws in the strategy of successive governments in defending the validity of the now, for all intents and purposes, defunct DTAA, has been their shyness in recognizing that our competitors have often deliberately orchestrated insidious campaigns against the erstwhile arrangement between India and Mauritius. As a result, we ended up losing the moral high ground and the argument – to the point that even our Ministers and high officials were adopting the very language and thesis developed through these deceptive campaigns.
The Financial Services Commission and the Financial Services Promotion Authority would therefore do well to draw the lessons of this recent experience. Trite as it may seem, one need to be reminded that often attack can prove to be the best means of defence. The case for Mauritius to develop a credible Regional Financial Services Centre rests on solid grounds consisting of meaningful assets, resources and institutions. The ultimate difference between a “tax haven” and a genuine financial centre is that the former would usually be at pains to demonstrate that it actually holds such explicit and objective assets and resources which would constitute a real competitive advantage to favour the development of a financial services industry.
The Global Financial Centres Index ranks the competitiveness of financial centres around the world. In September 2016, it ranked London at the top followed by New York and Singapore. Dubai, which launched its financial centre about two decades ago, ranks 18th. The broad criteria used by the index are business environment, financial sector development, human capital and reputation. Any objective observer will have to agree that on each of these counts Mauritius enjoys a favourable bias. Indeed the successful growth of its financial services industry on the back of strong institutions such as a working democracy, an independent judiciary and the respect for property rights stand testimony to its huge potential.
As the rapid developments in Information and Communications Technology have reduced the weight of physical distance as a factor of choice of investment or business development destinations, the geographical benefit of our time zone has become even more prominent in an industry which runs 24/7 globally. Last but not least, in terms of human resources, the number of accountants and lawyers as well as a large pool of graduates who can be “re-skilled” provide a large pool which can form the core knowledge capital requirement of a financial services industry.
Armed with such assets, Mauritius can therefore largely justify its ambitions of becoming a leading financial services centre in the region and why not globally. As regards the latest developments in the global regulatory environment for the financial services industry (Base Erosion and Profit Shifting – BEPS amongst others), they admittedly pose a real challenge for emerging financial centres. However challenge also means opportunity and the competitive advantages which we have described above can in fact prove to be invaluable barriers to entry for competitors who do not possess them. In the evolving context the key differentiator between “haven” and genuine financial services centres will hinge on the ability to provide “substance.”
The Anglo-Saxon industry offers what is probably the most relevant definition of substance. In the UK
“an offshore company could still be subject to UK tax if the authorities take the opinion that management activities and control of that company is primarily in the UK. It is up to the offshore entity, therefore, to ensure that its central management and control is not carried out of the UK, but from its offshore domicile in order to remain subject to the latter’s regulations and tax laws of its place of domicile.”
Such an operational definition of substance to define place of domicile of the offshore entity should suit Mauritius fine in its new strategy focussed on real value addition to the management and decision making processes.
And, yes, the Mauritius jurisdiction should also continue to offer legitimate tax benefits as well. There is no valid reason to accept the “moral” argument advanced by those who make it a point to target Mauritius as being a “tax haven”. The jury is still out regarding the costs and benefits of having double taxation agreements with other jurisdictions including African nations. The views expressed in some of these reports often smack of paternalism and the colonial era reasoning whereby some thought that they knew what is the best interest of the Africans more than the people themselves.
* Published in print edition on 1 December 2017
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.