Financial services: Dark clouds ahead ?

Mauritius is firmly committed to sign the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. However, operators in the financial sector are sceptical about this move which they believe might be damaging to growth in the offshore sector. 

“Mauritius, as a fully collaborative and responsible International Financial Centre (IFC) of substance, has always supported the implementation of best practices as set by leading globally recognised institutions. To this end, in June 2015, Mauritius signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, jointly developed by the Council of Europe and the Organization for Economic Cooperation and Development (OECD). …. Mauritius wishes to reiterate its firm intention to sign the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting”. Mauritius commits to sign the Multilateral Convention by the 30th of June 2017, thus demonstrating its dedication to curb base erosion and fight international tax avoidance.” This is the essence of a Communique of the Ministry of Finance issued on 7 June 2017. However, there has not been any update on this issue so far. 

So what is it about the ‘Base erosion and profit shifting (BEPS)’ that is scaring our financial services players? According to the Organization for Economic Cooperation and Development (OECD), “Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.”

Many offshore operators are not really welcoming the decision of Mauritius to sign the agreement. They believe that this will seriously impact our financial services sector, which has evolved during the past few years into an important economic pillar of the country. Frankie Tang, an economist who is also engaged in the financial services, explains that Mauritius should not sign this agreement. “Mauritius always hastens to sign agreements on the international front, without taking the time to measure the real impact on our economy. I believe we should not always submit to the whims and fancies of global institutions. Indeed, we recently showed the world, with the Chagos issue, that we have the capacity to resist and fight for our rights, even if this involves challenging the giants of the world. Therefore, Mauritius should not simply abide by whatever convention that comes our way. The signature of this OECD agreement might affect our financial services sector.”

Many private funds have chosen to elect domicile in Mauritius because of our favourable fiscal climate. Indeed, our low tax rates are often used as convincing arguments in investment promotion exercises abroad. Now, if a global company using our jurisdiction to benefit from tax incentives will still to be taxed in its home country, then the benefits accruing here make no sense. As part of this latest convention, the authorities will be bound to share information on all operations by global companies with their home country. 

The Action Plan

It was in 19 July 2013 that the OECD issued its Action Plan on Base Erosion and Profit Shifting (Action Plan). The Action Plan contains 15 actions that are regrouped under four headings:

• Establishing international standards to ensure coherence of corporate income tax at international standards
• A realignment of taxation and relevant substance to restore the intended effects and benefits of international standards which may not have kept pace with changing business models and technological developments
• Ensuring transparency while promoting increased certainty and predictability
• Agreed policies to tax rules – develop a multilateral instrument

Application of CbC reporting to investment funds

How should the CbC reporting rules be applied to investment funds? There is no general exemption for investment funds. Therefore, the governing principle to determine an MNE Group is to follow the accounting consolidation rules. For example, if the accounting rules instruct investment entities to not consolidate with investee companies (e.g. because the consolidated accounts for the investment entity should instead report fair value of the investment through profit and loss), then the investee companies should not form part of a Group or MNE Group (as defined in the model legislation) or be considered as Constituent Entities of an MNE Group.

This principle applies even where the investment entity has a controlling interest in the investee company. On the other hand, if the accounting rules require an investment entity to consolidate with a subsidiary, such as where that subsidiary provides services that relate to the investment entity’s investment activities, then the subsidiary should be part of a Group and should be considered as a Constituent Entity of the MNE Group (if one exists). It is still possible for a company, which is owned by an investment fund, to control other entities such that, in combination with these other entities, it forms an MNE Group. In this case, and if the MNE Group exceeds the revenue threshold, it would need to comply with the requirement to file a CbC report.

How should a partnership which is tax transparent and thus has no tax residency anywhere be included in the CbC report?

The governing principle to determine an MNE Group is to follow the accounting consolidation rules. If the accounting consolidation rules apply to a partnership, then that partnership may be a Constituent Entity of an MNE group subject to CbC reporting. For the purpose of completing the CbC report, if a partnership is not tax resident in any jurisdiction then the partnership’s items, to the extent not attributable to a permanent establishment, should be included in the CbC report for stateless entities. 

All you need to know about Arbitration: Foto Tal Schibler

Is your organisation involved in international business activities? Or are you working in the legal field and exposed to growing international trade disputes? If yes, you may need to book a seat at the International Commercial Arbitration Conference to be held in Mauritius on 25 July. The conference, to be moderated by top arbitration lawyers in Europe, Africa and Mauritius, will look at the best practices and approaches that have emerged recently in Arbitration worldwide. Professionals engaged in this field will have an opportunity to have a better understanding of the opportunities and challenges pertaining to this legal field. The conference will bring together several high-level speakers from business and the legal field to talk about the Mauritian framework and perspectives. Confirmed speakers include Mr Azim Currimjee (chairman of MCCI), Mrs Ndanga Kamau (Registrar of LCIA/MIAC Arbitration Centre), Mr Assad Bhuglah (Former Director of Trade Policy, Min of Foreign Affairs), Dr Munir Lallmohamed (CEO of Century Bank), Anne-Sophie Jullienne (AfraLaw), Tulio Toledo (Rep. Permanent Court of Arbitration at the Hague) amongst others. 

The conference will be moderated by Mr Tal Schibler, the former Chairman of the International Commercial and Industrial Arbitration Court of Geneva and have four sub-themes: International Arbitration, Mauritius as an arbitration centre for the region/Africa, Arbitration: an Islamic Perspective, Arbitration and Business. The conference comes at a time of rapid growth of international trade, where businesses are increasingly exposed to new partners, countries, cultures, legal systems and trade practices. Business dealings can always give rise to disagreements and disputes. As such, dispute prevention and effective dispute resolution are vital components for any company.

International trade disputes entail high cost, which particularly affect small firms trading across borders. So, how can businesses avoid or resolve disputes during various contractual phases? Organisers REPTRAFOR and DORACREA say the workshop will describe the types of disputes that can arise in international trade and the dispute resolution mechanisms available to resolve them. The conference is targeted to lawyers, In-house counsels, SME executives involved in international business activities, Law graduates and students, Directors, CEOs & COOs, Import/ Export Managers, Finance Managers/ CFOs, Corporate Secretaries, Global Business & Offshore companies. Those interested to participate or for more information about this limited-seat event are request to call 54221010 or send an email to info@doracrea.com. The course is MQA-accredited and HRDC refundable. 

Bitcoin fraudster holds accounts in Mauritius  

The U.S. Securities and Exchange Commission has filed criminal charges against a man alleged to have been running a dubious bitcoin trading business along with a related co-working space company. Renwick Haddow (pictured), described as a U.K. citizen living in New York, ran an unregistered broker-dealer business using sales representatives to cold-call potential investors and sell securities in his companies Bitcoin Store Inc. and Bar Works Inc. Marketing material provided to potential Bitcoin Store investors claimed that the business was “an easy-to-use and secure way of holding and trading bitcoin” and that the business had already generated “several million dollars in gross sales.” The SEC alleges that the business in fact never had any operations nor generated the gross sales it touted.

With both Bitcoin Store and Bar Works, Haddow is alleged to have created fake executives to tout the businesses to potential investors, including a fake chief executive officer named Gordon Phillips. He both appeared in promotional videos for the service and claimed on a fake LinkedIn page that he previously worked for HSBC and Deutsche Bank. The SEC claims that having sucked investors in, Haddow then diverted more than 80 percent of the funds raised by Bitcoin Store and more than $4 million in funds raised by Bar Works to “one or more accounts in Mauritius and $1 million to one or more accounts in Morocco.” How much money Haddow managed to scam from the Bitcoin Store is not clear, but the SEC claims that Haddow managed to raise $37 million from Bar Works investors. Haddow, who had been previously disqualified from serving as a company director for eight years in the U.K. following his “misconduct as finance director,” is facing multiple charges under the Securities Exchange Act and could be facing as long as 20 years behind bars.

Harel Mallac Bureautique rebrands to EO Solutions

Mauritian long-term Xerox partner Harel Mallac Bureautique has recently changed its name to EO Solutions (EO) as part of its rebranding and repositioning. The company aims to be viewed as a "one-stop shop" provider for workplace systems and solutions to improve productivity. At a customer launch event held at Casela World of Adventures, Cascavelle, Alain Ah-Sue, MD of EO explained the company's repositioning: "Our evolution from year to year has led us to expand our services and the range of products proposed to do more than office automation." "EO's ambition is to improve the efficiency of companies and ensure that their activities are conducted in the best possible conditions.

We have adopted an integrated approach that requires a complete understanding of the needs of our customers to create tailor-made solutions for them. This is the added value of EO." Bytes Document Solutions' regional manager, Olivier Merven, says: "EO, previously known as Harel Mallac Bureautique, has been the sole authorised distributor for Xerox in Mauritius for over half a century. This demonstrates its ability to deliver for its clients in the Mauritian market." Bytes Document Solutions is the exclusive authorised Xerox distributor in 26 Sub-Saharan countries. Merven emphasises EO's commitment to Xerox; "In 2016 the company invested in the necessary skills to achieve Xerox Managed Print Services accreditation. This process is strictly controlled to ensure that qualifying partners offer the correct skillsets, robust processes and a commitment to consistent service delivery."

EO currently employs some 170 people and offers a wide range of branded services and products such as Xerox, Glory, Fujifilm and EBA. Its solutions are targeted at many industries such as banks, hotels, printers, communication and design agencies, educational institutions, among others. EO also counts among its clients small and medium-sized enterprises, as well as private and public companies and administrations.

Dany Blackburn, manager of EO, says: "Our goal is to create efficient workplaces so that businesses can run smoothly. Our approach highlights where certain areas of a business is wasting time and resources which then, in turn, can help to increase overall productivity and reduce costs." According to Blackburn, ‘EO' means "in advance" in Latin. The company is committed to being an engine of innovation.

EO was recently awarded the Top Selling Xerox Distributor in Sub-Sahara Africa by Bytes Document Solutions. The awards took place at the annual Achievers and Honours awards event held at the Indaba Hotel, Johannesburg.