Panama Papers: How the offshore got here?

Mauritius is a strategic global business jurisdiction situated at crossroads between Asia and Africa. The global business sector was introduced in 1992 and has, since then, been established as one of the leading financial centres of the region. Our reputation as an international financial centre rests on its global recognition, quality of its services and its pool of highly qualified professionals. Services offered include company, funds and trust formation and administration, fund administration and management and trusteeship services, among others. According to Kamal Hawabhay, managing director of GWMS and executive member of the Association of Trust and Management Companies, the global business sector directly employs around 8,000 persons. With the multiplier effect, it can have around 15,000 employees in total. “The global business sector contributes around 4% to the GDP. Global business brings foreign income. Mauritians also invest in foreign businesses through the GBL 1.” When quizzed about the General Anti-Avoidance Rules and their impact, he says that “every country has a sovereign right and can implement any agreement. As for GAAR, we need to wait for India to come up with their legislation and guidance. It is obvious that this increases uncertainty and poses a threat to foreign investments.” Kamal Hawabhay argues that there are various allegations and misconceptions about global business. “In Mauritius, we deal with utmost transparency. For instance, if tomorrow a government wants particular information and has recourse to existing procedures, the information will be provided. So, because of lack of knowledge and information, misconceptions are prevailing.”

Global Business Mauritius

Global Business is a regime available in Mauritius for resident corporations proposing to conduct business outside Mauritius. GB is regulated by the Financial Services Commission (FSC). There are two categories of Global Business Licences: 1) Category 1 Global Business (GBC1) Licence: Category 1 GBC is a local entity which is supervised and licensed by the Financial Services Commission (FSC). A GBC1 undertakes global business activity outside of Mauritius. Examples of some approved activities are international trading, investment holding, offshore insurance, offshore funds management, and IT services. 2) Category 2 Global Business (GBC2) Licence: Category 2 GBC (previously referred as an international company) is tax exempt in Mauritius and does not qualify as tax resident. A GBC2 does not benefit from the Mauritius double taxation treaty network. It can undertake the different global business activities though they are commonly used for international trading, invoicing, consultancy business.

[[{"type":"media","view_mode":"media_large","fid":"14532","attributes":{"class":"media-image size-full wp-image-24254 alignleft","typeof":"foaf:Image","style":"","width":"200","height":"178","alt":"Penny Hack"}}]]Penny Hack: “Tax avoidance is not illegal”

Lawyer Penny Hack explains that the DTAA with India has been an advantage to Mauritius. “There was a clause in the agreement allowing Mauritius not to pay the capital gains. However, in reality the clause is being eliminated. At the start, 80% of the investment made in India was passed through Mauritius. Today, it has reduced to 50% and it will continue to decrease. In the near future, the number can reduce to 30%. The financial sector in Mauritius contributes around 10-13% to the GDP but with this trend, it can reduce to 6-5%.” According to the lawyer, tax avoidance is not illegal but evasion of tax is illegal. “Tax avoidance has been invented by European countries. In some countries, the tax rate is low as compared to others. For example, in Mauritius the tax is lower than European countries.” India has reviewed its DTAA as it has started to deal with G8 and G20 countries because of benefits. “Mauritius is nothing as compared to G8 and G20 countries. It is a political and economic decision. Moreover, India has already started to implement the GAAR. This new agreement can create an atmosphere of uncertainty among investors.” As highlighted by the lawyer, the biggest problem for Mauritius today is political instability which will prevent it from progressing. [[{"type":"media","view_mode":"media_large","fid":"14534","attributes":{"class":"media-image aligncenter wp-image-24256","typeof":"foaf:Image","style":"","width":"753","height":"159","alt":"Global-Business"}}]]   [[{"type":"media","view_mode":"media_large","fid":"14535","attributes":{"class":"media-image aligncenter wp-image-24257","typeof":"foaf:Image","style":"","width":"983","height":"233","alt":"Salient-features"}}]]

Market Trends

During the year 2013, 77 audited financial statements for Management Companies (‘MC’) and Corporate Trustees (‘CT’) were received and reviewed by the FSC. The total income, as per the 77 audited financial statements received, amounts to USD 77.5 million and profit before tax amounts to USD 23.2 million. The corresponding figures for the same population of 77 Management Companies for the year 2012 was USD 73.9 million for total income and USD 21.2 million for profits before tax.

Treaties

Mauritius has concluded 43 tax treaties and is currently party to a series of treaties under negotiation. Some of the main countries include: India, Botswana, Madagascar, Malaysia, Malta, Monaco, Singapore, and South Africa, among others. Mauritius accounted for 42 percent (US$54 billion) of total FDI to India from 2001 to 2011.

Panama Papers: Global business under stress

The Panama Papers is a global investigation into the sprawling, secretive offshore industry that the world’s rich and powerful use to hide assets by setting up front companies in far-flung jurisdictions. [[{"type":"media","view_mode":"media_large","fid":"14536","attributes":{"class":"media-image aligncenter wp-image-24259","typeof":"foaf:Image","style":"","width":"688","height":"387","alt":"panamapapers"}}]]   The leaked records – which were reviewed by a team of more than 370 journalists from 76 countries – come from a little-known but powerful law firm based in Panama, Mossack Fonseca, which has branches in Hong Kong, Miami, Zurich and more than 35 other places around the globe. Based on a trove of more than 11 million leaked files, the investigation exposes a cast of characters who use offshore companies to facilitate bribery, arms deals, tax evasion, financial fraud and drug trafficking. The massive leak exposes the offshore holdings of 12 current and former world leaders. As well as the hidden financial dealings of 128 more politicians and public officials from around the world. In fact, the world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire economy of the United States. Moreover, the files expose offshore companies controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the president of Azerbaijan. They also include at least 33 people and companies blacklisted by the US government. One of those companies supplied fuel for the aircraft used by the Syrian government to bomb thousands of its own citizens. More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories. The files reveal offshore companies linked to Ukrainian president Petro Poroshenko, who has positioned himself as a reformer in a country shaken by corruption scandals. The files include 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people. The files also contain new details about major scandals ranging from England’s most infamous gold heist to the bribery allegations convulsing FIFA. The documents make it clear that major banks are big drivers behind the creation of hard-to-trace companies in the British Virgin Islands, Panama and other offshore havens. The files list nearly 15,600 paper companies that banks set up for clients who want to keep their finances under wraps.

Mauritius Link

Leaked documents show the paper trail of the Heritage Oil and Gas Ltd (HOGL) company’s attempts at avoiding tax payment in Uganda. In fact, HOGL, besides deciding to fight the tax liability head-on, engineered a re-domiciliation from the Bahamas to Mauritius. In so doing, the company would have avoided paying capital gains tax since Uganda has a double-taxation agreement with Mauritius. In 2010, after HOGL sold its 50% stake in Uganda’s oil fields for US$1.5 billion to Tullow Uganda Ltd. The Ugandan government imposed a US$404 million capital gains tax on the transaction. According to new evidence, the proposal to re-domicile was “primarily due to the double tax agreement between Uganda and Mauritius.”

[[{"type":"media","view_mode":"media_large","fid":"14537","attributes":{"class":"media-image size-full wp-image-24260 alignleft","typeof":"foaf:Image","style":"","width":"200","height":"191","alt":"Dev Erriah"}}]]Dev Erriah: “Mauritius is and will be a clean jurisdiction”

Who are the main users of financial centres?

Financial Centres Community, called offshore centres, are normally used by huge Multinational Enterprises (MNS) and High Net Wealth Individuals (HNWI) with a view to avoid tax of all forms in the most confidential way by enjoying tax services and bank secrecy.

Why do people choose to come to Mauritius?

Generally, many MNS and HNWI have a preference to come here as Mauritius, compared to conventional tax havens, is a tax treaty jurisdiction which is regulated by international and national standards. In most cases, there must be substance in the transaction for that business to be carried out in Mauritius. On the other hand, HNWI also come to Mauritius as we have a hybrid legal system with French and English laws as opposed to some offshore centres which are mainly common law jurisdictions like Cayman Islands BVI and Bahamas. Over and above, Mauritius is not a zero-tax jurisdiction and for people who want to do business based on substance, Mauritius is more attractive.

What are the potential consequences of Mauritius being cited in the Ugandan case?

The Ugandan case may appear to be a claim for tax avoidance based on capital gains tax similarly to the Indian tax cases with reference to the Indo-Mauritius DTA like the Jan Andolan Azadi Bachao case and the recent Vodafone case. Other consequences are that such claim may be serious bar/impediment to Mauritius being a gateway to Africa in terms of investment into Africa. The most serious consequences is repeating the same problem as with India. We already have similar problems with South Africa and Kenya. The overall result is that the use of Mauritius may seriously be dwindled.

Can we still say we are a clean jurisdiction, now that the information is out?

Mauritius has at all times defended its position to be a clean jurisdiction of good repute by adhering to various international rules and regulations so as not to be on any black list or list of tax haven. Mauritius is not on the black list of any international organisation. Notwithstanding the Panama Papers, Mauritius is and will be a clean jurisdiction.

What safeguards are there to ensure that money from illicit activities are not being channelled through Mauritius to be laundered?

There are various obligations on financial institutions and management companies (MC’s) through regulations issued by the regulators which provide for safeguards to prevent money laundering at all levels. Financial institutions are required to identify and verify their client and all related parties. Also, Mauritius showed its clear commitment towards transparency by ratifying the Convention on Mutual Administrative Assistance in Tax Matters, developed by the OECD. Moreover, Mauritius is putting more emphasis on substance.

The EU is proposing a ban on offshore. How realistic is this threat and what would happen?

Very recently, the EU did put Mauritius on a blacklist but they later removed it. Various European jurisdictions already have legislations like GAAR and CFC to curb the use of offshore jurisdictions. If the EU does proceed with the ban, then Mauritius will have to take actions to: (i) impose capital gains tax in order to toe the line and doing so will avoid non-double taxation and provide a remedy for cases like Uganda and India and (ii) change its principle of taxation from residency to source principle to be a natural offshore jurisdiction like Singapore.