Mauritius Depriving Poorest Nations Of Tax, Report Says

Law 360

July 23, 2019

Leaked documents from Conyers Dill & Pearman showed that the island nation of Mauritius diverts tax revenue from poor nations. ( Getty Images )

Leaked documents from Conyers Dill & Pearman showed that the island nation of Mauritius diverts tax revenue from poor nations. (Getty Images)

The leaked records, dating from the early 1990s through 2017, reveal how taxable profits from poor countries were shifted to western companies and influential business owners in Africa, with Mauritius getting a share. The report by the International Consortium of Investigative Journalists, or ICIJ, said its investigation was based on 200,000 documents from the Mauritius office of Bermuda-based law firm Conyers Dill & Pearman.

"The revelations coming out of Mauritius are yet more proof of the fact that the international rules we have for taxing multinational corporations and wealthy individuals have been corroded beyond use," said Alex Cobham, chief executive of the Tax Justice Network.

The group, which advocates tax fairness and transparency, lists Mauritius as the "14th most corrosive corporate tax haven in the world," Cobham said.

Mauritius has a flat corporate income tax rate of 15%, which can be reduced to 3% with foreign tax credits, and the country doesn't tax capital gains. The country has no inheritance tax, wealth or gift tax and imposes no withholding tax on dividends, interest or royalty payments. Mauritius also has no legislation pertaining to controlled foreign companies or rules governing transfer pricing or thin capitalization.

The small island in the Indian Ocean, which casts itself as the "corruption-free" gateway into Africa, the Middle East and India, has tax treaties in place that enable it to siphon tax away from some of the poorest countries in the world. Mauritius is on the European Union list of jurisdictions that have harmful tax regimes and has long had a reputation among tax justice campaigners as a tax haven.

In a letter to the World Bank from 2016, Seetanah Lutchmeenaraidoo, the Mauritian minister of finance, laid out the country's “Africa strategy.” The plan involved positioning the country as Africa’s “virtual office” and “an important economic gateway to Africa.”

Mauritius has 45 tax treaties in place globally, 18 of them in Africa. Several countries are currently trying to renegotiate their treaties with Mauritius because of the harmful impact it has on them. According to the ICIJ, tax officials in Egypt, Senegal, Uganda, Lesotho, South Africa, Zimbabwe, Thailand, India, Tunisia and Zambia said their treaties with Mauritius were crippling.

A leaked presentation on structuring private equity investments through Mauritius from Conyers Dill & Pearman lists “tax treatment” and the “Mauritius advantage” as reasons for routing investments through the jurisdiction. A case study in the document demonstrates a structure to reduce a company’s tax liability in Mozambique to zero.

Another document, a business plan for Live Aid founder Bob Geldof's private equity firm 8 Mile, has a chart demonstrating a complex series of holding companies in different jurisdictions. It specifically names tax planning as a specialist function and anticipates the need to get a certificate of residency from Mauritius.

In another document, KPMG lays out the best way for Ubongo, a children's media and entertainment organization, to restructure with the impact of shifting profits out of Tanzania and into Mauritius, with no other justification given for the reorganization.

Molly Scott Cato, a member of the European Parliament who has sat on a special committee on tax evasion, said the country's claim to be compliant with international standards has "been shown to be a sham.” Suggesting the problem is a global one, she added that the “race to the bottom” in international tax standards is highly damaging in light of the need for tax revenue to fund public services.

The Independent Commission for the Reform of International Corporate Taxation similarly called for a multilateral accord to overhaul the international tax system, an end to tax havens, the adoption of a minimum global tax and the creation of a global asset registry.

Johan Langerock, tax policy adviser for the charity Oxfam, called on the EU to increase its pressure on Mauritius to reform its tax system. He further said the bloc should adopt stricter criteria for what constitutes a tax haven.

The Mauritian government, in its response to the investigation, said that its tax treaty is based on the models provided by the Organization for Economic Cooperation and Development and the United Nations. Therefore, it said, "we are of the view that our treaties do not contain harmful features.”

Further, the government said, the perception that Mauritius is reluctant to renegotiate existing treaties is wrong.

"On the contrary, since 2009, we have requested, under our own initiative, the renegotiation of over 60% of the tax treaties to bring them in conformity with international norms,” a government statement said.

Conyers said in a statement on its website that it "recently became aware that confidential information relating to our former Mauritius office was illegally obtained" and sent to reporters working with ICIJ and other investigative media groups.

The firm ceased operations in Mauritius on April 1, 2018, and former colleagues in that location now operate as Venture Law Ltd., the statement said. Venture engaged a data security company to investigate the scope of the leaks, and the matter has been reported to the relevant authorities, Conyers said.

“Our clients are our top priority and we are sorry that their confidential business information has been stolen and made public in this way," the firm said.

Christian Luthi, the firm's chairman, said Conyers "strictly adheres to the laws of all the jurisdictions in which we operate and upon which we are asked to advise" and "does not and will not comment on confidential matters relating to our clients."

--Editing by Neil Cohen.

https://www.law360.com/publicpolicy/articles/1181210/mauritius-depriving-poorest-nations-of-tax-report-says

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