OECD’S BEPS initiative - Mauritius signs multilateral convention
On 5 July 2017, Mauritius signed the Multilateral Instrument (MLI) developed by the OECD to implement tax treaty related measures aimed at preventing Base Erosion and Profit Shifting (BEPS) by multinational enterprises.
BEPS refers to tax avoidance mechanisms designed to artificially shift profits to low or no tax jurisdictions.
Once in place, the MLI will effectively amend bilateral tax treaties signed by Mauritius for the purposes of adopting minimum standards under the Organisation for Economic Co-operation and Development (OECD’s) BEPS Initiative. The minimum standards aim at tackling issues such as harmful tax practices, treaty abuse, country-by-country reporting and dispute resolution. To-date 69 countries have signed OECD’s Multilateral Instrument.
1. Relevant Treaty Partner Countries
The MLI signed by Mauritius concerns the following 23 treaty-partner countries:Barbados, Belgium, Republic of Congo, Croatia, Cyprus, France, Germany, Guernsey, Italy, Kuwait, Lesotho, Luxembourg, Madagascar, Malta, Monaco, Oman, Qatar, Seychelles, South Africa, Swaziland, Sweden, UAE, United Kingdom.
In respect of the remaining 19 treaty-partner countries not covered under the MLI, for instance India, Mauritius has committed to engage in bilateral discussions individually with each treaty partner country for the purposes of agreeing to a Limitations of Benefits clause under the respective treaties by the end of 2018.
2. The Changes
Purpose of Tax Treaties
The preamble to the tax treaties with the above-mentioned countries will be updated to include the elimination of double taxation, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements. The scope of the treaties will also be further extended to cover the development of economic relationships and enhancements of co-operation on tax matters between the respective treaty partner countries.
Prevention of Treaty Abuse
Mauritius has accepted, solely as an interim measure, that a Principal Purpose Test (PPT) be applied for the purposes of determining eligibility to benefits under the 23 tax treaties with the above-mentioned countries. In parallel, Mauritius has indicated its intention to engage into bilateral negotiations with the said treaty partner countries with a view to adopting a Limitation of Benefits clause in lieu of the PPT.
The PPT aims at denying treaty benefits to a particular transaction if it is reasonable to conclude, after reviewing all facts and circumstances, that one of principal purposes of the transaction was to obtain such treaty benefits, unless the granting of such benefits would be in accordance with the purpose and object of the tax treaty.
Dispute Resolution: Mutual Agreement Procedure
Mauritius has adopted the relevant provisions under the MLI allowing Mauritian residents to seek the assistance of the Mauritius Revenue Authority to take up with a specific treaty-partner country any case of treaty benefits denial, which it considers unjustified, with a view to resolution by way of mutual agreement. The case should be presented to the treaty partner country within three years from the first notification received by the Mauritian resident on the treaty benefit denial. Such recourse will be in addition to any existing provision in the domestic legislation of the treaty partner country.
Mauritius has also agreed to on-board mandatory arbitration provisions under the MLI. Under this clause, if attempts to reach an agreement under the Mutual Agreement Procedure do not conclude to the satisfaction of the parties concerned within two years, the aggrieved party may put the case under arbitration as per the procedures set out in the MLI. The arbitration decision shall be binding on both treaty partner countries.
3. Analysis and Impact
The MLI, as a convention, will take effect three months after any first five jurisdictions have deposited their respective MLIs with the OECD. Subsequently, the Mauritius MLI will be in force three months after Mauritius deposits its instrument of ratification with the OECD. The MLI will generally amend specific tax treaties if (i) both contracting states’ MLI are in force and (ii) both contracting states have listed their treaty-partner countries in their respective MLI. The Mauritius MLI status with respect to each treaty-partner country is summarised in Appendix A.
- As of date, of the 23 countries concerned under the Mauritius MLI, eight countries (Swaziland, Madagascar, Oman, Lesotho, Barbados, UAE, Qatar, and Republic of Congo) have not yet signed an MLI. Accordingly, assuming status quo in respect of such countries, the number of tax treaties impacted by the MLI once it becomes in force would be reduced to 15.
- 21 treaty partner countries have listed Mauritius under their respective MLIs, of which six (India, China, Pakistan, Singapore, Senegal and Egypt) do not have a corresponding listing under the Mauritius MLI. These countries MLI would therefore, once in force, not be applicable with respect to their treaties with Mauritius.
Notwithstanding the above, Mauritius has signified its intention to negotiate bilaterally with all treaty partner countries for inclusion of a Limitation of Benefits clauses under the respective treaties, whether within the context of the MLI or otherwise. It is therefore expected that the entire treaty network of Mauritius will be impacted through such bilateral negotiations. The extent of the impact will inevitably depend on the content of such Limitation of Benefits clauses. IFS-SANNE will follow developments in this regard and provide updates as and when available.
- Until conclusion of the said Limitation of Benefits clauses, upon the Mauritius MLI take effect, the availability of treaty benefits in respect of the treaty-partner countries listed by Mauritius will be subject to satisfaction of the PPT. Accordingly, clients are recommended to review their structures with a view to reinforcing economic substance and commercial purpose. We will be pleased to assist in any such review of the current structure.
This highlight is for information only. While every care has been taken to make it as comprehensible as possible, it may have omitted information that is useful to a particular reader. You are urged to seek professional advice as may be required and not rely on this highlight as advice or opinion.