[co-authors: Priscilla Balgobin-Bhoyrul and Rowin Gurusami]
The Organisation for Economic Co-operation and Development (OECD) is an economic organisation made up of 35 member countries, with the aim of encouraging economic progress and world trade. In 2015, the OECD developed the Base Erosion and Profit Shifting (BEPS) Project, made up of reports on 15 action plans, with the aim to attack aggressive tax planning strategies undertaken by multinational companies exploiting gaps in tax regulations to shift profits to low or no-tax locations where such companies have little or no economic activity. In November 2016, the OECD presented the main text on the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI allows jurisdictions to implement results from the BEPS package domestically and through tax treaty provisions.
Although developed by the G20 and OECD members, adherence to the BEPS Project was open to all countries by way of the OECD's Inclusive Framework. On 5 July 2015, Mauritius signed the MLI, reaffirming its commitment to implement the minimum standards of the BEPS Project into its entire tax treaty network by the end of 2018.
Mauritius has stated that 23 of its double tax treaties will be covered (and thus automatically amended) by the MLI, excluding 19 treaties, with a commitment to revise the said 19 treaties on a bilateral basis to ensure that they comply with BEPS minimum standards.
How does the implementation of BEPS affect tax rules?
Many of the 15 BEPS action plans focus specifically on changes to international tax rules with regard to transfer pricing, a strategy through which multinational companies allocate value amongst the assets and entities in their supply chain. The OECD considers that some companies allocate too much value to low-tax countries where they do not have any or enough substance and too little value to countries where they actually carry out their activities. Following BEPS implementation, many of those multinational companies will face new tax reporting requirements, including a "country-by-country report" to be provided by the company, which gives a detailed image of business results in respect of each country where the company operates. Such information will then be made available to any country where such company has a presence. In the spirit of BEPS, those measures are intended to allow the relevant countries to address the issue of profit shifting.
What does the implementation of BEPS bring to Mauritius?
The OECD states that BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises. Therefore, the BEPS measures once implemented will benefit developing countries and provide them with tools to mobilise domestic resources. In addition, specific challenges faced by developing countries and identified by them during consultations are currently being addressed through the work on the toolkits. These toolkits will be practical and based on real-life cases to facilitate the work of tax administrations.
One of the main reasons for Mauritius to adhere to the BEPS Project was the country's upgrade from a "Largely Compliant Jurisdiction" to an "OECD Compliant Jurisdiction" status in August 2017 following a review by The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). Throughout the years, Mauritius has consistently upgraded its legal and regulatory framework and ensured its practical implementation in view of Mauritius becoming an OECD Compliant Jurisdiction. The signing of the MLI and the implementation of BEPS is considered as an essential part of this strategy, thus boosting its image as a business-friendly jurisdiction in the eyes of the international community.
Criticisms of BEPS implementation in Mauritius
Coupled with the implementation of the OECD's Common Reporting Standard (whereby foreigners having a bank account in Mauritius are to be reported to their home countries through the Mauritius tax authority), many industry specialists are not welcoming BEPS implementation in Mauritius for the following reasons:
the concept of BEPS is to weaken jurisdictions such as Mauritius by rendering them less attractive to investors (who seek to use Mauritius to structure their transactions) in favour of other OECD jurisdictions – the image of Mauritius as a low tax jurisdiction has been achieved through years of financial strategy development and conducted in full compliance with all laws and this is now compromised by the implementation of BEPS;
BEPS has not been accepted and/or is not being implemented by many other jurisdictions, thus resulting in an imbalanced playing field when it comes to promoting Mauritius to investors and multinational companies;
the biggest member of the OECD, the United States, has stated that, regardless of the BEPS Project, its Congress will implement tax rules that it believes work best for United States companies and the United States economy; a similar approach has been adopted by the United Kingdom and this serves to demonstrate the lack of commitment of the overall global community to the consensual approach of BEPS; and
it is intended that only tax authorities shall receive sensitive information obtained under BEPS – however, there are genuine concerns about the security of data transmitted, and the risk that such data may be intercepted by other recipients.
Adapting to BEPS implementation in Mauritius
Given the very nature and complexity of the MLI (i.e. a multilateral convention that seeks to amend domestic laws as well as bilateral treaty agreements between two sovereign jurisdictions) it is anticipated that the implementation of BEPS will lead to increased controversy and may even result in double taxation, especially through the use of subjective terminology. This whole concept means that it is not possible to devise a single strategy that will suit all clients (given the diversity of jurisdictions involved). It is highly recommended for multinational companies to consult with their legal and tax advisers as to the specific effects of BEPS implementation on their related businesses in order to undertake global business planning with the flexibility to accommodate various BEPS-related tax rule changes.