Mauritius defends itself against non-cooperative tax jurisdiction tag
Mauritius which got the unfortunate tag on the basis of being named on the blacklists of at least 10 EU Member States, has now provided its defense against these allegations to counteract the perception of the jurisdiction as a tax haven, as the island is in fact adhering to international standards with a view to promote a culture of transparency and fair international business activity.
Just last week, AfricaMoney reported that Mauritius has been named as a non-cooperative tax jurisdiction by the European Commission. The island economy got this unfortunate tag on the basis of being named on the blacklists of at least 10 EU Member States, and has now provided its defence against these allegations.
To provide the broader context, the European Commission has announced a new Action Plan on Fair and Efficient Corporate Taxation as member states of the EU were called to indicate how countries and territories around the world apply the standards of tax good governance (transparency, exchange of information, and fair tax competition). The European Commission has identified a ‘top 30′ of non-cooperative tax jurisdictions, in which, besides Mauritius, other economies – particularly Seychelles, Hong Kong, the Maldives Islands, principality of Andorra, Liechtenstein, Monaco, Liberia and Cayman Islands – were also pointed out.
Objectives behind the new action plan on fair and efficient corporate taxation
Member states of the European Commission were called to take into consideration the “Compliance with transparency exchange of information standards, absence of harmful tax measures and other criterias” in order to determine and assess which country is adhering to standards of good governance and transparency in taxation. The objective of this assessment is to promote transparency as element in securing fairer taxation, both in the EU and internationally. It is important for tackling tax abuse and ensuring that taxation reflects where economic activity takes place.
The Commission has given high priority to improving tax transparency in the single market, and has already put forward a number of important initiatives to this end. Furthermore, the Commission considered with other international players the need to promote transparency through Extractive Industries Transperancy initiative (EITI) and stresses on the significance to recognize the importance of the implementation of the BEPS Action plan. As a matter of fact, these actions target to foster a level playing field for the taxation of multinational corporations, including in developing countries, as the Commission is determined to tackle tax evasion and avoidance globally.
Mauritius’ arguments against non-cooperative tag
Mauritius has proved successful in conducting international finance business and is very active in Africa and Asia. As an emerging island economy, Mauritius’ main challenge has been to counteract the perception of the jurisdiction as a tax haven. Over the years, Mauritius has engaged in important measures in order to counter this erroneous perception which include adherence to Automatic Exchange of Information (AEOI), the recent signature of an Inter-Governmental Agreement and Tax Exchange Information Agreement (TEIA) for the implementation of FATCA and is now contemplating an early adoption of the Base Erosion Profit Shifting (Action Plan) and Common Reporting Standards, all with a view to promote a culture of transparency and fair international business activity.
Mauritius complies with the OECD Action Plan 15 actions which are under four main headings and include ensuring transparency while promoting increased certainty and predictability and agreed policies to tax rules. Furthermore, Mauritius as a FATCA compliant jurisdiction encourages a higher level of tax transparency, not just in the context of US legislation but in a broader perspective. In addition, Mauritius is rated as largely compliant by the OECD and its financial services market is well regulated and stable.
In addition, the Action Plan also highlights the following :-
“The European Commission successfully concluded a dialogue on company tax issues with Switzerland which initiated the removal of five CH tax regimes which were considered harmful. A similar dialogue is currently ongoing with Liechtenstein and Mauritius. “
It is worthwhile noting that Mauritius has been removed from the black list of Italy, another member state of the EU. What is more, a quorum of 10 countries is required to list any country as being non-cooperative. Given that Italy has already cleared Mauritius as a cooperative jurisdiction and the other countries have not updated their own list, that makes Mauritius a cooperative country. In addition Mauritius has little dealings with any of the remaining 9 countries, namely Bulgaria, Estonia, Greece, Latvia, Lithuania, Poland, Portugal, Slovenia and Spain. It has also to be noted that there is a lack of in-depth understanding of the Mauritian constitution and it seems that the island was assessed by its involvement and indirect connection in international money laundering scandals rather than its legislative measures to counter tax evasion and abuse. As a matter of fact, both Netherlands and Luxembourg have escaped being listed as non-cooperative tax jurisdictions, despite being known as ‘tax havens’.
Guernsey, which also features on the list of non-cooperative tax jurisdictions, also came forward with relevant arguments to counter this approach from the EU, claiming that there has been a lack of constitutional understanding. To quote the Chief Executive of the States of Guernsey, Paul Whitfield: “It is technically inaccurate; it is not factually correct and we need to address it quickly. It is well known that Guernsey meets every international standard on tax transparency and co-operating including the European Commission’s own standards. I think this is just a lack of understanding about our constitution.’’
Pierre Moscovici, European Commissioner with responsibility for tax, himself confessed: “Our current approach to corporate taxation no longer fits today’s reality. We are using outdated tools and unilateral measures to respond to the challenges of a digitalised, globalised economy.”
It has to be noted, for further reflection, that the black list is already outdated as Mauritius has never dealt with the other indicated countries in the list from an economic and financial perspective. Moreover in respect to controlled foreign corporation (CFC), features of an income tax system designed to limit artificial deferral of tax by using offshore low taxed entities. Controlled foreign corporation (CFC) laws work alongside tax treaties to dictate how taxpayers declare their foreign earnings thus denoting that the black listed tax haven countries is unjustified and biased.
- By Kashish Jadoo