How BEPS impact treaties - a Mauritian perspective

On 19th July 2013, the Organisation for Economic Cooperation and Development (OECD) issued its Action Plan on Base Erosion and Profit Shifting (Action Plan). Base erosion has been described as the use of legal arrangements by members of multinational business groups to shift income from business units located in jurisdictions where the group conducts business activities to business units in low or zero tax jurisdictions where the group conducts relatively little, if any, activity.

The Action Plan contains 15 actions that are regrouped under four headings: establishing international standards to ensure coherence of corporate income tax at international standards; a realignment of taxation and relevant substance; ensuring transparency while promoting increased certainty and predictability; and agreed policies to tax rules – develop a multilateral instrument.

The recommendation may have a significant impact on international financial centres, as it looks at both consolidating existing anti-avoidance provisions already in place in some countries to become international standards and instigating legal changes.

One of the criticisms leveled by the OECD is treaty abuse with the use of shell or conduit companies. There has been an attempt by the OECD to address the issue in the commentary, but no conclusive action has been taken.

Mauritius has taken steps to facilitate greater substance for entities utilizing it as an investment platform for both Asia and Africa. This includes the ability for foreign owned entities to bring expatriate staff to the jurisdiction, information and technology infrastructure, space to carry out the activities, universities and tertiary institutions producing graduates with the required skill sets.

Mr Gary Gowrea, Managing Director, Cim Tax Services