April 12, 2021

Mauritius caught in offshore scandal

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From International Investment

A new investigation shows how multinational corporations are using Mauritius  to avoid paying taxes in the poor African nations they do business.

The report from the International Consortium of Investigative Journalists is based on a USB stick obtained by journalists which contained 200,000 confidential records of a Bermuda based offshore law firm Conyers Dill & Pearman which has an office in Mauritius.

‘Mauritius Leaks’ details how laws in the country help corporations avoid taxes. One of the most prominent is 8 Miles, an investment firm run by former pop star Bob Geldof. One little wad of cash can be the difference between a poor country building big infrastructure or not”

The firm, which invests in African startups, began setting up subsidiaries in Mauritius, “an offshore jurisdiction with a wide network of double taxation treaties in interesting markets.”

“What Mauritius is providing is not a gateway but a getaway car for unscrupulous corporations dodging their tax obligations,” Alvin Mosioma, executive director of the nonprofit Tax Justice Network Africa, told ICIJ.

 Mauritius’ “gateway” status comes not only from its extremely low tax rates, but through its controversial tax treaties with 46 other mostly poor countries. These double-tax agreements, which were pushed by the OECD and other Western financial institutions in the 1990s, allow corporations to pay the much lower rate in Mauritius even when doing business in higher tax countries like Uganda.

It is estimated that poorer countries lose up to $100bn ever year due to tax agreements with offshore jurisdictions such as Mauritius.

Back in 2013, America’s biggest venture capital firm, Sequoia Capital, boasted it had routed $1.2bn into Indian startups via the tiny island, which offers an effective 3% tax rate for foreign multinationals.  Aircastle, a Connecticut-based plane-leasing company, likely avoided $14.8m in South African taxes over four years.

According to the report, several Kenyan companies, some linked to senior government officials, rushed to register and set up subsidiaries in Mauritius after the two countries signed a double taxation agreement in May 2012, to evade paying taxes to the Kenyan government.

Earlier this year, the agreement was nullified by the High Court, only to be reinstated after intense lobbying by government officials. The new agreement is yet to be ratified.

According to the Leaks, Kenyan oil and gas companies registered in Mauritius in 2012. They include one linked to a minister and another associated with a bank board member.

A Tanzanian firm is accused upfront of “restructuring” its ownership in 2015 by opening an affiliate company in Mauritius.

A prominent Ugandan businessman has also been featured in the report as having registered a special purpose vehicle in Mauritius to enjoy fiscal benefits such as reduced withholding tax on dividends, interests and royalties, and no capital gains tax.

“One little wad of cash can be the difference between a poor country building big infrastructure or not,” a Ugandan tax official told ICIJ.

Mauritius government hits back

The Mauritius government has responded with indignation at some of the allegations in the ICIJ report, saying the information has been obtained illegally, “been tampered with” and is “factually incorrect”. Mauritius also accused the ICIJ of trying to harm the island’s reputation and says it has instigated a criminal investigation into an IT system that has been intruded and breached.

Mauritius’ minister of financial services of good governance Dharmendar Sesungkur, who oversees the country’s offshore sector, said that ICIJ’s information was “outdated.” The minister added that independent organizations, including the World Bank, recognize that “Mauritius is a cooperative and clean jurisdiction that has made significant progress in adhering to international standards.”

“The government of Mauritius wishes to reiterate that the Mauritius jurisdiction is compliant with international norms and standards, including the standards on transparency and exchange of information for tax purposes, the Base Erosion and Profit Shifting recommendations, and the Common Reporting Standard on automatic exchange of information. Furthermore, Mauritius is not on the blacklist of the European Union,” it said in a statement.

“The government of Mauritius firmly rejects the statement that Mauritius is “a small island off Africa’s east coast helped companies leach tax revenue from poor African, Arab and Asian nations”, as stated in one of the articles by ICIJ’s Will Fitzgibbon. The ICIJ was apprised, at the very outset, of the recent legislative and policy changes brought to our system, but nevertheless focused on obsolete information.

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