India: SEBI Circular for operational, prudential and reporting requirements for Alternative Investment Funds

CIRCULAR

CIR/IMD/DF/10/2013

July 29, 2013

To

All Alternative Investment Funds

All custodians of Category III Alternative Investment Funds

Dear Sir / Madam,

Sub: Operational, Prudential and Reporting Norms for Alternative Investment

Funds (AIFs)

1. SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) were notified on May 21, 2012. Regulations 18 (c) and (d) of the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) state as under

Reg 18(c)- ‘Category III Alternative Investment Funds may engage in leverage or borrow subject to consent from the investors in the fund and subject to a maximum limit, as may be specified by the Board

Reg 18(d)- ‘Category III Alternative Investment Funds shall be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, restrictions on redemption and conflict of interest as may be specified by the Board.’

2. Further, under Regulation 28 of the said Regulations, the Board may at any time call upon the Alternative Investment Fund to file such reports, as the Board may desire, with respect to the activities carried on by the Alternative Investment Fund.

3. In this regard, it is specified as under:

3.1 Risk Management and Compliance

All Category III AIFs which employ leverage shall:

i. have a comprehensive risk management framework supported by an

independent risk management function, appropriate to the size, complexity

and risk profile of the fund.

ii. have a strong and independent compliance function appropriate to the size,

complexity and risk profile of the fund supported by sound and controlled

operations and infrastructure, adequate resources and checks and balances in operations.

iii. maintain appropriate records of the trades/transactions performed and such information should be available to SEBI, whenever sought

iv. provide full disclosure and transparency about conflicts of interest and how they manage them from time to time to investors in accordance with Regulation 21 of the AIF Regulations and any other guidelines as may be specified by SEBI from time to time. Such conflicts shall be disclosed to the investors in the placement memorandum and by separate correspondences as and when such conflicts may arise. Such information shall also be disclosed to SEBI as and when required by SEBI.

3.2 Submission of reports to SEBI

i. Under Regulation 28 of the AIF Regulations, All AIFs shall submit periodical reports to SEBI relating to their activity as an Alternative Investment Fund.

ii. Category I and II AIFs and the Category III AIFs which do not undertake leverage shall submit report to SEBI on a quarterly basis in the format as specified in Annexure I.

iii. Category III AIFs which undertake leverage shall submit a report to SEBI on a monthly basis in the format as specified in Annexure II.

iv. Reports shall be submitted by AIFs online through the online reporting system provided by SEBI. However, till such online system is made available, reports shall be sent by email to aifreporting@sebi.gov.in. Excel sheet to be filled in this regard is available on SEBI website under the section 'Info for' >'Alternative Investment Funds'. Once the online system is made available by SEBI, no reports shall be sent by email. Further, AIFs are advised to note that no physical reports shall be filed with SEBI.

v. The reports for the period upto the quarter ended June 30, 2013 for AIFs which are already registered with SEBI shall be sent vide email to the aforesaid email address within one month from the date of this circular.

vi. Reports shall be submitted within 7 calendar days from the end of quarter/ end of month as the case maybe.

3.3 Redemption norms

i. These norms shall apply to open ended Category III AIFs for all their existing and new schemes.

ii. The Manager of such AIFs shall ensure adequate and sufficient degree of liquidity of the scheme/ fund in order to allow it, in general, to meet redemption obligations and other liabilities.

iii. the Manager shall establish, implement and maintain an appropriate liquidity management policy and process to ensure that the liquidity of the various underlying assets is consistent with the overall liquidity profile of the fund/scheme while making any investment.

iv. The Manager of such AIFs shall clearly disclose the possibility of suspension of redemptions in exceptional circumstances to investors in the placement memorandum.

v. Suspension of redemptions by the Manager shall be justified only:

1. in exceptional circumstances provided that such suspension is exclusively in the best interest of investors of the AIF , or
2. if the suspension is required under the AIF regulations or required by SEBI.

vi. The Manager of such AIFs shall build the operational capability to suspend redemptions in an orderly and efficient manner. During the suspension of the redemptions, the Manager shall not accept new subscriptions.

vii. The decision by the Manager to suspend redemptions, in particular the reasons for the suspension and the planned actions shall be appropriately documented and communicated to SEBI and to the investors.

viii. The suspension shall be regularly reviewed by the Manager. The Manager shall take all necessary steps in order to resume normal operations as soon as possible having regard to the best interest of investors.

ix. The Manager of such AIFs shall keep SEBI and investors informed about the actions undertaken by the manager throughout the period of suspension. The decision to resume normal operations shall also be communicated to SEBI and the investors as soon as possible.

3.4 Prudential requirements

All Category III AIFs which undertake leverage, whether through investment in derivatives or by borrowing or by any other means shall comply with the following prudential requirements:

i. For the purpose of arriving at leverage undertaken by an AIF, leverage shall be calculated as the ratio of the exposure to the Net Asset Value of the AIF.

ii. Leverage shall be calculated as under:

Leverage =Total exposure {Longs+Shorts (after offsetting as permitted)}

                                           Net Asset Value (NAV)

iii. The leverage of a Category III AIF shall not exceed 2 times of the NAV of the fund. i.e. If an AIF’s NAV is Rs. 100 crore, its exposure (Longs+shorts) after offsetting positions as permitted shall not exceed Rs. 200 crore.

Calculation of exposure and NAV

i. The total exposure of the fund for the purpose of computing leverage shall generally be the sum of the market value of all the securities/ contracts held by the fund. The total exposure at any point of time will be a sum of exposure through instruments in both the spot market and the derivative market.

ii. Exposure shall generally be calculated as below:

1. Futures (long and short)= Futures Price * Lot Size * Number of Contracts
2. Options bought= Option Premium Paid * Lot Size * Number of Contracts
3. Options sold= Market price of underlying * Lot size * Number of contracts
4. In case of any other derivative exposure, the exposure is proposed to be calculated as the notional market value of the contract

iii. Idle cash and cash equivalents shall not be included in the calculation of total exposure. Long put positions shall be considered as short exposure and short put positions shall be considered as long exposure. Short selling of a stock through SLBM shall be treated as short exposure. Temporary borrowing arrangements which relate to and are fully covered by capital commitments from investors need not be included in calculation of leverage.

iv. Offsetting of positions shall be allowed for calculation of leverage for transactions entered into for hedging and portfolio rebalancing as provided in the circular No. MFD/CIR/21/ 25467/2002 dated December 31, 2002 and to the extent as specified in the circular.

v. Sum of all exposures without offsetting transactions for hedging and portfolio rebalancing shall be termed as 'gross exposure' and the ratio of such gross exposure and Net Asset Value shall be termed as 'gross leverage'.

vi. Net Asset Value (NAV) of the AIF shall be the sum of value of all securities adjusted for Mark to market gains/losses (including cash and cash equivalents). The NAV shall exclude any funds borrowed by the AIF.

vii. All the above restrictions/limits shall apply at the scheme-level.

Breach of leverage limits

i. All Category III AIFs shall have adequate systems in place to monitor their exposures. It shall be responsibility of the AIFs to shall ensure that the leverage shall not exceed the prescribed limit at all times.

ii. All Category III AIFs shall report to the custodian on a daily basis the amount of leverage at the end of the day (based on closing prices) and whether there has been any breach of limit during the day.

iii. In case of a breach in limit:

a. Obligation of AIF:

i. The AIF shall send a report to the custodian in accordance with point (ii) above.

ii. The AIF shall send a report to all its clients before 10 a.m. on the next working day stating that there is a breach in the limit along with reasons for the same.

iii. The AIF shall square off the excess exposure and bring back the leverage within the prescribed limit by end of next working day. This shall however not prejudice any action that may be taken by SEBI against the AIF under SEBI (Alternative Investment Funds) Regulations, 2012 or the SEBI Act.

iv. A confirmation of squaring off of the excess exposure shall be sent to all the clients by the AIF by end of the day on which the exposure was squared off.

b. Obligation of custodian:

i. The custodian shall report to SEBI providing name of the fund, the extent of breach and reasons for the same before 10 a.m. on the next working day.

ii. A confirmation of squaring off of the excess exposure shall be sent to SEBI by the custodian by end of the day on which the exposure was squared off

4. Further, all AIFs shall ensure that all marketing documents of the fund/ scheme, if any, can be distributed on a private basis only to its proposed investors and shall be in accordance with the placement memorandum of the fund/scheme.

5. This Circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

6. This Circular is available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Alternative Investment Funds”.

Yours faithfully,

Barnali Mukherjee

General Manager

Investment Management Department

Tel No.022-26449660

Email id - barnalim@sebi.gov.in

UK: Government must drive implementation of Kay Review, says Committee

The Government must be willing to pick up a ‘regulatory stick’ to drive implementation of the Kay Review, says the Business, Innovation and Skills Committee in a Report published today.  The Committee urges the Government to immediately publish clear, measureable and achievable targets for implementation of each of Professor Kay’s 17 recommendations.  This should include a clear measure of success for the recommendation (a target); who is responsible for achieving the target; a clear deadline by which the target needs to be achieved, and the action the Government will take if it is not.

• The Kay Review of UK Equity Markets and Long–Term Decision Making
• The Kay Review of UK Equity Markets and Long–Term Decision Making (pdf)
• Inquiry: The Kay Review
• Business, Innovation and Skills Committee

Commenting on the Report, Adrian Bailey MP, Chair of the Business, Innovation and Skills Committee, said:

“Professor Kay sought to bring about cultural change to improve long-termism in the equity market.  We support this aim and his recommendations for bringing it about. 

“The cultural change advocated by Professor Kay will not happen without a catalyst, the 12 years of inaction following the Myners Review is proof enough of that. 

“It is not enough for the Government to simply say it supports Kay’s recommendations and then leave it to the industry to change of its own volition.  The Government must set measurable, accountable targets through which reform can be driven and measured.”

Recommendations 

The Report also considers some of the underlying principles of the Kay Review and outlines how these can be turned into specific recommendations.  These include (Quotes from Adrian Bailey MP, follow the recommendations):

Stewardship

• Asset managers are allowed to use commissions to pay for long-term research, including long-term stewardship, but it appears very few are aware of this.  The Financial Conduct Authority should highlight this fact to all major institutional investors and should set out a minimum proportion of a firm’s commission that should be used towards such activities. [para 104]
• The Government should outline what it considers a minimum acceptable level of sign up to the Stewardship Code and outline what action it will take if this target is not met by the market on a voluntary basis. [para 89]
• The Stewardship Code should be enhanced to take account of strategic issues as well as those around corporate governance.  This should include, among other things, allowing investment managers to focus on strategic issues facing companies within their policies on how they discharge their stewardship responsibilities. [paragraph 85]
• The Government should outline its timetable for all companies to sign up to Kay’s Good Practice Statements.  If this target is not met, the Government should be prepared to incorporate them into the already established Stewardship Code. [para 98]

“We agree with Professor Kay that a more expansive form of stewardship needs to be developed – one that focuses not just on questions of corporate governance, but on strategic issues too.  With this in mind, we make specific recommendations on how the Code can be enhanced and Professor Kay’s principles turned into reality.

“If stewardship is to take a more prominent role, it needs to be better resourced.  It is concerning that many asset managers appear unaware that they can use commissions to pay for long-term stewardship research.  The FCA must take action to remedy this.”

Financial Transaction Tax

• The Government should commission an impact assessment of the introduction of a Financial Transaction Tax at a level which is the average profit made on a High Frequency Trade in the UK.  The Government should also conduct a feasibility study of the proposal to ban any banks which establish branches in offshore centres that do not adhere to the OECD’s white list of financially compliant economies from trading in the UK.  This should include an assessment of whether doing so would counter arguments against a domestic FTT being ineffective in the global market. [para 113]

“We found some support for the concept of a Financial Transactions Tax, but concerns about the practicality of its implementation. 

“Something being difficult is not sufficient justification for rejecting it out of hand.  The Government should assess the likely impact of the introduction of a Financial Transaction Tax and how the obstacles to its implementation can be overcome.”

Mergers and acquisitions

• The Government should conduct an assessment of the take-over regimes of other similar economies with a view to learning about the impact that takeovers have had on their companies and economies.  It should summarise which positive elements may be incorporated into our domestic system to strengthen our economy and ensure that takeovers benefit, rather than damage our economy. [para 119]
• The Government should outline in its response what action it will take to engage with companies and their investors to ensure that any investment merger activity is to the long-term benefit of the UK economy. [para 120]
• The Government should produce a feasibility study outlining the risks and benefits of a policy that differentiates between shareholders and voting rights based on the length of time a share has been held.  The Government should also commission a study to set out the impact on the UK of foreign takeovers of British companies over the past 25 years. [paras 125-127]

“The Government needs to do more to ensure that takeovers of UK businesses benefit, rather than damage, our economy. 

“We heard that the principle of ‘one-share one-vote’ is fairest.  But I cannot help thinking back to the evidence that, overall, takeovers detract value from companies.  The Government should consider the risks and benefits involved in changing shareholders’ voting rights based on the length of time they have held shares in a company.”

iCommerce Registry: The Online Registry of The Gambia

The Republic of The Gambia has launched a new offshore / onshore business jurisdiction which offers the complete range of corporate structures such as IBCs, Trusts, Tax Resident companies as well as Gaming, Banking and Insurance Licences. The registration of corporate structures can be achieved online in less than 30 Seconds. All administration of the companies is managed online via an online cloud portal managed by the iCommerce Registry Agency.

In addition to the Registry, the development of Global Enterprise Zones has made The Gambia one of the most attractive business environments in terms of tax incentives and infrastructure in the world. Located on the East Atlantic coast it offers many advantages to businesses of all sizes and is an ideal gateway to the rapidly growing African economy.

We are looking to recruit Registration Agents, Trust Agents and other professional service partners who can assist Global and Local Corporations and offer advice on the new jurisdiction. There is no requirement for agents of the iCommerce registry to be located in The Gambia as the incorporation and admin is managed entirely online and in fact the application to become an approved agent is simple and is completed within 24 hours.

Highlights of The Gambia Trust Regulations briefly include:

1. A trustee can be any standard IBC incorporated in the Gambia
2. A special trust like the BVI VISTA can be created, but unlike BVI VISTA it does not require a special company trust company.

Highlights of The Gambia IBC Regulations briefly include:

1. A standard IBC incorporated in the Gambia is offshore and tax free.
2. A special licence allows the IBC to become tax resident and access tax treaties.
3. For Tax resident companies taxation is on a territorial basis, there no tax on corporate income, generated from sources outside of the Gambia
4. No Audit is required for non-resident companies and audit exemption is easily available regardless of turnover for tax resident companies on application
5. The Gambia IBC companies have already been approved by the compliance departments of most major banks

International Tax Planning for Dummies

While the precise design of international tax planning schemes is driven by specific features of national tax systems, common strategies include:

• Shifting profits to low tax jurisdictions - abusive transfer pricing is often raised as a concern, but there are many other devices too: these include the direct provision of services from, and location of intellectual property rights in, low tax jurisdictions;
• Taking deductions in high-tax countries… - by, for example, borrowing there to lend to affiliates in low-tax jurisdictions;
• …and as many times as possible - passing on funds raised by loans through conduit companies may enable interest deductions to be taken several times (without offsetting tax on receipts);
• Exploiting mismatches - tax arbitrage opportunities can arise if different countries view the same entity, transaction, or financial instrument differently;
• "Treaty shopping" - treaty networks can be exploited to route income so as to reduce taxes;
• Delay repatriating earnings - countries operating worldwide systems defer taxing business income earned abroad until it is paid to the parent.

A wide range of counter-measures are also deployed by tax authorities. 'Controlled Foreign Corporation' rules, for instance, enable them to bring into tax 'passive' income retained abroad; general anti-avoidance / abuse rules can be deployed; and 'limitation of benefit' provisions aim to limit treaty shopping.

Tax Dodgers Sans Frontières

The companies robbing the world, and why it finally matters.

"Highly-secretive Mauritius is a dot in the Indian Ocean 1,000 km east of Madagascar. It has a population of about 1.25 million, but it was the top source of investment into India, which has a population 1,000 times greater."

Mauritius: FSC Signs the European Securities and Markets Authority MoU

The Financial Services Commission (FSC) signed the European Securities and Markets Authority (ESMA) Memorandum of Understanding (MoU) last week at the FSC House in Ebène.

The MoU testifies and reinforces the co-operation agreements between the FSC and regulators of European Union (EU) Member States for the supervision of hedge funds, private equity and real estate funds under the Alternative Investment Fund Management Directive (AIFMD).

Furthermore, under the ESMA MoU, the cooperation between the FSC and the ESMA will enable Mauritius-licensed funds to continue to market in Europe under the private placement regimes of EU Member States after the introduction of the AIFMD on 22 July 2013. The MoU will further contribute towards sustaining the Mauritius International Financial Centre as an attractive jurisdiction for basing funds.

In her address during the signing ceremony, the Chief Executive of the FSC, Ms Clairette Ah-Hen, highlighted the importance of the MoU which according to her reaffirms the FSC’s commitment to the highest standards in international cooperation and information sharing. She further pointed out that the agreement has helped Mauritian funds to raise money from investors in all the European countries.

For his part, the Attaché d'Affaires of the European Union Delegation, Mr Eduardo Campos Martins, who was also present, said that the ESMA MoU will enable Mauritius to consolidate its position as a financial hub while allowing a greater exchange of information and mutual assistance in strengthening supervision.

Mauritius was in the first tranche of 34 foreign jurisdictions such as the United States of America, Singapore, Hong Kong, Switzerland, India, Dubai and Australia to receive ESMA’s approval on 22 May 2013. With the approval of the ESMA MoU by EU Regulators, Mauritius has satisfied all the conditions under the AIFMD for Mauritius-regulated funds to continue to market in Europe under the private placement.

SOMO: The Netherlands haven for companies that violate human rights

The Netherlands is host to companies that are involved in human rights violations all over the world. This follows from new research by SOMO (The Research Centre on Multinational Corporations) on the relationship between Dutch tax and investment policy attracting international businesses to the Netherlands, and human rights. Whilst the Dutch government, in its recently published policy statement on corporate social responsibility (CSR), states that CSR is no longer non-committal, it fails to introduce effective measures. The voluntary nature of CSR and “the importance of corporate self-regulation” is emphasised not only in the government’s new CSR strategy, but also in a human rights policy note published in June 2013 entitled ‘Respect and Rights for every human being’. In light of the research findings presented in the SOMO-report, this is an outdated and clearly insufficient approach.

Almost all big multinational corporations (MNC) in the extractive industry have incorporated subsidiaries in the Netherlands, largely motivated by tax benefits. SOMO has researched eight of these ‘Dutch’ companies, which are all associated with serious human rights violations abroad. These violations range from environmental pollution seriously damaging the health of local populations to militia violence, murder and displacement. Parallel to these direct human rights violations, the research finds that the Dutch government facilitates international tax avoidance whilst it does not take into account the potential negative impact of its policies on human rights. As the United National recently recognized, tax avoidance by multinational corporations, however, undermines the protection of human rights in developing countries.

Holding corporations accountable

All researched MNCs are found to be associated with human rights violations in countries of operation, from Peru and Argentina to Indonesia and Ivory Coast. Take Pluspetrol, for example. The oil company incorporated its head office in the Netherlands. After decades of oil spills generated by Pluspetrol as a result of rusting pipelines and lack of restoration, the Peruvian government declared an environmental state of emergency in the region in which Pluspetrol has operations, because of high levels of barium, lead, chrome and petroleum-related compounds. This case highlights how the livelihood and health of local communities are negatively impacted by the activities of companies incorporated - at least on paper - in the Netherlands.

Regarding corruption and money laundering, the OECD and IMF have repeatedly pointed out existing liability risks associated with the insufficiently regulated Dutch mailbox sector. The OECD explicitly states that in relation to corruption, the Netherlands attract many internationally operating companies that are active in so-called risk sectors, in particular the extractive industry. The SOMO-report argues that the same applies to human rights.

Companies worldwide are increasingly held accountable by victims of human rights violations, also if these take place as a result of operational activities in other jurisdictions. Well-known examples are the court cases initiated by the victims of Shell and Trafigura. By having insufficient insight into risky human rights practices of companies incorporated in the Netherlands and blindly trusting self-regulation, the Dutch government has no knowledge of potential liability issues and the human rights impacts of these companies.

Human rights and tax avoidance

States require sufficient financial and administrative resources to ensure that the economic and social rights of their citizens are protected. Countries that host extractive operations are often characterised by high levels of poverty and an uneven distribution of wealth. Research shows that progressive tax systems contribute to good governance, democratic development and poverty alleviation. Large-scale tax avoidance by MNCs undermines this goal.

The Netherlands play a crucial role in global tax avoidance. SOMO recently calculated that 28 developing countries lose at least 771 million euros annually in tax income on interest and dividend payments as a result of Dutch tax treaties only. Because data on more countries and capital flows are not accessible, the number of countries losing out as a result of the Dutch fiscal regime and the amount of lost revenue will be much higher. The corporate structures of the researched MNCs with important subsidiaries in the Netherlands point to tax avoidance. They are mailbox companies with little or no substance in the Netherlands. They invest in foreign subsidiaries via the Netherlands, leading to a reduction of the tax revenue that should be generated in these source countries as a result of this investment. The Dutch financing entities all have ties with other subsidiaries incorporated in tax havens. 

For example: the world’s biggest gold producer - the Canadian company Barrick Gold - finances her Argentinean subsidiary through a Dutch holding company with capital on lent from a subsidiary located in Bermuda. The interest payments from the Argentinean subsidiary to Barrick’s Dutch financing entity enjoys lower withholding tax rates due to the Dutch-Argentinean treaty, whilst the Netherlands does not levy withholding tax on outgoing interest payments, even if they are made to a tax haven. This way, the interest income of the group remains taxed at a very low rate, which allows for profit to be shifted out of the Argentinean subsidiary to low-tax jurisdictions. By actively facilitating this type of fiscal planning, also by providing legal security to the company in the form of tax rulings, the Dutch government contributes to revenue losses in countries of operation. This damages developing country economies and thereby negatively impacts on human rights.

Conclusion

The SOMO-report concludes that despite international human rights obligations, the Dutch government fails - and shows no political will - to effectively regulate international businesses incorporated in its jurisdiction. It does, however, have ample opportunities to regulate corporations. The fact that the Dutch government does not take responsibility for the human rights impacts of Dutch businesses operating abroad is indefensible. Corporations that are found to violate human rights abroad should not enjoy Dutch fiscal and investment benefits. Potential victims of human rights violations and civil society organisations have to be enabled to seek justice in courts and/or monitor human rights situations. This requires stricter transparency and reporting obligations to be imposed on companies incorporated in the Netherlands and the implementation of effective accountability mechanisms.

Private gain, public loss (executive summary).pdf

Private gain, public loss.pdf 

Mauritius: FSC Communiqué on the Signature Ceremony of ESMA MoU

The European Securities and Markets Authority (‘ESMA’) Memorandum of Understanding (‘MoU’) was officially signed by Ms. Clairette Ah-Hen, the Chief Executive of the Financial Services Commission (‘FSC’) on Wednesday 17 July. The signature ceremony was held at the FSC House in the presence of Mr Nick Leake, the British High Commissioner to Mauritius, Mr Eduardo Campos Martins, the Attaché d'Affaires of the Delegation of the European Union (‘EU’) and Mr Tim Taylor, the Honorary Consul for Norway.

The MoU testifies and reinforces the co-operation agreements between the FSC and regulators of EU Member States for the supervision of hedge funds, private equity and real estate funds under the Alternative Investment Fund Management Directive (‘AIFMD’). The cooperation agreement between the FSC and the ESMA will enable Mauritius-licensed funds to continue to market in Europe under the private placement regimes of EU Member States after the introduction of the AIFMD on 22 July 2013.

Mauritius was in the first tranche of 34 foreign jurisdictions (such as the USA, Singapore, Hong Kong, Switzerland, India, Dubai and Australia) to receive ESMA’s approval on 22 May 2013. With the approval of the ESMA MoU by EU Regulators, Mauritius has satisfied all the conditions under the AIFMD for Mauritius-regulated funds to continue to market in Europe under the private placement.

Ms Clairette Ah-Hen highlighted the importance of this signature. The FSC Chief Executive stated that "The signing of the agreements today reaffirms the FSC’s commitment to the highest standards in international cooperation and information sharing. Had these agreements had not been reached, it would have become markedly more difficult for Mauritius funds to raise money from investors in all these European countries".

Mr Eduardo Campos Martins, the Attaché d'Affaires of the EU Delegation, stated in his address that the "ESMA MoU will enable Mauritius to consolidate its position as a financial hub while allowing a greater exchange of information and mutual assistance in strengthening supervision."

This milestone contributes towards sustaining the Mauritius International Financial Centre (IFC) as an attractive jurisdiction for basing funds and a platform for EU investors to invest in Africa.

Financial Services Commission

17 July 2013

Mauritius: FSC Releases Annual Report 2012

Read More -  Part 1 | Part 2

FSC Investor Alert: United Capital Forex Limited

The Financial Services Commission, Mauritius (the “FSC”) would like to alert the public with regards to United Capital Forex Limited.

The FSC has been made aware that United Capital Forex Limited is falsely purporting to hold a Category 1 Global Business Licence issued by the FSC.

The FSC hereby informs the public that United Capital Forex Limited is not and has not at any time been licensed by the FSC.

The FSC therefore urges the public to exercise appropriate caution in respect of this company.

Financial Services Commission, Mauritius

FSC House

54 Cybercity

Ebene

Republic of Mauritius

Tel: +230 403-7000

Fax: +230 467-7172

Email: fscmauritius@intnet.mu

22nd July 2013

Closing tax gaps - OECD launches Action Plan on Base Erosion and Profit Shifting

National tax laws have not kept pace with the globalisation of corporations and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their taxes.

OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) offers a global roadmap that will allow governments to collect the tax revenue they need to serve their citizens. It also gives businesses the certainty they need to invest and grow.

Produced at the request of the G20 and introduced at the G20 Finance Ministers’ meeting in Moscow, the Action Plan identifies 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.

“This  Action Plan, which we will roll out over the coming two years, marks a turning point in the history of international tax co-operation. It will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent BEPS,” said OECD Secretary-General Angel Gurría. “International tax rules, many of them dating from the 1920s, ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to permit  double non-taxation. The Action Plan aims to remedy this, so multinationals also pay their fair share of taxes. (Read the full speech)”

Commenting on the Action Plan, Russian Finance Minister Anton Siluanov said, “As the presidency of the G20, we commend the work of the OECD to ensure that the international tax system promotes growth and competition without distorting the basic tenets of fairness – that it allows multi-national corporations to prosper without loading a higher tax burden on domestic companies and individual tax payers.”

The Action Plan recognises the importance of addressing the digital economy, which offers a borderless world of products and services that too often do not fall within the tax regime of any specific country, leaving  loopholes that allow profits to go untaxed. 

The Action Plan will develop a new set of standards to prevent double non-taxation. Closer international co-operation will close gaps that, on paper, allow income to ‘disappear’ for tax purposes by using multiple deductions for the same expense and “treaty-shopping”. Stronger rules on controlled foreign companies would allow countries to tax profits stashed in offshore subsidiaries.

Domestic and international tax rules should relate to both income and the economic activity that generates it. Existing tax treaty and transfer pricing rules can, in some cases, facilitate the separation of taxable profits from the value-creating activities that generate them. The Action Plan will restore the intended effects of these standards by aligning tax with substance – ensuring that taxable profits cannot be artificially shifted, through the transfer of intangibles (eg patents or copyrights), risks or capital,  away from countries where the value is created.

Greater transparency and improved data are needed to evaluate, and stop, the growing disconnect between the location where financial  assets are created and investments take place and where MNEs report profits for tax purposes.   Requiring taxpayers to report their aggressive tax planning arrangements and rules about transfer pricing documentation, breaking-down the information on a country-by-country basis, will help governments identify risk areas and focus their audit strategies. And making dispute resolution mechanisms more effective will provide businesses with greater certainty and predictability.

The actions outlined in the plan will be delivered in the coming 18 to 24 months by the joint OECD/G20 BEPS Project, which involves all OECD members and G20 countries on an equal footing.  To ensure that the actions can be implemented quickly, a multilateral instrument will also be developed for interested countries to amend their existing network of bilateral treaties.

OECD calls on G20 finance ministers to support next steps in clampdown on tax avoidance

The OECD today presented to G20 finance ministers plans for a two-pronged attack on tax avoidance and evasion from both companies and individuals.

Complementing its Action Plan on Base Erosion and Profit Shifting by companies, the OECD provided ministers with a proposal to increase international tax cooperation and transparency through the promotion of automatic exchange of information between jurisdictions.

The new single global standard is expected to be endorsed by the G20 which will call on all jurisdictions to commit to its implementation. The new standard, based on a three-tier proposal by the OECD should be operational in 2014.

The proposal provides:

(i) A definition of the financial information to be exchanged automatically:  interest, dividends, account balance and income from certain insurance products. It also includes sales proceeds from financial assets and other income generated by assets or from payments made with respect to the account.

(ii) The development of an operational platform. The OECD points out that for automatic exchange of information to function effectively, the right legal and administrative framework needs to be in place to ensure confidentiality and to avoid misuse of the data transmitted. Common reporting and due diligence rules, supported by compatible technology and software, will be developed in the coming months.

(iii) The establishment of a multilateral, legal platform. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters contains strict rules on confidentiality and proper use of information. More than 70 jurisdictions, including all G20 countries, have so far signed the Convention. Building on this, the report calls on the G20 to support the development of a standardised agreement to allow signatories of the Multinational Convention to opt into automatic exchange of information. Developing such a model agreement could be completed by the end of 2013 with detailed guidance available in the first half of 2014, according to the report.

Work is already underway to ensure that all countries benefit from a more transparent tax environment. This includes, for instance, helping developing countries identify needs for technical assistance and capacity building.

The OECD’s update on progress toward automatic exchange of information and its Action Plan on Base Erosion and Profit Shifting (BEPS) were presented to G20 finance ministers meeting in Moscow on 19-20 July 2013.

IMF: Tax Administration Reform in the Francophone Countries of Sub-Saharan Africa

Since the early 1990s, major tax administration reforms have been implemented in the Francophone countries of sub-Saharan Africa, with significant support from the IMF and development partners. While the reforms have contributed to an increase in revenues, attention is still needed to address a number of weaknesses in these countries’ tax administrations. A review of the conditions for successful modernization of the tax administration shows that significant changes are needed to ensure better utilization of technical assistance, improve the governance of reforms, and provide the tax administrations with greater flexibility in managing their resources.

Working Paper No. 13/173

Mauritius and Gabon sign Agreements on Taxation and Investment

Mauritius and Gabon signed yesterday in Port Louis a Double Taxation Avoidance Agreement (DTAA) and an Investment Promotion and Protection Agreement (IPPA) to enhance economic ties and provide greater tax certainty for businessmen between the two countries.

The signatories were the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Xavier-Luc Duval, and the Minister of Foreign Affairs, International Cooperation and the Francophonie, in charge of NEPAD and Regional Integration of Gabon, Mr Emmanuel Issoze Ngondet. The Minister of Foreign Affairs, Regional Integration and International Trade, Dr Arvin Boolell and the Minister of Agriculture, Fisheries and Rural Development, of Gabon, Mr Julien Nkoghe Bekale, were also present.

The DTAA will give a further spur to the positive evolution of economic ties between the two countries while making clear the taxing rights of Mauritius and Gabon on all forms of income arising from cross-border economic activities between the two countries. Under the agreement, double taxation which is an impediment to cross-border activities will be eliminated. It also provides for reduced taxation at source or exemption on various sources of income.

As regards the IPPA, it will give a boost to cross-border investment by protecting investors from direct or indirect double taxation and enhance the commercial and economic relations between the two countries and broaden investment opportunities for the business community. It will also be easier for investors from both countries to invest their capital and repatriate their investments and profits to their respective countries.

The agreements also provide for an exchange of information between the two countries based on the most recent version of the Organisation for Economic Co-operation and Development (OECD) Model article on exchange of information.

Speaking on the occasion, the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Duval, said the agreements will help generate trade activities, transfer of technology, promote management skills of entrepreneurs between both countries. Besides, he added, it will help investors from Mauritius and Gabon to explore possibilities for mutually profitable ventures.

For his part, the Minister of Foreign Affairs of Gabon, Mr Emmanuel Issoze Ngondet, qualified the agreement as a significant achievement that demonstrates the commitment of both countries towards promoting cooperation and consolidating efforts in areas of mutual interests while strengthening the bilateral relations between Gabon and Mauritius. He underlined that the Gabonese authorities will look into possibilities of joint ventures while giving a boost to the economies of both countries as well as the issue as regards visa entry for Mauritians in Gabon.

Mauritius has to date signed 43 Double Taxation Avoidance Agreements and 38 Investment Promotion and Protection Agreements with several countries. The country is also committed to developing a Tax Information Exchange Agreement with countries where there is no Double Taxation Agreement

iFOVEA: Photo-optical surveying & mobile data acquisition

An idea that saves time and machines, and then money in the end as well, is always welcome. That’s why a new idea spawned by a HAWK founder team is currently attracting a lot of attention in the wood industry: the new smartphone app is able to very quickly calculate the value of any woodpile. FOVEA is the name of a young company that is being accompanied and supervised by the HAWK Founders’ Initiative and is also financially supported with an existence-funding stipend from the German Federal Ministry of Economics.

Up until now, anyone who wanted to know the price of a woodpile in the forest usually had to count all the trunks and logs individually, then measure and calculate the volume. And that takes time – at least twenty minutes. This new app needs only approximately two minutes to count the trunks, the cubic meters and the stacked cubic meters for an average pile of wood.

The wood is measured photo-optically in several steps; a panorama photo then appears on the display, and finally the number of trunks appears according to thickness along with the data on solid cubic meters and stacked cubic meters, on the basis of which the price can then be calculated. In addition to the advantage of saving time, the app can also – if used for larger areas – serve to simplify and standardize wood logistics. The price charged for the app is based on the volumes measured or trunks/logs counted, which results in cubic meters or in price per piece.

The savings potential for the wood industry is enormous – and that applies all over the world confirms Prof. Dr.-Ing. Bernd Stock from the HAWK Faculty for Natural Sciences and Technology: “The app is a real technological innovation; it uses elements from digital image processing and calculates this information on a smartphone.” Stock is the supervisor for the corresponding PhD thesis by Christopher Herbon, who developed the special mathematical algorithm that runs in the background of the app. Herbon is the software developer at FOVEA.

It was Manfred Ide who first had the idea for the app and the founding of the company. Ide is a graduate in computer science and a forester. He comes from a rural-forestry company in the south of Lower Saxony in Germany and is very well acquainted with this topic. With the help of the HAWK Founders’ Initiative, he was also able to find “his people” in the corresponding faculties at the University. While Ide himself studied at the Göttingen-based Faculty for Forest Industry Resource Management, Herbon, who is from the Faculty of Natural Sciences and Technology, was referred to him by Prof. Stock.

For design, marketing and public relations, Ide found Nadine Weiberg at the Hildesheim Faculty of Design to join the team as the third “Musketeer”. She is a perfect fit: while writing her Bachelor thesis, Weiberg developed the “Bug Science” app under the direction of Prof. Stefan Wölwer, an app that foresters and school children can use on smartphones to identify bugs and get to know more about them. Her thesis just recently received an internationally renowned design prize, the reddot award.

FOVEA is also working together with research assistants on the market introduction of the “Holz App” (Wood App). Tasks that still have to be carried out and supervised include testing in state, municipal and private forested areas in Germany. Manfred Ide has already introduced the project at national and international wood fairs and it has been attracting a lot of interest from South Africa, Brazil, Spain and Russia. 

With iFOVEA Counter it is possible to count the wood logs in a wood log pile within a few seconds. You can automatically count 1,000 wood logs in approximately 4 minutes. 

iFOVEA Counter App is currently available in Australia, Austria, the Czech Republic, Germany, New Zealand, Poland and Switzerland.

Mauritius: Speech of FSC Chief Executive - Launching of ETF on SEM in association with ABSA Capital SA

‘‘Announcement of the Launching of Exchange Traded Funds on

Stock Exchange of Mauritius (SEM) in association with ABSA Capital SA”

Speech by Ms Clairette Ah-Hen

Chief Executive

at Stock Exchange of Mauritius Ltd (SEM), One Cathedral Square Building

Thursday, 18th July 2013

Mr. Sunil Benimadhu, Chief Executive, Stock Exchange of Mauritius Ltd

Mr. Vipin Mahabirsing, Managing Director, CDS

Dr Vladimir Nedeljkovic – Principal – Head, Investments ABSA Capital/Barclays Group.

Members of the Press

Distinguished Guests

Ladies & Gentlemen

Good evening,

I am delighted to be among your midst this evening to present this SEM/ABSA partnership and announce the launch of the Exchange Traded Funds on the Stock Exchange of Mauritius.

First of all I would like to thank the Stock Exchange of Mauritius for giving me the opportunity to address you.

Over more than a year ago, at the workshop ‘Internationalising the SEM, Creating substance and Capitalising on Africa’s potential” at the Swami Vivekananda Conference Centre in Pailles, SEM introduced the listing rules for Depositary Receipts and Mineral Companies on the Official Market as well as the requirements for the listing of junior Mineral and Exploration Companies on the Development and Enterprise Market (DEM). SEM then announced some of the projects and other new products in its pipeline. Today is another milestone in the history of SEM and I am pleased to see one such project coming to fruition.

I must add that such innovation shows that both SEM and the FSC deserve the awards presented to them last September 2012 - for the second time - by the Africa Investor, in collaboration with New York Stock Exchange Euronext, as the “Most Innovative African Stock Exchange of the Year and the “Most Innovative Capital Market Regulator of the Year” respectively. A prize of excellence, the Jurisdiction and the Securities Industry can be proud of!

Such recognition and awards reflect firstly, the commitment of the FSC to be an efficient and service-oriented regulator and to offer a regulatory framework which inspires trust and confidence and secondly, SEM's initiatives to embrace new areas of development and compliance with regulatory and operational set-up of international standard.

This evening is another opportunity for us, as members of the Financial Community, to reflect on the consolidation of Mauritius as an International Financial Centre of substance and a transparent and safe place to conduct financial services activities.

Nowadays, investment decisions are increasingly made on a global rather than a national basis. The drive for internationalisation of exchanges results from cross-information flows that underpin market activity and from infrastructure that allows market participants to act upon this information. Maintaining the domestic infrastructure is an immense challenge for any policy authority but connectedness across borders is an even more daunting challenge.

The launch of the Exchange Traded Funds (ETF) is a testimony of close collaboration to develop the capital market and meet the needs of investors. At the FSC, we have widened the scope of application of our laws - with new rules - to accommodate for more market players and to spur the growth of the financial services sector.

• The securities of NewGold – in the form of gold bullion debentures – which are already issued and primarily listed at the Johannesburg Stock Exchange (JSE) - will be listed on the SEM by way of introduction and the securities transferred from STRATE, a South African Central Securities Depository to that of CDS for secondary trading on SEM as from 26 July 2013.
• This was made possible following the publication of the Securities (Interpretation of Securities) Regulations 2013 to include "Exchange Traded Funds" as "securities" under section 2 of the Securities Act 2005. This has enlarged the scope of the types of securities offered in Mauritius.
• In terms of Brokerage Fees, the FSC has published the Securities (Brokerage Fees for Exchange Traded Funds on Foreign Underlyings) Rules 2013 in the Government Gazette (GN 179 of 2013) which are meant exclusively for foreign underlyings as the name indicates. I must point out here that the fees prescribed represent a significant reduction as compared to the brokerage fee applicable to transactions on shares as per the Stock Exchange (Brokerage) Regulations 1989. This, I believe will no doubt be viewed as an incentive to boost our competitiveness and to act as a gateway for Mauritius to attract more investors to trade in ETF instruments.

We all know that ETF is a well-known international product which has been around for more than 20 years now (since 1993), but it is relatively new in our Mauritian landscape. The introduction of such and any other financial products on SEM usually requires of the FSC to building the right human capacity and using our links and good collaboration with other regulators around the world so that we have the right and proper environment for investors to compete in Mauritius as well as on another international platform. At all times, we ensure a proper regulatory framework and monitoring in line with the principles and guidelines of international organisations such as the International Organisation of Securities Commissions (IOSCO).

In a report published in June this year, IOSCO stated “Investor interest in ETFs has increased worldwide as evidenced by the sharp increase in funds invested in these types of products. Assets managed under ETF structures totalled almost around US 1.9 trillion at the end of January 2013, representing roughly 7% of the global mutual fund market. This dynamic growth in ETFs has gradually attracted the attention of regulators concerned about the potential impact of ETFs on investors and on the broader market place, as the industry has continued to evolve through diversification and the launch of new innovative products”.

ETF is purported to have a number of benefits to investors - in terms of asset-allocation, spreading-the-risk, lower-fee-structure, liquidity, convenience-and-flexibility, transparency, security and easy to buy and sell - thus enabling investors to diversify their portfolio.

Ensuring that there is the appropriate infrastructure for product and market, that proper regulatory measures are in force and most importantly that consumers are adequately protected remain of primary importance to FSC as the securities regulator.

A small note of caution here, no investment is without risk - any investor must obtain and carefully consider its own independent advice in this regard before investing.

The partner of choice for SEM, in the form of Absa Capital to launch this ETF in Mauritius is in my view an excellent choice. Absa Capital is a reputable market maker and will step in as the counterparty to ensure that liquidity is always maintained - if there is no willing buyer or seller at the other end of the trade. As a well-known provider of strategic advisory, financing and risk management needs, Absa Capital has an extensive global network for its clients and this helps them remain competitive within sub-Saharan Africa. We, at the FSC, believe that this will bring more market players to our jurisdiction and consequently, encourage flow of funds and investments into the African continent.

You will agree with me that the provision of ETFs as an additional investment product will reinforce our jurisdiction as an investment avenue. As we continue our struggle to foster global cooperation worldwide, the example of ABSA Capital as a market maker is a good one to promote Cross-border listing.

SEM's move towards internationalising its exchange and introducing ETF is in line with the FSC‟s vision to be an internationally recognised financial supervisor committed to the sustained development of Mauritius as a sound and competitive financial services centre However, the work doesn‟t end here. SEM is ready to become a multi asset infrastructure and for the FSC, there is already such an infrastructure in place. You will no doubt hear about our initiatives for the securities sector in the future.

Coming back to the ceremony of this evening, I am confident that the launch of ETF – securities of NewGold - on the SEM is an important addition to our vibrant capital market industry and will no doubt contribute to making our jurisdiction an IFC to be reckoned with. So I would like to congratulate both the SEM and ABSA and wish them a fruitful journey together.

On this note ladies and gentlemen have a pleasant evening.

Financial Services Commission

18th July 2013

The Lawyer : Offshore, Mauritius: Sun, sea and tax

The current commercial interest in Africa is having a knock-on effect in Mauritius as it becomes one of the world’s growing offshore jurisdictions

Mauritius, though geographically one of the larger offshore jurisdictions, has remained off the radar for many in the offshore world.

India: Ministry of Finance constitutes a forum chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister for exchange of views between industry groups and government on tax related issues or tax related disputes

From time to time, representations are received from Chambers of Commerce or Industry Associations on tax-related issues and tax-related disputes that concern the industry as a whole or concern large sections of the industry. They have represented that there must be a forum at which they can be heard so that their point of view is placed before the Government for its consideration.

The request is found very reasonable. Exchange of views between industry groups and Government on tax related issues or tax related disputes would give an opportunity to Government to hear the arguments of the industry groups. It will also give the Government an opportunity to explain its stand on tax related matters. Thus this exercise would be mutually beneficial.

Accordingly, the Ministry of Finance has decided to constitute a forum that will meet every Wednesday at 3 p.m. It will be chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister. He will be supported by officers of the Tax Policy and Legislation (TPL) wing of the Central Board of Direct Taxes (CBDT) and the Tax Research Unit (TRU) of the Central Board of Excise and Customs (CBEC). Chambers of Commerce, industry associations and industry groups are advised to first submit a memorandum to Dr. Parthasarathi Shome and then seek an appointment. An appointment will be fixed for them on a suitable Wednesday. They will be given a hearing by Dr. Parthasarathi Shome and the officers assisting him.

The first meeting of the forum will be held on August 7, 2013 and it will be held thereafter on every Wednesday.