Recommendations of the Mauritius Bar Association

The Bar Council, on behalf of the Bar, is pleased to have this opportunity to comment on the provisions of the Constitution (Amendment) Bill 2015 and the Good Governance and Integrity Reporting Bill 2015 (“the Bill”).

Mauritius and Morocco sign Double Taxation Avoidance Agreement

Mauritius and Morocco signed on November 25 in Port Louis a Double Taxation Avoidance Agreement (DTAA) that will provide for greater tax certainty for businessmen of the two countries.

The signatories were the Minister of Finance and Economic Development, Mr Vishnu Lutchmeenaraidoo, and the Ambassador of the Kingdom of Morocco to Mauritius, Mr. Mohammed Amar.

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 Morocco on all forms of income arising from cross-border economic activities between the two countries. By virtue of the agreement double taxation, which is an impediment to cross-border activities, will be eliminated.

In his address Finance Minister Lutchmeenaraidoo highlighted the importance of the DTAA with Morocco which he said will open new avenues of cooperation between the two countries. He also outlined the strategy of closer economic ties with Africa and emphasised the necessity of government-to-government agreements to develop business on the continent.

For his part Ambassador Mohammed Amar announced the opening of an Embassy of the Kingdom of Morocco in Mauritius in the near future and the possibility of the exemption of entry visas for Mauritian citizens travelling to Morocco.

According to him, the DTAA will further foster the exchange of investments between the two countries. He also expressed interest for more Mauritian hotel operators to develop projects in Morocco.

Lessons from a controversial arrest

Police proceeded with the arrest of opposition Labour MP, Shakeel Mohamed, on Monday this week. He was provisionally charged on four counts by the police: conspiracy to commit murder, giving instructions to commit larceny, procuring revolver in the commission of murder and possession of revolver obtained by means of a crime. The case goes back to October 1996, 19 years from now (…)

It is in the best interest of the country that the general atmosphere is not poisoned by suspicions and doubts about our institutions which derive their intrinsic strength and authority on the understanding that they cannot be influenced by ruling political establishments. Had that not been the perception, the previous and current governments would not have raised the issue of doing away with the system of laying down ‘provisional charges’. Without taking the appropriate action, anyway.

In the present case involving Shakeel Mohamed, the court has already decided that the police has to establish a higher standard of proof if it wants to keep him in detention. This is perhaps as far as a court can travel, given the present setup. The aim should be to put the police above the suspicion of acting arbitrarily.

Mauritius Times

Mauritius: FSC Notice of the Enforcement Committee under section 53(2) of the Financial Services Act - Mr Jorg Gunther Neumann

The Enforcement Committee (“EC”) of the Financial Services Commission, Mauritius (“FSC”) has, pursuant to section 53(2) of the Financial Services Act (“FSA”), issued a notice dated 22 September 2015 and bearing reference EC/JGN/22I15/ECS1, informing Mr Jorg Gunther Neumann of the intention of the EC to disqualify him from holding position as officer in any licensee of the FSC for a period not exceeding five (5) years in accordance with sections 52(3) and 7(1)(c) (iv) of the FSA.

Notice is hereby given to Mr Jorg Gunther Neumann that he is required, within a period of 15 days from the date of first publication of this Notice on 25 November 2015, to submit written representations as to why the EC should not disqualify him, under sections 52(3) and 7(1) (c) (iv) of the FSA, from holding position as officer in any licensee of the FSC for a period not exceeding five (5) years.

Common Reporting Standard: MRA Draft CRS Guidance Notes

These Guidance Notes aim at providing practical assistance to Financial Institutions, businesses, their advisers and officials dealing with the implementation of the CRS. They can be used as a reference source alongside the Commentaries to the CRS and the CRS Handbook, both of which are available on the MRA website.

Moody's affirms Mauritius's Baa1 government bond rating with stable outlook

Moody's Investors Service has today affirmed Mauritius's Baa1 government bond rating with a stable outlook. The rating was last changed in June 2012 when Moody's upgraded the rating to Baa1 from Baa2. Since then, the outlook has remained stable.

The affirmation of the Baa1 rating and the stable outlook are based on two key rating factors:

(1) The Mauritian economy's significant resiliency as reflected in robust economic growth, supported by the economy's diversification, combined with effective policy support from authorities.

(2) Mauritius' stable fiscal strength with a debt-to-GDP ratio that remains elevated at around 56%, but which is unlikely to deteriorate materially over the next two to three years in light of manageable budget deficits.

Mauritius's local-currency country and deposits ceilings remain at A1, and the foreign-currency ceilings for bank deposits and bonds remain at Baa1/P-2 and A2/P-2, respectively.

RATING RATIONALE

FIRST DRIVER - MAURITIUS'S ROBUST ECONOMIC GROWTH REFLECTS THE ECONOMY'S SIGNIFICANT RESILIENCY

The first rating factor underpinning the affirmation of Mauritius's Baa1 government bond rating with stable outlook relates to the country's significant economic resiliency. Over the past five years, the Mauritian economy has posted steady, broad-based growth averaging 3.6% in real terms. While the tourism and financial services industries are two pillars of the economic base, contributing directly to approximately 10% of GDP each, the economy remains well-diversified. The country's wealth level, as measured by its per-capita GDP in purchasing power parity terms has progressed to almost $18,689 in 2014 from $14,539 in 2009.

That said, the economy faces ongoing challenges, including fostering investment, improving cost-competitiveness and maintaining the attractiveness and stability of its financial sector. However, Moody's expects that continued pro-active economic policies, a key element of the Mauritian economy's success, will gradually address those challenges. Economic governance is strong and business-friendly in Mauritius, as exhibited by the country's strong position in the World Bank's Ease of Doing Business ranking (32nd out of 189 countries, being the strongest country in Sub-Saharan Africa). As a result, Moody's expects that Mauritius will continue to grow at robust rates (forecast for 2016 is at 3.8%), though its potential is below what it used to be due to past years' relatively low investment rates and eroding cost-competitiveness.

Concerning the Double Tax Avoidance Agreement (DTAA) with India, established between the two countries in 1983, the rating agency notes that changes could alter the attractiveness of Mauritius's financial center, but that any such impact will likely be gradual and manageable. Ultimately, the impact will be a function of the extent of the changes, the sensitivity of investment to such changes, and the capacity of the authorities to develop the financial center as a gateway for investment to places other than India, including in Africa. Besides a friendly business environment, Moody's notes that the economy's competitive advantages stem from the country' macroeconomic and political stability as well as low tax rates.

SECOND DRIVER - MAURITIUS'S ELEVATED, BUT NOT MATERIALLY INCREASING DEBT SUPPORTS THE GOVERNMENT'S FISCAL STRENGTH

The second rating factor is based on Moody's assessment of Mauritius's fiscal strength. Whereas Mauritius's government debt is at an elevated level -- at 56% of GDP at year-end 2014 -, Moody's expects the level to remain broadly stable over the next two to three years. The government's plan is to reduce fiscal deficits substantially in order to comply with its debt target -- a statutory debt of 50% of GDP by 2018. However, achieving such ambitious fiscal consolidation will be difficult -- the government of Mauritius has historically run fiscal deficits exceeding 3% of GDP. The statutory debt level reached 54% of GDP in 2014, calculated as the sum of the government's and state-owned-enterprises' debts, net of government's cash reserves.

The rating agency notes that despite its high level, government debt remains affordable with interest charges relative to government revenue reaching 13% in 2014. In addition, the debt is primarily domestic, with the government benefiting from a relatively large domestic funding pool. A substantial part (around 30%) of the government's debt is held by the National Pension Fund (NPF).

While the banking sector is large, with total assets representing around 3x GDP, contingent liabilities to the government stemming from this sector constitute a relatively low level of risk. On the one hand, the government has a track record of supporting banks, but on the other hand, recapitalization costs are expected to remain relatively small, as they were in past situations of stress. Despite an increase in the level of non-performing loans to 5.1% of total loans (including loans to non-residents), the banking system remains adequately capitalized (with a Tier 1 capital ratio of 15.4% as of March 2015) and liquid, while domestic credits are fully covered by domestic deposits. Also, a significant portion of banking system assets is controlled by subsidiaries of foreign banks, at 55% of banking assets as of March 2015. Moody's therefore expects no material contingent liabilities to crystallize on the government balance sheet over the next two to three years. The rating agency further notes that the authorities are working on the formalization of a crisis management and banking resolution mechanism which would further help the containment of banking sector risk.

What Could Change the Rating -- Up/Down

A sustained decline in the government debt trajectory supported by reductions in fiscal deficits would exert upward pressure on the rating. In addition, upward rating pressure could stem from improved growth potential.

A deterioration in government debt metrics or lower than forecasted growth levels, if maintained over the medium-term, could exert downward pressure on the rating. Particularly detrimental changes to the DTAA, though not in Moody's baseline scenario, could also exert downward rating pressures, as well as a pronounced deterioration in the financial sector's soundness.

GDP per capita (PPP basis, US$): 18,689 (2014 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 3.6% (2014 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.2% (2014 Actual)

Gen. Gov. Financial Balance/GDP: -3.2% (2014 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -5.5% (2014 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 19 November 2015, a rating committee was called to discuss the rating of the Government of Mauritius. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed.

Mauritius - Company Shareholding: Of the importance of observing pre-emptive rights of shareholders and Legal Compliance in Agreements

In the case of E.S. Saks (as plaintiff) v. S. Hassamal (as defendant) 2015 SCJ 405 issued on 13 November 2015, His Lordship G. Angoh gave a ruling on the legality of a share sale agreement on the basis that it was contrary to the pre-emption clauses set out in the constitution of the relevant company and the Companies Act.

Mauritius Times

Mauritius: FSC Notice of Cancellation of Licence - HSBC

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED has, pursuant to Section 111 of the Insurance Act 2005, surrendered its licence to act as Insurance Agent for Swan Life Ltd and Swan General Ltd.

Notice is hereby given that the Financial Services Commission, Mauritius has cancelled this licence on 19 November 2015.

ALB - Mauritius: waiting on the sidelines

As the Mauritius International Arbitration Centre (MIAC) welcomes new registrar Ndanga Kamau, it becomes obvious how many strides the institution has made in the few years since its inception. The centre, which opened in 2011 and acquired its first office in 2012, has been gaining ground both region­ally and internationally. MIAC also enjoys the support of the London Court of International Arbitration (LCIA) in London, giving it a greater degree of independence and perhaps credibility than might be expected of such a new institution.

Mauritius: FSC Policy Research Group (PRG) programme Phase 1 (2015/16)

The Financial Services Commission, Mauritius (FSC) is pleased to announce the launching of its Policy Research Group (PRG) programme. 

In this context, the FSC invites research proposals from interested and high calibre policy researchers or academics for Phase I of this new programme.

The PRG programme aims to foster research excellence and to publish extensive policy research studies with the view of inter-alia analysing the existing regulatory and non-bank financial market policies in Mauritius.

Objectives

The broad objectives of the Policy Research Group are to:

undertake effective policy-oriented research supported by strong analytical and empirical formulations;

facilitate policy formulation as well as review the existing policies from an academic and substantive perspective. 

Phase I (2015/16)

The research themes are:

1. A study on the development of Mauritius as a mid-shore financial jurisdiction for the future.
2. A survey analysis for the scopes of securitisation in Mauritius.
3. A feasibility study for a social investment market in Mauritius.
4. An assessment of the scopes for innovative and "peer-to-peer" financing in Mauritius.
5. A study on the scopes and potentials of wealth management for private banking and investment banking in Mauritius.
6. A feasibility study of a regional passport system for either raising of capital or for investment funds in Africa.
7. An econometric study of an aggregate financial stability index for Mauritius.
8. A quantitative study of systemic risks and stability of the insurance sector in Mauritius.
9. A study on the development and application of 'credible deterrent' enforcement policies by a competent financial regulator/authority in Mauritius.
10. A stakeholders' study for the revamp of the Protected Cell Companies' legislation in Mauritius.

• Communiqué
• Poster
• Booklet (Full Version)

(General Information)

(Invitation for Proposals)

(Policy Research Series)

• Application Form (Online) 

Presumed Guilty

With new proposed legislations of late, including Constitutional amendment, a strong feeling is gaining ground among thinking Mauritians that a sense of original guilt is being thrust upon every citizen. The proposed legal changes currently under discussion in Parliament convey clearly the message that we as a nation are guilty of having amassed unaccounted-for wealth. Further, each one of us has to prove in front of an Agency established in the Ministry of Good Governance and Financial Services that he is coming with clean hands, at the risk of seeing one’s property inscribed with a privilege in favour of the government initially, to be followed by forfeiture eventually if it falls in the category of unexplained wealth. By any standards, this is not a flattering image of Mauritius as a nation. It is turning on its head the sacrosanct principle of presumption of innocence all of us enjoy as enshrined in the Constitution.

Mauritius Times

Anil Gujadhur: Could the BAI case have been handled more prudently?

The answer is in the affirmative. Economic and financial crimes have taken place in other countries in recent years but governments have handled them with such care and caution that they have not hurt the inherent confidence that the public should always have in the economic architecture of the country.

Since 2nd April 2015, the BAI case has created a full range of tumult in the country. The country has lost its usual serenity. Even if that is restored somehow or other at some stage, one is not certain whether it will be business as usual thereafter.

Excerpts:

“It is not quite clear also whether the ‘Good Governance and Integrity Reporting Bill’ currently under discussion in Parliament – which aims to give powers to a non-judicial Agency in the Ministry to inscribe properties of “unexplained wealth” holders for eventual disposal of such properties by it through sale -- will overcome normal legal procedures to defeat claims the owners of the BAI may present against the government in this case. Procedures of the sort will obviously send the signals to all those who may be concerned, notably investors…”

“If the financial institutions belonging to the BAI group were not granting financial facilities in accordance with the rules of prudence imposed on them under regulatory rules, the regulators are empowered to stop it before it assumes alarming proportions. Did loans given by the banking arm become non-performing, including from the group’s companies? If so, the banking regulator has the power to ask the shareholders to cease distributing any dividends to themselves and to inject in a timely manner the additional capital required to compensate for loss of capital on account of the non-performing advances…”

Mauritius Times

India - Mauritius: DTAA Renegotiation

Are we back to square one as far as renegotiation of the DTAA is concerned? One might be tempted to conclude that such is the case following the attendance by SAJ and his delegation at the gathering of African leaders at the New Delhi summit held last week. It transpires that PM Modi has acceded to SAJ's request that the renegotiation that was widely reported by local Senior Ministers, MBC and Government Information Service to have been successfully and satisfactorily concluded five months ago by our joint ministerial working groups, can and will be re-opened. 

Excerpts:

“Have we spent enough long-term effort to address the negative perceptions of Mauritius Inc and its low-tax financial jurisdiction (as significantly different from a tax-haven!) by higher rungs of the powerful Indian Administrative Services, more particularly the Finance, Interior, Defence and Foreign policy career top-guns? Are we considered really as an “all-weather” ally, that is, intimately aware of PM Modi's emerging strategic priorities for Indian foreign policy and economic development thrusts and their implications for us, beyond lip-service to traditional ties? Should we more generally reflect on how to gear up our strategic image building capacities overseas in a fiercely competitive world where other players will be too happy to transform our losses into their gain?”

Mauritius Times

Pourquoi investir à l'île Maurice?

Deux types de sociétés offshore existent pour l’exercice d’activités à destination d’une clientèle internationale ou non-résidente à l’Ile Maurice :

• Les sociétés Global Business Licence catégorie 1 (GBC 1) sont des sociétés avec une résidence fiscale à Maurice et bénéficiant des accords de non double imposition et de taux réduits sur leur fiscalité mauricienne.

Le taux d’imposition de base est de 15%, mais un crédit d’import forfaitaire de 80% de l’impôt mauricien est accordé pour tenir compte des taxes payées à l’étranger sur les montants financiers transférés à Maurice. De ce fait, l’imposition des GBC 1 s’élève à 3% des bénéfices.

Elles ne sont pas autorisées à effectuer des transactions en monnaie locale avec des résidents ou à détenir des avoirs immobiliers à l’île Maurice.

Des activités de banque, d’assurance et de gestion de fonds sont possibles.

• Les sociétés Global Business Licence catégorie 2 (GBC 2) sont non-résidentes à l’Ile Maurice. Elles sont donc des entités franches d’impôt et ne peuvent se prévaloir des abattements prévus dans les conventions de non double imposition en vigueur à l’Ile Maurice.

Elles doivent être enregistrée auprès d’un agent agrée (Trust ou Management Company).

La GBC 2 peut par exemple être utilisée comme société de commerce, facturation, contrats internationaux.

Le Village de la justice

Indo-Mauritius tax treaty: PM Jugnauth's view

Prime Minister of Mauritius, Anerood Jugnauth, in an exclusive interview with Amicus Curiae, said that if the tax benefits are taken away from Mauritius it will affect the fund flow in India.

Magnus Heystek: SA is on road to bankruptcy – now gradually, soon suddenly

Magnus Heystek and I began our careers in financial journalism in the same year – 1980 – and in the same building – Perskor, Height St, Doornfontein. Our desks were a floor apart, he with the long departed Die Transvaler; me with The Citizen. In the three and a half decades since, we’ve played lots of golf and broken bread many times. Magnus has a fine mind and a talented pen. He possesses the rare combination of being able to accurately interpret trends and then communicate them in language we can all understand. He has also made some superb calls – was way ahead of me on offshore investing; residential property, Mauritius and, more recently biotech companies. Which is probably why he has built a substantial financial services business – Brenthurst Wealth, on whose website this article first appeared – while I’ve kept trying to beat the odds in media. Magnus is at his best when communicating his personal thoughts to clients. Weaving in personal experiences with his appreciation of the bigger picture. With no holds barred, as always. He is now fretting about his homeland going bankrupt, a theme equally well articulated by RW Johnson in his masterpiece, How Long Will SA Survive? This article first appeared on the Brenthurst Wealth website. – Alec Hogg

Biznews.com

Moneyweb

PARADIS FISCAUX - Hypocrisie des Etats-Unis et de L'Inde?

Plusieurs mesures sont en train d’être implémentées à travers le monde. Le but n’étant autre que de réduire l’évasion fiscale et prôner la transparence. Or, un géant résiste à ces changements : les États-Unis. Sur le Financial Secrecy Index 2015 de Tax Justice Network, les USA sautent à la troisième place, surclassant les fameux Singapour et Cayman Islands. Décrit comme un paradis fiscal, de par ses nombreux centres offshore et onshore, les États-Unis sont (entre avril 2000 et juin 2015), l’un des plus gros rapporteurs d’investissements directs étrangers, après le Singapour, en Inde. Entretemps, la presse indienne n’a cessé de nous qualifier de «tax haven» et les organisations internationales imposent continuellement des règlements

Tax evasion - The mega-haven

The world is becoming less welcoming to tax dodgers. That is the conclusion of the latest Financial Secrecy Index, published every two years by the Tax Justice Network (TJN), an NGO.

The Economist

Seychelles rated 'largely compliant' by OECD - continued vigilance and reforms needed to uphold status, says finance minister

Seychelles effort to amend legislations and having monitoring mechanisms in place to oversee the activities of businesses in the financial sector have helped the country to be rated 'largely compliant' by the OECD.

Seychelles News Agency

Planet Earth Institute: President of Mauritius appointed Vice Chairman & Trustee

The President of Mauritius, HE Dr. Ameenah Gurib-Fakim, has been appointed Vice Chairman and Trustee of the Planet Earth Institute (PEI), an international NGO and charity working for the ‘scientific independence of Africa’. Her Excellency will host the official launch of the PEI on an event at the State House on November 23rd 2015 along with Dr Álvaro Sobrinho, the PEI’s founding Chairman, and the full Board of Trustees.

HE Dr Ameenah Gurib-Fakim, President of the Republic of Mauritius:

“Mauritius has a proud track record of investing in scientific excellence and developing research. In the future, science, technology and innovation will be vital in creating jobs and prosperity for our citizens in Mauritius and across the mainland African continent.

I look forward to helping lead the PEI’s work as Vice Chairman and Trustee, and in turn to contributing to our continent’s increasing scientific and technological excellence, as the underlying foundations of our sustainable development”.

Planet Earth Institute

Penny Hack: The Inglorious Republic

Mauritius will move backward by 400 years should the three bills tabled by minister Roshi Bhadain be voted by Parliament, suggests the author.

IFC Review: If it quacks like a duck?…The classification and duties of non-trustee power-holders

With reserved powers legislation available in most offshore jurisdictions, Ashley Fife examines the difficulties regarding the categorisation of powers held by a person other than a trustee as either fiduciary or non-fiduciary

Financial Secrecy Index 2015 reveals improving global financial transparency, but USA threatens progress

Today the Tax Justice Network launches the 2015 Financial Secrecy Index, the biggest ever survey of global financial secrecy. This unique index combines a secrecy score with a weighting to create a ranking of the secrecy jurisdictions and countries that most actively promote secrecy in global finance.

Most countries’ secrecy scores have improved. Real action is being taken to curb financial secrecy, as the OECD rolls out a system of automatic information exchange (AIE) where countries share relevant information to tackle tax evasion. The EU is starting to crack open shell companies by creating central registers of beneficial owners and making that information available to anyone with a legitimate interest. The EU is also requiring multinationals to provide country-by-country financial data.

But these global and regional initiatives are flawed and face sabotage by lobbies that have already weakened them. Secrecy-related financial activity risks being shifted to other areas such as the all-important trusts sector, where no serious action is being taken despite promises made by the G8 in 2013, and shell companies, where many secrecy jurisdictions such as Dubai, the British Virgin Islands or Nevada in the U.S. are refusing to open up.

Crucially, even in those areas where there has been progress, developing countries are largely being sidelined: OECD countries are the main beneficiaries.

Our analysis also reveals that the United States is the jurisdiction of greatest concern, having made few concessions and posing serious threats to emerging transparency initiatives. Rising from sixth to third place in our index, the US is one of the few whose secrecy score worsened after 2013.

Switzerland stays at the top of the index and for good reason: despite what you may have heard, Swiss banking secrecy is far from dead, though it has curbed its secrecy somewhat.

The United Kingdom also remains a huge concern. While its own secrecy score is moderate, its global network of secrecy jurisdictions – the Crown Dependencies and Overseas Territories – still operate in deep secrecy and have, for instance, not co-operated in creating public registers of beneficial ownership. The UK has failed to address this effectively, though it has the power to do so.

The full press release contains a range of further details, including a brief country-by-country summary of the top 10 jurisdictions plus the UK.

Kenya must review Double Tax Agreement with Mauritius

Tax havens are countries or states that position themselves as low tax jurisdictions allowing companies and rich individuals to hide their wealth without paying appropriate taxes where they actually make their profits or wealth. Tax Justice Network-Africa (TJN-A) in October 2014 sued the Government of Kenya (specifically the Cabinet Secretary to the Treasury, Kenya Revenue Authority and the Attorney-General) challenging the constitutionality of the Kenya/Mauritius Double Taxation Avoidance Agreement signed in Port Louis, Mauritius on May 11, 2012 and as contained in Legal Notice 59 published in the Kenya Gazette of May 23, 2014.

The Agreement significantly undermines Kenya’s ability to raise domestic revenue to underpin the country’s development by opening up loopholes for multinational companies operating in the country and super- rich individuals to shift profits abroad through Mauritius to avoid paying appropriate taxes. For example, provisions under Article 11 of the Agreement relating to interest limit Kenya’s withholding tax to 10 per cent whereas the Kenyan domestic rate currently stands at 15 per cent. This will significantly affect the tax base of the Kenya Revenue Authority (KRA). The Agreement also sharply contravenes Articles 10 and 201 of the Constitution and is inconsistent with the principles of good governance, sustainability and accountability. The Agreement is open to abuse and this could endanger the growth and development of Kenya.

Three main reliefs sought by TJN-A are: that the High Court declares the government’s failure or neglect to subject the Kenya-Mauritius Double Taxation Avoidance Agreement to ratification in line with the Treaty Making and Ratification Act 2012 as a contravention of Articles 10 (a), (c) and (d) and 201 of the Constitution of Kenya.

That the Court directs the Cabinet Secretary for Treasury to immediately withdraw Legal Notice 59 of 2014 and commence the process of ratification in conformity with the provisions of the Treaty Making and Ratification Act 2012.  And award cost of the petition with interest against the Government of Kenya. The case came up for mention at the Nairobi High Court today, November 2, 2015. The court will fix a date for hearing the case on November 9, 2015. Speaking at a press briefing earlier today, the Executive Director of TJN-A, Alvin Mosioma said “there is need for public participation in the process of ratification of double tax agreements…double tax agreements kill the competitive edge of local firms”. 2 Senator Hassan Omar of Mombasa County who also addressed the press said Kenya’s “Parliament needs to appreciate its responsibility in safeguarding the public’s interests,” adding that “the reason people steal is because there is complicity and people are aware of it”. Provisions under Article 12 of the Agreement which relates to royalties also restrict at- source withholding tax to half (10 per cent) of Kenya domestic rate of 20 per cent. This will significantly weaken Kenya’s ability to raise revenue to finance its development. Additionally provisions under Article 20 of the Agreement reserves all taxation of “other income” not dealt with in specific Articles to the residence state.

This effectively reduces withholding tax to zero per cent on services, management fees, insurance commissions among others, whereas Kenyan domestic withholding tax rate currently stands at 20 per cent. This is a major gap that will lead to massive revenue leakages. The Agreement is neither United Nations nor OECD compliant and it also fails to address the issue of disposal of shares in companies. The Agreement effectively reserves under Article 13.4 all taxation of capital gains from selling shares in companies to Mauritius where the effective Capital Gains Tax is zero per cent. Under the Agreement foreign investors in Kenya can acquire Kenyan companies through Mauritius holding companies and Kenya cannot tax any of the gains when they sell these businesses again. This is open to abuse. Similarly, domestic Kenyan investors can dodge Kenyan taxes by round-tripping their investments illicitly through Mauritian shell companies. Kenyan companies can also easily avoid Kenyan taxes in dividends paid to foreign investors through devices like share buy-backs therefore deny the government of development funds.

The provision is very similar to the Capital Gains Tax Article in the India-Mauritius treaty which has proved very controversial costing India an estimated US$600 million a year in revenues as a result of tax avoidance and illicit round-tripping by Indian business executives driving the Government of India to initiate steps to renegotiate its agreement with Mauritius. Under the definition of ‘bilateral treaty’ in Section 2 of the Treaty Making and Ratification Act an ‘agreement’ such as the one between Kenya and Mauritius and which is the subject matter of this legal case, is a treaty subject to the Act and therefore requires that the Cabinet Secretary to the Treasury in consultation with the Attorney General, submit to the Cabinet the treaty, together with a memorandum outlining, inter alia – 1. Policy and legislative considerations, 2. Financial implications 3. Implications on matters relating to counties, 4. The views of the public on the ratification of the treaty.

Mauritius presently has tax treaties with 13 African countries namely Botswana, Lesotho, Madagascar, Mozambique, Namibia, Rwanda, Senegal, Seychelles, Swaziland, South Africa, Tunisia, Uganda and Zimbabwe. Apart from Kenya, Mauritius also has signed Double Taxation Agreements with Congo, Zambia and Nigeria. Currently Mauritius is negotiating DTAs with Algeria, Burkina Faso, Egypt, Gabon, Ghana, Malawi and Tanzania. Unlike Mauritius’ DTA with Uganda and Nigeria, for example, which have specific provisions for withholding tax for management/technical services fees, Kenya failed to negotiate any such provisions. 

In a related development, the Government of Kenya has signed an equally harmful Double Tax Agreement with United Arab Emirates and Qatar – both of which are tax havens – in which Kenya further deems its right to tax as unnecessary in a bid to attract investment from these two countries. These agreements will deepen Kenya’s current cash crunch by allowing the further erosion of the country’s tax base. 

Protected Cell Companies

The Protected Cell Company concept represents a significant recent development, providing a flexible structure for a variety of purposes. Protected Cell Companies facilitate structuring in fields such as asset protection, succession planning, philanthropy, insurance and IP rights. Francesco Schurr provides an insight into the Protected Cell Company and its uses.