IMF Staff Completes 2019 Article IV Mission to Mauritius

• Real GDP growth is projected at 3.8 percent in 2018 and 3.9 percent in 2019, driven by robust performance in the financial services, construction, and tourism sectors.
• Mauritius faces the challenge of boosting inclusive economic growth while preserving fiscal sustainability, regaining external competitiveness, and maintaining financial integrity.
• The mission welcomed the authorities’ ongoing efforts to strengthen the AML/CFT framework and reiterated the need for maintaining strong and independent institutions to overcome the policy challenges Mauritius faces to remain an attractive investment destination.

An International Monetary Fund (IMF) mission led by Mahvash Qureshi visited Mauritius during January 16–30, 2019 to conduct the discussions for the 2019 Article IV consultations.

At the conclusion of the visit, Ms. Qureshi issued the following statement today in Port Louis:

“The Mauritian economy continues to grow at a steady pace, benefiting from a vibrant services sector and strong domestic demand. Real GDP expanded by 3.8 percent in 2017 and is projected to grow at a similar rate in 2018. Inflationary pressures have receded, and the unemployment rate has fallen to its lowest level in a decade. The external balance, however, continues to deteriorate due to a rising trade deficit in goods. The fiscal deficit in FY2017/18 was about 0.3 percent of GDP lower than budgeted, with public sector debt decreasing to 63.7 percent of GDP at the end of the fiscal year from 65.0 percent of GDP in FY 2016/17. Activity in the offshore global business sector has remained broadly resilient while reforms to the sector are underway. A prudent stance by financial services firms and supervisory agencies has helped to maintain financial stability.

“The growth momentum is expected to continue in 2019. Real GDP growth is projected to reach 3.9 percent in 2019, driven by robust performance in the financial services, construction, and tourism sectors. With international oil prices expected to decline in 2019, inflation is projected to drop further, while the current account deficit is expected to widen to about 7 percent of GDP owing to higher capital imports associated with large-scale public infrastructure projects. Given the expansionary fiscal stance in FY2018/19 and external borrowing to finance public investment in infrastructure, public sector debt is projected to increase.

“Going forward, the key challenge for Mauritius is to boost inclusive economic growth, while preserving fiscal sustainability, regaining external competitiveness, and maintaining financial integrity and stability. To preserve macroeconomic stability, especially in view of the rapidly aging population, and to create room to respond to shocks, the mission advised the authorities to adopt prudent fiscal policies that would set public sector debt firmly on a declining path into the medium term. The monetary policy stance is broadly appropriate at the current juncture. However, given the upside risks to inflation, vigilance is warranted against any emerging inflationary pressures.

“A range of reforms and initiatives has been introduced in recent years to spur productivity and competitiveness—including the adoption of the Business Facilitation Act, finalization of the Financial Sector Blueprint, and programs to support youth skill development, small-scale entrepreneurs, and female labor force participation. Improvement in the World Bank’s Doing Business 2019 indicator is encouraging. Coordination and synergies between the various reforms and initiatives, as well as interaction among the stakeholders, could however be strengthened to enhance their effectiveness and efficiency.

“The mission welcomed the authorities’ ongoing efforts to strengthen the AML/CFT framework in line with the Financial Action Task Force (FATF) recommendations and reiterated the need for maintaining strong and independent institutions to overcome the range of policy challenges Mauritius faces to remain an attractive investment destination.

“The mission team expresses its gratitude to the authorities for the productive discussions, excellent cooperation, and hospitality. The IMF stands ready to assist the authorities in the implementation of their economic program, including through the provision of technical assistance, and looks forward to continuing fruitful policy dialogue.”

The mission met with the Prime Minister and Minister of Finance and Economic Development, Pravind Jugnauth, Minister of Financial Services, Good Governance and Institutional Reforms, Dharmendar Sesungkur, Governor of the Bank of Mauritius Yandraduth Googoolye, the Financial Secretary, Dharam Dev Manraj, and other senior government officials, as well as the opposition leader, representatives of the private sector, academia, civil society, unions, and the donor community.

OECD announces progress made in addressing harmful tax practices (BEPS Action 5)

The OECD has released a new publication, Harmful Tax Practices - 2018 Progress Report on Preferential Regimes, which contains results demonstrating that jurisdictions have delivered on their commitment to comply with the standard on harmful tax practices, including ensuring that preferential regimes align taxation with substance.

The assessment of preferential tax regimes is part of ongoing implementation of Action 5 under the OECD/G20 BEPS Project. The assessments are conducted by the Forum on Harmful Tax Practices (FHTP), comprising of the more than 120 member jurisdictions of the Inclusive Framework. The latest assessment by the FHTP has yielded new conclusions on 57 regimes, including:

• 44 regimes where jurisdictions have delivered on their commitment to make legislative changes to abolish or amend the regime (Antigua and Barbuda, Barbados, Belize, Botswana, Costa Rica, Curaçao, France, Jordan, Macau (China), Malaysia, Panama, Saint Lucia, Saint Vincent and the Grenadines, the Seychelles, Spain, Thailand and Uruguay).
• As a result, all IP regimes that were identified in the 2015 BEPS Action 5 report are now "not harmful" and consistent with the nexus approach, following the recent legislative amendments passed by France and Spain.
• Three new or replacement regimes were found "not harmful" as they have been specifically designed to meet Action 5 standard (Barbados, Curaçao and Panama).
• Four other regimes have been found to be out of scope or not operational (Malaysia, the Seychelles and two regimes of Thailand), and two further commitments were given to make legislative changes to abolish or amend a regime (Malaysia and Trinidad & Tobago).
• One regime has been found potentially harmful but not actually harmful (Montserrat).
• Three regimes have been found potentially harmful (Thailand).

The FHTP has reviewed 255 regimes to date since the start of the BEPS Project, and the cumulative picture of the Action 5 regime review process is as follows:

The report also delivers on the Action 5 mandate for considering revisions or additions to the FHTP framework, including updating the criteria and guidance used in assessing preferential regimes and the resumption of application of the substantial activities factor to no or only nominal tax jurisdictions. The report concludes in setting out the next key steps for the FHTP in continuing to address harmful tax practices.

GFI: Illicit Financial Flows are Significant and Persistent Drag on Developing Country Economies

A new analysis of illicit financial flows (IFFs) due to trade misinvoicing in 148 developing countries demonstrates that trade-related IFFs appear to be both significant and persistent features of developing country trade with advanced economies. As such, trade misinvoicing remains an obstacle to achieving sustainable and equitable growth in the developing world. This update, titled Illicit Financial Flows to and from 148 Developing Countries: 2006-2015, is the latest in a series of Global Financial Integrity (GFI) reports which provide country-level estimates of the illicit flows of money into and out of 148 developing and emerging market nations as a result of their trade in goods with advanced economies.

IFFs are defined as money that is illegally earned, used or moved and which crosses an international border. Trade misinvoicing is a method of moving IFFs, and includes the deliberate misrepresentation of the value of imports or exports in order to evade customs duties and VAT taxes, launder the proceeds of criminal activity or to hide offshore the proceeds of legitimate trade transactions, among other motivations.

Increasing trade among developing and emerging market countries is seen by many economists as a primary path to greater development. However, high levels of misinvoicing, as a percentage of total trade, indicate that most developing country governments do not benefit from a significant portion of their international trade transactions with advanced economies. Highlights of GFI’s research for 2015 (the most recent year for which there is usable data) show that:

• On average, trade misinvoicing is equivalent to 18 percent of total trade with advanced economies among all developing countries.
• Several nations have trade misinvoicing levels significantly higher than the global average including: Sierra Leone (39.8%), Georgia (34%), Botswana (31.8%), Maldives (29.6%), Ethiopia (29.3%), The Bahamas (29%) and Cameroon (26%).
• On average, illicit inflows (53% of total) are greater than illicit outflows.
• Countries with high dollar values of illicit inflows include: Indonesia ($10.1 billion), Romania ($6.8 billion), Colombia ($2.9 billion) and Morocco ($2.7 billion).
• Nations with high dollar amounts of illicit outflows include: Malaysia ($22.9 billion), Brazil ($12 billion), Vietnam ($9.1 billion), Hungary ($7.6 billion), South Africa ($5.9 billion) and Bangladesh ($2.7 billion).

In addition to updating the estimated IFFs GFI has presented in the past, this report widens the scope of its research and uses a more detailed database published by United Nations (UN) Comtrade along with updated measures from the International Monetary Fund (IMF) data it has used previously. This report presents estimates of IFFs based on both data sets.

While the Comtrade data set is more detailed, not all countries provide their trade data to the UN and therefore are not represented in this analysis. Many of the 44 nations that do not report trade transactions to the UN are small states, however a few non-reporting countries have substantial economies including Kenya, Nigeria and Venezuela. Trade-related illicit flows for these nations (and the other 41 countries not reporting to the UN) can be found in the report using the IMF’s Direction of Trade Statistics data set (see Appendix Table III-1).

Click here to download a copy of the report.

Artificial Intelligence In Banking & Finance: How AI is Impacting the Dynamics of Financial Services

Executives across the world are increasingly looking towards AI (Artificial Intelligence) for creating new source of business values, revenue streams and cost saving opportunities. Today financial sector is dealing with the generation who is used to Facebook feeds, Netflix & Amazon recommendations as well as help of virtual assistants like Alexa and Siri. So, how do banks sustain in this model and retain this technically smart and upwardly mobile generation as their customer? The book discusses the challenges and opportunities with respect to financial services and how AI has started playing a significant role in the future journey of Banking and financial services industry. The book also lays out the strategy for initiation and implementation of AI.

Mauritius: How a small island nation became Africa's business champion

How a small island nation became Africa’s business champion

Mauritius has created an economy, government and business environment that outshines the rest of Africa. Now 50 years after independence, Mauritius’ rise has become a success story symbolic to the emergence of an entire continent.

Can the “jurisdiction of choice for Africa” rival Singapore?

After decades investing in Africa, Harry Sutherland put his money on Mauritius, which he says has the ingredients to become the Singapore of Africa.

Mauritius starts 2019 with stricter offshore standards

As the world of offshore business evolves, so does Mauritius.From January 1, 2019, Mauritius ceased the issuance of its controversial Category 2 Global Business License (GBL2), which provided flexible conditions for managing and holding private assets in the country with full tax exemption.

“Digital and mobile payments will be the new transactional battleground”

A leading Mauritian provider of fiduciary, technology and financial services, Rogers Capital is the fintech arm of the Rogers Group, charged with developing emerging technology. Kabir Ruhee, CEO of Rogers Capital, tells us more about how financial innovation is set to impact Africa.

First LSE listing by a Mauritian company underscores finance worth

As the lead transaction adviser for Mauritius’ first London Stock Exchange listing,  AXYS believes this moment is a crucial step to further capital market developments on the Indian Ocean nation.

State of Power 2019: Battling Bankers: Insights on Financial Power From the Grassroots

Three inspiring activists - from Spain, UK and Kenya - that have scored significant victories against the financial leviathan share their experiences of taking on bankers and the lessons and insights from their ongoing struggles.

Battling Bankers: Insights on Financial Power From the Grassroots

State of Power 2019: Offshore Finance: How Capital Rules the World

The rise of offshore finance is not solely about capital moving to banks in exotic islands, it is also about the creation of a two-tier global system in which ordinary citizens are subject to laws, taxes and increasingly authoritarian rule, while offshore residents live secretive, tax-free lives with their fortunes supported by expansionary monetary policy.

Offshore Finance: How Capital Rules the World

IOSCO issues good practices to assist audit committees in supporting audit quality

The Board of the International Organization of Securities Commissions (IOSCO) published today the IOSCO Report on Good Practices for Audit Committees in Supporting Audit Quality, which seeks to assist audit committees in promoting and supporting audit quality.

The quality of a company's financial report, supported by an independent external audit, is key to market confidence and informed investors, and to the effective functioning of capital markets.

While the auditor has primary responsibility for audit quality, the audit committee should promote and support audit quality and thereby contribute to greater confidence in the quality of information in the listed company’s financial reports. The good practices report can assist audit committees in considering ways in which they may be able to promote and support audit quality.

The report provides good practices that audit committees may consider when:

• recommending the appointment of an auditor;
• assessing potential and continuing auditors;
• setting audit fees;
• facilitating the audit process;
• assessing auditor independence;
• communicating with the auditor; and
• assessing audit quality.

The report sets out good practices regarding the features that an audit committee should have to be more effective in its role, including matters such as the qualifications and experience of audit committee members.

FSC Mauritius - Press Release: Appointment of Mr Kamalsing Burun as Assistant Director

The Financial Services Commission, Mauritius (FSC) is pleased to announce the recent appointment of Mr Kamalsing Burun as Assistant Director of its Capital Markets cluster. His appointment is consolidating the existing strategic team of the FSC in line with the new dynamism brought to the Commission to deliver on new expectations set for the financial services sector.

Press Release

Five court judgments in favor of Quantum Global Group

The four judgments by Zug Cantonal Court and one judgment by Zurich District Court all stem from the investigations by the Swiss Federal Tax Administration into the Quantum Global Group and Jean-Claude Bastos.

Based on these investigations, the tax authorities in Canton Ticino (representing the Swiss Confederation, Canton Ticino and the communes of Lugano, Melano and Paradiso) sequestrated the accounts of Quantum Global Group in May 2018 on the basis of “Steuerarresten” (tax sequestrations) intended to secure taxes and tax penalty payments allegedly owed by Jean-Claude Bastos.

The sequestrated assets belong to Quantum Global Group

The hearings before Zug Cantonal Court centered on the claim by the Ticino tax authorities that the assets of the Quantum Global Companies actually belonged to Jean-Claude Bastos. The companies would, therefore, be liable for the debts of the beneficial owner (Jean-Claude Bastos).

In the four judgments delivered on December 7, 2018, Zug Cantonal Court states that there is no evidence that Bastos was improperly claiming that these companies are autonomous. Consequently, the assets of the Quantum Global companies cannot be seized.

Zug Cantonal Court also states that Jean-Claude Bastos cannot be accused of ignoring the “legal autonomy” of Quantum Global Group. The justification for the tax sequestration – that there were reasons to suspect Jean-Claude Bastos had evaded taxes with the help of Quantum Global Group – was rejected by Zug Cantonal Court as “neither substantiated nor evidenced”. 

Tax authorities acted illegitimately and thus infringed fundamental rights

The judgment delivered by Zurich District Court on December 11, 2018 shows that the tax authorities actually acted “illegitimately”, thus infringing fundamental rights.

After the first accounts of the Quantum Global companies were sequestrated in mid-May 2018, the tax authorities missed a deadline which meant that the sequestration would have been lifted anyway. However, the tax authorities summarily sequestrated the same accounts again with the same justification as four months earlier.

Zurich District Court deemed this behavior by the tax authorities as “illegitimate”. The court also states definitively that neither “negative press reports” “nor concerns” on the part of the tax authorities – which their own statements suggest they have – “are sufficient to justify its illegitimate actions”.

The Quantum Global Group is pleased to note that several courts have now clearly rejected the unlawful sequestration of its third-party assets by the tax authorities. The Swiss judgments follow the successful outcomes Quantum Global achieved in English courts.

The tax authorities’ illegitimate actions have significantly reduced Quantum Global Group’s capacity to pay, and done enormous damage to its employees and creditors.

Swiss taxpayers have also suffered. They have had to pay more than CHF 134,500 so far in court costs and compensation to the winning party – Quantum Global Group.

McKinsey: Blockchain’s Occam problem

Blockchain could be a game changer, but there are emerging doubts. A particular concern, given the amount of money and time spent, is that little of substance has been achieved. A key to finding the value is to apply the technology only when it is the simplest solution available.

McKinsey

Artificial avoidance of permanent establishment

Artificial avoidance of permanent establishment – the drama

PE - another gimmick to try and prove to the Government that an entity does not have a Permanent Establishment in India while having it all along

Parts 1..5 of this series can be accessed here. This is Part 6.

IFC Review - Barbarians at the Gate: The Populist Attack on Globalisation and its Threat to Smaller IFCs

The world’s economy will continue to need the role of IFCs. The intermediation they provide cannot be replaced or replicated. The question is, which IFCs will be the ones providing it.

IFC Review - Economic Colonialism and the European Union Blacklist

“The higher races have a right over the lower races. They have a duty to civilise the inferior races”. These are the words of Jules Ferry, a leading 19th century proponent of French colonialism. It seems from the extraterritorial expansionist intentions of the EU, now championed by EU Tax Commissioner Pierre Moscovici that, certainly in terms of French thinking, very little has changed in two hundred years.  And so, offshore financial centres, having received no credit whatsoever for establishing state-of-the-art transparency on tax matters through FATCA, the OECD promoted Tax Information Exchange agreements (TIEAs) and proactive tax reporting pursuant to the Common Reporting Standard (CRS), find the goal posts moved once again.

IFC Review - The EU Tax Blacklist: Is This the Future for Globalisation?

“It’s probably the most spectacular thing we’ve done,” said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, when he described the EU’s plans for a tax blacklist.  Countries targeted by the blacklist – from the UAE to South Korea – have good reason to agree with him.