BEPS in Africa: Changes in Mauritius
19 July 2018
Base Erosion and Profit Shifting (BEPS)can be described as tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity (OECD).
The OECD developed the Inclusive Framework on BEPS for its members and other countries to collaborate on the implementation of the OECD / G20 BEPS Project. The BEPS Project creates a single set of consensus-based international tax rules to protect tax bases whilst increasing certainty and predictability for taxpayers. The 15 BEPS actions recommended by the OECD are:
Action 1 |
Addressing the tax challenges of the digital economy
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Action 2
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Neutralising the effects of hybrid mismatch arrangements
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Action 3
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Designing effective controlled foreign company rules
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Action 4
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Limiting base erosion involving interest deductions and other financial payments
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Action 5
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Countering harmful tax practices, taking into account transparency and substance
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Action 6
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Preventing the granting of treaty benefits in inappropriate circumstances
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Action 7
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Preventing the artificial avoidance of permanent establishment status
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Actions 8-10
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Aligning transfer pricing outcomes with value creation
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Action 11
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Measuring and monitoring BEPS
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Action 12
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Mandatory disclosure rules
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Action 13
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Transfer pricing documentation and country-by-country reporting
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Action 14
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Making dispute resolution mechanisms more effective
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Action 15
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Developing a multilateral instrument to modify bilateral tax treaties
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BEPS is very significant for developing countries due to their strong reliance on corporate income tax, particularly from multinational enterprises. Including them on the international tax agenda is important to ensure that they receive support to address their specific needs (OECD). African countries that introduce measures to counter the negative effects of BEPS are on the increase. Some of these measures include:
- Introducing transfer pricing legislation and requirements to furnish documentation
- Tightening of anti-avoidance legislation
- Extending deemed source provisions
- Extending double tax treaty networks
- Ratifying the BEPS multilateral instruments
- Strengthening tax administrations to implement measures in the international tax arena
- Introducing measures to prevent aggressive cross border tax planning
Mauritius joined the inclusive framework for the global implementation of the BEPS on 24 November 2016. On 5 July 2017 it signed the Multilateral Instrument (MLI) to Implement Tax Treaty Related Measures to Prevent BEPS. This series of tax treaty measures will lessen the opportunity for tax avoidance by multinational enterprises. The convention has been developed under Action 15 of the BEPS project. Mauritius has now introduced measures in response to BEPS Action 5 (Countering Harmful Tax Practices More Effectively) in its Budget Speech for 2018 / 2019 delivered on 14 June 2018. According to the IBFD, the deemed foreign tax credit regime available to Category 1 Global Business Licence companies will be abolished on 31 December 2018 and a partial exemption regime will be introduced which will exempt 80% of specified income from income tax. The exemption will be granted to all companies in Mauritius, except banks, and will apply to foreign source dividends, profits attributable to a foreign permanent establishment; interest and royalties; and income from the provision of specified financial services. The existing credit system for double taxation relief will continue to apply if partial exemption is not available. Category 2 Global Business Licence regime will be abolished and the Income Tax Act provisions applicable to that regime will be reviewed accordingly.
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