Mauritius has become the latest target for the International Consortium of Investigative Journalists (ICIJ), which has published an exposé suggesting that the island nation's tax treaties enable tax avoidance.
Dubbed "Mauritius Leaks," the July 23 investigation is based on 200,000 confidential files from the Mauritius office of Bermuda law firm Conyers Dill & Pearman that were leaked by an anonymous source, months of interviews with African tax officials, and deep dives into accounting data.
Mauritius, a member of the Commonwealth located over 1,000 miles off the southeastern coast of Africa, is often used as an economic hub between Africa and Asia. The report says the leaked documents show that companies use the country's tax treaty network to avoid paying taxes.
ICIJ coordinated the work of 54 journalists from 18 countries. Will Fitzgibbon, the lead reporter on the project, described it as “a new investigation into a tax scandal you’ve probably never heard of; one that rips off some of the poorest countries in the world.” Tax professionals contacted by Tax Notes, however, are skeptical that any information regarding criminal activities has been uncovered. They noted that the report describes legal methods and standard practices in international tax law, an area in which routing profits through other countries is considered appropriate.
“I confess I may be missing something, but I can't see any smoking gun, illegal transactions, or indeed improper transactions,” Dan Neidle, a partner at Clifford Chance in London, told Tax Notes. Mauritius’s treaties are not unusual, he said, and are comparable to those in the Netherlands. “However, it's quite common for local parties or development banks to want a holding company to be located in Africa. Mauritius has a legal and tax system that makes it appropriate for that purpose," he said
If the Mauritius system didn’t exist, Neidle said, people would simply go through the Netherlands or the United Kingdom — or perhaps Rwanda, if an African holding company were required. Investors don’t expect to pay at multiple levels of a structure, he noted.
Much of the ICIJ reporting came from African countries where tax treaties with Mauritius have come under increasing scrutiny, with tax advocates arguing that the agreements allow tax revenue to be siphoned from where it is needed most. In March the Nairobi-based Tax Justice Network Africa won a landmark case against the Kenyan government. The High Court of Kenya held that the ratification of the country's 2012 treaty with Mauritius was not valid without parliamentary review. A new treaty was signed April 10.
The Mauritius government has responded to the ICIJ report, saying the information is outdated. The OECD, the IMF, and the World Bank Group have all reported that Mauritius is a "cooperative and clean tax jurisdiction that has made significant progress in adhering to international standards," Dharmendar Sesungkur, Mauritius's minister of financial services and good governance, said in a July 16 letter published by the ICIJ.
Mauritius is also working with the EU to improve fair taxation so that it can be removed from the “grey list” of tax jurisdictions. According to a European Commission spokesperson, Mauritius abolished its previous harmful preferential regimes but then introduced what the EU Code of Conduct Group regards as a harmful replacement regime known as the partial exemption regime.
“Mauritius was given until the end of 2019 to amend or abolish this replacement regime, with no grandfathering allowed,” the spokespersonman said in a July 23 email. "Mauritius has constructively and intensively engaged with the Commission services throughout 2019 in order to bring this new regime into line with international standards. Mauritius has announced its intention to make the changes in this year’s Finance Bill. If the changes are adopted as agreed, the Code of Conduct Group could then recommend to the Finance Ministers to remove Mauritius from the grey list."
The Mauritius Leaks investigation addresses the problem of treaty shopping, but it doesn't appear to highlight action 6 of the base erosion and profit-shifting project, which introduced measures to crack down on the practice, according to Achim Pross, head of the international cooperation and tax administration division at the OECD’s Centre for Tax Policy and Administration. The publication of Mauritius Leaks coincided with the July 23 release of the OECD Forum on Harmful Tax Practices’ latest report.
The OECD knew there was treaty shopping going on in Mauritius, and that it was a problem, which is why the OECD spent so much time working with Mauritius to get it to agree to implement measures under action 6, Pross told Tax Notes. As a result, Mauritius has made some progress on action 6, as well as on addressing issues with their preferential regimes, he said.
Stephanie Soong Johnston contributed to this article.