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Income Tax Rulings

 

Under section 159 of the Income Tax Act any person who derives or may derive any income may apply to the Director General for a ruling as to the application of the Act to that income.

 

Below is a summary of all the rulings so far given.

 

TR1 TR2 TR3 TR4 TR5
TR6 TR7 TR8 TR9 TR10
TR11 TR12 TR13 TR14 TR15
TR16 TR17 TR18 TR19 TR20
TR21 TR22 TR23 TR24 TR25
TR26 TR27 TR28 TR29 TR30
TR31 TR32 TR33 TR34 TR35
TR36 TR37 TR38 TR39 TR40
TR41 TR42 TR43 TR44 TR45
TR46 TR47 TR48 TR49 TR50
TR51 TR52 TR53 TR54 TR55
TR56 TR57 TR58 TR59 TR60
TR61 TR62 TR63 TR64 TR65
TR66 TR67 TR68 TR69 TR70
TR71 TR72 TR73 TR74 TR75
TR76 TR77 TR78 TR79 TR80
TR81 TR82 TR83 TR84 TR85
TR86 TR87 TR88 TR89 TR90
TR91 TR92 TR93 TR94 TR95
TR96 TR97 TR98 TR99 TR100
TR101 TR102 TR103 TR104 TR105
TR106 TR107 TR108 TR109 TR110
TR111 TR112 TR113 TR114 TR115
TR116 TR117 TR118 TR119 TR120
TR121 TR122 TR123 TR124 TR125
TR126 TR127 TR128 TR129 TR130
TR131 TR132 TR133 TR 134 TR 135
TR136 TR137 TR138 TR139 TR140
TR141 TR142 TR143 TR144 TR145
TR146 TR147 TR148 TR149 TR150
TR151 TR152 TR153 TR154 TR155
TR156 TR157 TR158 TR159 TR160
TR161 TR162 TR163 TR164 TR165
TR166 TR167 TR168 TR169 TR170
TR171        

 

TR 1

 

Facts

A non-resident corporation has deposited substantial sums of money with the Bank of Mauritius in the form of deposits and bills.Theses balances yield substantial interest to the corporation.  
Part III of the Second Schedule Item 3(c) provides that interest payable on a balance maintained by a non-resident at any bank in Mauritius is exempt from tax.

 

Point at issue

Whether the words "any bank in Mauritius" include the Bank of Mauritius.

 

Ruling

The Bank of Mauritius does not fall within the ambit of "any bank in Mauritius".

 

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TR 2

 

 

Facts

A company proposed to launch a scheme to induce members of the staff to leave its employ before reaching the normal retiring age against payment of an allowance in view of redundancy. The scheme known as the "Early Leavers Scheme" covered all members of the pensionable staff with a minimum of 10 years continuous service.   The allowance payable to the early leavers was computed on the basis of the number of completed years of service.

The members of the staff would also be entitled to their normal pension benefit available in accordance with the rules of their staff pension fund.

 

Point at issue

Whether the portion of the allowance not exceeding the specified sum is exempt from tax as provided in the second Schedule Part II Item 5 of the Income Tax Act 1995.

 
Ruling

The portion of retiring allowance not exceeding the specified sum is exempt from income tax.

 

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TR 3

 

Facts

A foreign company has been operating a branch in Mauritius.   A new company was incorporated in Mauritius to take over the activities of the branch.  The branch had accumulated losses as at the date of its take over.

 

Point at issue

Whether the accumulated tax losses of the branch of the foreign company are transferable to the company incorporated in Mauritius to take over the activities carried on by the branch.

 

Ruling

Losses incurred by the branch of a foreign company cannot be transferred to a company incorporated in Mauritius as they constitute two distinct and separate entities.

 

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TR 4

 

Facts

A resident company proposes to engage the services of a foreign company for general overseas information sourcing, inspection of goods before shipment, consultancy services etc.  These services will be provided from outside Mauritius and the local company does not envisage that any representative of the service providers will be required to come to Mauritius in connection with these services.

 

Point at issue

  1. Whether fees received by a non-resident will attract tax in Mauritius;
  2. Whether expense so incurred by the local company is an allowable deduction.

 

Ruling

Fees received by a non-resident for services provided from outside Mauritius to a resident of Mauritius are not taxable in Mauritius.  The fees, however, will qualify as allowable deduction for the resident provided that the expenses are exclusively incurred in the production of gross income, the transactions are done at arm's length and the parties are not related to each other in any way whatsoever.


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TR 5

 

Facts

A resident company holding an Export Enterprise Certificate has accumulated losses up to the year of assessment 1996/97.

The Income Tax Act 1995 provides that:

  1. a company holding an Export Enterprise Certificate is exempt from income tax as from the year of assessment 1997/98;
  2. a company may carry forward its unrelieved loss to be set-off against its net income derived in the following income year and in the succeeding years.

 

Point at issue

Whether the accumulated losses of the company will be available for set-off against its future income should there be a change in legislation rendering a company holding an Export Enterprise Certificate taxable.

 

Ruling

As the law stands, accumulated losses up to the year of assessment 1996/97 of a company holding an Export Enterprise Certificate are available for set-off against future taxable income of the company.

 

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TR 6

 

Facts

A resident company deals in shares which are quoted on the Mauritius Stock Exchange and Over the Counter Market.  However, it holds shares in companies whose shares are not quoted.  Such shares are held purely for capital growth and may be disposed of in the future.

 

Point at issue

Whether profits/losses arising from sale of shares which are not quoted on the Mauritius Stock Exchange or over the Counter Market would be taxable and deductible respectively.

 

Ruling

Sale of shares, whether quoted or not, constitutes a transaction effected in the ordinary course of the company's business and any profits or losses arising from the sale of unquoted shares are taxable and tax deductible respectively, as one of the main objectives of the company is to invest and deal in shares.

 

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TR 7

 

Facts

An offshore company proposes to issue non-voting redeemable fixed rate preference shares to a group entity and intends to account for the transaction as a short term loan rather than equity and accordingly treat dividends payable as interest under the Financial Reporting Standard 5 (FRS 5).

 

Point at issue

Whether the tax treatment should follow the accounting treatment i.e a transaction should be based upon its economic substance where it differs from its legal form.

 

Ruling

The preference shares cannot be considered as a short term loan for tax purposes.  The terms and conditions on which the preference shares will be issued may entitle them to be reclassified as a short term loan according to accounting standard.  However, for tax purposes, any distribution will be treated as dividends and not as interest.

 

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TR 8

 

Facts

An investment company listed on the official list of the Stock Exchange proposes to transfer the significant differential between the market price and the underlying net asset value (NAV) of the company's shares to a Unit Trust Scheme (authorised under Unit Trust Act 1989) which will be an open-ended Fund (having no predetermined limit) and will invest primarily in listed and unlisted securities, bonds and deposits.  Subsequently, the company will distribute a dividend equivalent to the "differential" to its shareholders who will be required to re-invest in the Unit Trust Scheme.

 

Points at issue

  1. Whether an existing shareholder of the company who will be allotted shares in the Unit Trust Scheme will be entitled to investment relief under Section 36 of the Income Tax Act 1995.
  2. Whether a corporate shareholder of the company will be entitled to an investment tax credit under Section 69 of the Income Tax Act 1995 in respect of units allotted to it.

 

Ruling

  1. An existing shareholder who will be allotted shares in the Unit Trust Scheme will be entitled to investment relief under Section 36 of the Income Tax Act 1995.
  2. Likewise, an existing corporate shareholder of the company will be entitled to an investment tax credit under Section 69 of the Income Tax Act 1995 in respect of shares allotted to it.

 

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TR 9

 

Facts

A company proposes to give to its employees shares in the company free or with an option to buy at a price less than their market value (Employees' share participation scheme).  The option may or may not be exercised by the employee.

 

Point at issue

Whether a contractual agreement between a company and its employee giving the latter an option to subscribe to a number of shares at a price lower than their market value gives rise to a taxable benefit.

 

Ruling

The difference between the purchase consideration and the market value of the share is a benefit in kind accruing to the employee and is taxable under Section 10 (1) (a) (i) of the Income Tax Act 1995 (when the option to acquire the shares is exercised by the employee)

 

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TR 10

 

Facts

The main activity of a company is airline catering.  More than 90% of its gross income is derived from sale of food processed by it.  In its day to day operations, it purchases locally raw materials which include semi-finished goods, chicken, fish, lamb, beef, bacon, fresh fruits and vegetables.  These are subsequently sanitized, processed and stored at appropriate temperatures and are then cooked/steamed/grilled/fried or baked according to set menus.  The prepared meals or salads are placed in appropriate containers which are arranged in trays and blastchilled, ready for either continental breakfast or dinner destined for passengers.

Point at issue

Whether the activities and transformation processes mean "manufacture" as defined in the Income Tax Act 1995 and accordingly the company should be treated as a tax incentive company.

 

Ruling

The processing activities of the company fall within the ambit of the word "manufacture" as defined in the Income Tax Act 1995.  Hence, the company qualifies as a tax incentive company.

 

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TR 11

 

Facts

A foreign group of companies is planning to restructure a number of subsidiaries worldwide under a Mauritian offshore holding company and wishes to ensure maximum foreign tax credit available against the Mauritian tax liability.

Point at issue

Whether the pooling of foreign tax credit available to a taxpayer under Regulation 6 (3) (a) of the Income Tax (Foreign Tax Credit) Regulations 1996 includes both actual tax paid and deemed tax under Regulation 9 and the aggregate amount will be available for offset against the Mauritian tax liability.

 

Ruling

The pooling of foreign tax credit available to a taxpayer under Regulation 6 (3)(a) of the Income Tax (Foreign Tax Credit) Regulations 1996 includes both actual tax paid and deemed tax under Regulation 9.  The aggregate amount will therefore be available for offset against the Mauritian tax liability.

 

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TR 12

 

Facts

An offshore company incorporated in Mauritius as an asset management company will give investment advice to a fund also incorporated in Mauritius as an offshore company.  The fund derives income through its investment activities abroad.

 

Point at issue

Whether the management fee which the asset management company will receive from the fund will be deemed to be foreign source income and hence the company will be entitled to claim the deemed foreign tax credit in accordance with Regulation 8 (3) of the Income Tax (Foreign Tax Credit) Regulations 1996.

 

Ruling

Since the asset management company is resident in Mauritius and will give investment advice to another company resident in Mauritius, the investment advisory fees are income derived from Mauritius.  Moreover, as credit for foreign tax is given only in respect of foreign source income, the deemed foreign tax credit will not be available with regard to the investment advisory fees.

 

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TR 13

 

Facts

A resident company is licensed to operate in the Mauritius Freeport Zone.  It imports dyestuffs and textile auxiliaries in bulk which it processes for re-export.  It also sells part of its products to factories operating in the Export Processing Zone.

 

Point at issue

Whether income derived from the sale of its products to factories operating in the Export Processing Zone is exempt from tax.

 

Ruling

The sale to factories operating in the EPZ constitutes an activity carried on outside the Freeport Zone.  Income derived from such activities is therefore subject to tax in accordance with Section 49(2) of the Income Tax Act 1995.

 

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TR 14

 

Facts

A foreign company will operate a worldwide satellite-based digital telecommunications system that will deliver wireless telephone and other telecommunications services to users worldwide.  It proposes to form a Mauritian offshore company which will provide access to the system to Service Providers in other countries pursuant to a contract.  One such Service Provider will promote and provide access to the system to its customers (i.e the end users).  Payment by that Service Provider to the Mauritian offshore company will be in the form of a monthly usage fee mainly based on the actual usage of the system by the Service Provider.   To enable it to fulfill its contractual obligations towards the Service Provider, the Mauritian offshore company will contractually obtain access to the system from the foreign company in return for payment of fees.

 

Point at issue

    1. Whether the payment by the Mauritian offshore company to the foreign company will be characterized as a "royalty" or a "service fee" and whether that payment will be subject to tax in Mauritius.
    2. Whether the Mauritian offshore company will be subject to tax in Mauritius at 15% against which it may claim credit/90% deemed credit for foreign taxes suffered on its foreign source income.
    3. Where the Mauritian offshore company receives foreign income from two different foreign sources, whether it may claim foreign tax credit on one source and the 90% deemed credit on the second source.
    4. Having regard to the nature of the activities of the Mauritian offshore company and the circumstances of the case, if the spread, that is the net income after Service Provider Fees and administrative costs, is not less than one per cent  (1%) of the net amounts received from the Service Providers and not more than five per cent (5%) of such amount, whether this will be regarded by the Tax Authorities as reasonable.

 

Ruling

  1. The payment by the Mauritian offshore company to the foreign company will be considered as a service fee.  Moreover, the foreign company will not be liable to tax in Mauritius on that service fee since it is a non resident company and the services provided to the Mauritian offshore company are performed from overseas.
  2. The Mauritian offshore company will be taxable at the rate of 15% and the Income Tax (Foreign Tax Credit) Regulations 1996 will apply in respect of its foreign source income.However, fees derived from services provided from Mauritius by the Mauritian offshore company to Service Providers will be treated as Mauritian source income.
  3. Where the Mauritian offshore company receives foreign income from two different foreign sources, it may claim foreign tax credit on one source and the 90% deemed credit on the second source in accordance with Regulation 6(3) of the Income Tax (Foreign Tax Credit) Regulations 1996.
  4. The income of the Mauritian offshore company for income tax purposes will have to be determined in accordance with the arm's length principles.

 

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TR 15

 

Facts

 

A wholly owned subsidiary of a foreign company which is itself part of a multinational group engaged in importing and distributing clothing for men, women and children in another country is incorporated in Mauritius and holds a Freeport Licence.

The subsidiary company will assist the holding company in procuring the stocks of garments and its role will include obtaining prices, pre-production and production information from factories/suppliers, carrying out quality inspections and following up orders to ensure that goods are exported on time.  The subsidiary company will have an office in Mauritius and will employ the necessary staff, including expatriates, to carry out its functions.

 

Point at issue

Whether payments by the holding company for running the subsidiary's office in Mauritius on a cost recovery basis is acceptable to the Income Tax Department.

 

Ruling

The net income of the subsidiary will be determined by the Income Tax Department in accordance with arm's length principles.

Further, the activities of the subsidiary are considered to be carried out outside the Freeport Zone and the income derived from such activities will be subject to tax in accordance with Section 49(2) of the Income Tax Act 1995.

The above ruling would not be different if the subsidiary were a Mauritian offshore company.

 

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TR 16

 

Facts

The core activities of a company since its incorporation have been the provision of a wide range of contracting works to the sugar industry for the preparation, upkeep and enhancement of sugar cane fields.  These activities have been extended to the mechanical loading and mechanical harvesting of sugar cane top.

 

Point at issue

Whether the company is a tax incentive company under item 22 of Part V of the First Schedule to the Income Tax Act 1995 which reads as follows: "a company deriving at least 75 per cent of its gross income from agriculture, fishery and livestock".

 

Ruling

The company is not engaged in agriculture but is providing services to the sugar industry for the preparation, upkeep and enhancement of sugar cane fields.  The income derived by the company, although linked with agriculture, represents the return for the services provided to the sugar industry.  Hence, the company does not qualify as a tax incentive company.

 

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TR 17

 

Facts

A foreign bank is offering the opportunity to employees of its branch in Mauritius to subscribe to the share capital of the bank in view of the increase in its capital on the following conditions:-

For each share subscribed by the employee, the employer should subscribe to one free share in favour of the employee up to a maximum of 16 free shares per employee.

Shares subscribed by the employee and the employer cannot be released before five years.

 

Point at issue

Whether the employee is assessable to tax on the free shares?  If in the affirmative

  • when should the tax be paid?
  • should the tax be paid under PAYE?

 

Ruling

The employee is assessable to income tax on the free shares as these are fringe benefits falling within the ambit of Section 10 (1)(a)(i) of the Income Tax Act 1995.  The tax should be paid under the PAYE System at the time the employee receives the benefit in accordance with the provisions under Part VIII, Sub-Part A of the Income Tax Act 1995.

 

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TR 18

 

Facts

A group of companies engaged in sugar cane plantation have made applications for land conversion under Section 5(7)(f) of the SIE Act 1988 (as amended).

The companies propose to subdivide and develop the lands into residential plots and sell same to the public.  The lands have been owned by the company for sugar cane plantation for a considerable period of time.  The companies have never in the past been engaged in property development.  The sale of lands by the group of companies will be effected under the 1200 Arpents Land Conversion Scheme approved by the Government whereby 25% of land will be sold to the Government at nominal prices.  The group has the obligation to plough back at least 60% of the proceeds and carry out the conversion within a specified period, failing which the authority for land conversion will be withdrawn.

 

Point at issue

Whether the proceeds from the sale of the lands would constitute a chargeable income for Income Tax purposes.

 

Ruling

The profits to be realized by the group of companies from the sale of the lands will be considered as capital profits and hence not chargeable to income tax.

 

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TR 19

 

Facts

A consortium proposes to acquire shares held by a foreign company in a Mauritian company engaged in sugar cane plantation.  Apart from 5 different companies holding each an equal percentage of share capital of the consortium, the Government will participate in the shareholding of the consortium.  The proposed agreement between the Government and the consortium provides inter alia that the Mauritian company will:

sell to the Government some portions of land at a concessionary price;

be allowed to: -

  1. parcel out some other portions of agricultural lands to small planters as agricultural morcellements and sell part thereof on a going concern basis to an entity to be designated by Government;
  2. rezone and parcel out other portions of land to be sold to the public.

 

Point at issue

Whether any gains from the sale of the lands by the Mauritian company would be chargeable to income tax.

 

Ruling

Any gains from the sale of the lands by the Mauritian company will be considered as capital profits and will not therefore be chargeable to income tax since the lands have been owned by the Mauritian company for sugar cane plantation for a considerable period of time.  Moreover, the Mauritian company has never been engaged in property development.

 

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TR 20

 

Facts

A foreign company intends to register itself with the Registrar of Companies as a foreign company to operate in the offshore sector.  The offshore company (the lessor) will contract a loan with an offshore bank for the purchase of a new brewery plant which is being constructed abroad with a view to hire it to a leasing partnership (the lessee) established abroad which will in turn make the new brewery plant available to another company under a financial lease agreement.  The lessee will pay a rental to the lessor during the first five years.

 

Point at issue

  1. Whether the offshore company is assessable to tax on the lease interest derived by it under the finance lease agreement entered into by it and the leasing partnership.
  2. Whether the lease interest paid by the leasing partnership to the offshore company is income derived from outside Mauritius.
  3. Whether the offshore company will, by virtue of Section 19 of the Income Tax Act 1995, be entitled to a deduction in respect of interest payable on loan taken from the non-resident bank for the acquisition of the brewery plant.
  4. Whether the offshore company is entitled to a deduction in respect of its administrative and other expenses which satisfy the requirement of Section 18(1) of the Income Tax Act 1995.
  5. Whether the interest paid by the offshore company to a non-resident bank is exempt from tax under item 5 of Part III of the Second Schedule to the Income Tax Act 1995.

 

Ruling

    1. The offshore company, being a resident of Mauritius, is assessable to tax on the lease interest derived by it under the finance lease agreement entered into by it and the leasing partnership.
    2. The lease interest paid by the leasing partnership to the offshore company is income derived from outside Mauritius.
    3. The offshore company will, by virtue of Section 19 of the Income Tax Act 1995, be entitled to a deduction in respect of interest payable on loan taken from the non-resident bank for the acquisition of the brewery plant.
    4. The offshore company is entitled to a deduction in respect of its administrative and other expenses which satisfy the requirements of Section 18(1) of the Income Tax Act 1995.
    5. Interest paid by the offshore company to a non-resident bank is exempt from tax under item 5 of Part III of the Second Schedule to the Income Tax Act 1995.

 

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TR 21

 

Facts

An offshore bank intends to facilitate the roll out of a capital guaranteed investment product on behalf of an international fund.  The investment would be in three year Zero Coupon Bonds.  The Zero Coupon Bonds do not pay interest during their term.  However, the interest accrues annually and the value is paid at maturity.

 

Point at issue

  1. Whether the offshore bank will, by virtue of Section 19 of the Income Tax Act 1995, be entitled to deduct the accrued interest on the Zero Coupon Bonds.
  2. Whether the offshore bank will be required to withhold taxes on interest payments at maturity.
  3. Whether interest paid to the fund is chargeable to tax.

 

Rulings

  1. The offshore bank will, by virtue of Section 19 of the Income Tax Act 1995, be entitled to deduct the accrued interest on the Zero Coupon Bonds on an annual basis.
  2. There are no withholding taxes on interest payments.
  3. Interest paid to a non-resident by a corporation holding an Offshore Banking Licence issued under the Banking Act 1988 is exempt from income tax under item 5 of Part III of the Second Schedule to the Income Tax Act 1995.

 

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TR 22

 

Facts

An offshore company resident in Mauritius derives dividends from a foreign company in which it holds 50% of the shares.

 

Point at issue

Whether credit for underlying tax on a yearly basis will be granted on the production of a certificate from the tax authority of the foreign country that the company is subject to tax on its profits at a certain rate.

 

Ruling

The offshore company will be entitled to a credit for underlying tax on production of documentary evidence showing, in respect of the year for which credit is claimed, the following particulars:-

  1. the amount of corporate tax actually paid by the foreign company and
  2. the total profits of the foreign company out of which the dividends were paid.

 

The offshore company will still be able to claim an underlying tax credit in respect of a year where no tax has been paid by the foreign company if the dividends can be shown to have been  paid out of a previous year's profits which have already been charged to tax.  In such a case, the rate used in that previous year will apply for the purpose of calculating the underlying tax credit.

 

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TR 23

 

Facts

A new unit trust scheme will be constituted.  It will be managed by a company which has the status of "Approved Investment Institution".  The company will transfer part of its locally quoted investment portfolio and all its overseas investment portfolio to the unit trust in exchange for an equal number of units of that unit trust.  These units will then be distributed by the company to its shareholders by way of dividends in species on a pro-rata basis.  However, as the reserves of the company are not sufficient to enable a distribution of such an amount of dividends, it will proceed to a reduction of its capital.

 

Point at issue

(i)    Whether existing shareholders of the company who will be allotted units in the unit trust will be entitled to investment relief under Section 36 of the Income Tax Act 1995.

(ii)    Whether a corporate shareholder of the company will be entitled to investment tax credit under Section 69 of the Income Tax Act 1995.

 

Ruling

Since the gain on revaluation of investments to be transferred to the unit trust is not realized and the company does not have sufficient reserves to pay the required amount of dividends which its shareholders could have used to finance the acquisition of the units in the unit trust, the distribution by the company to its shareholders of the units to be acquired by the unit trust cannot be considered as new investments being made by the shareholders (individual or corporate) and they will not therefore be entitled to investment relief thereon under Section 36 of Section 69 of the Income Tax Act 1995, as the case may be.

 

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TR 24

 

Facts

A company engaged in the manufacture of animal and poultry feeds proposed to issue new shares due to expansion of the business and other factors.  The change in the ownership of shares of the company as at 30 September 1999 did not exceed 50% while at the end of the income year ended 30 September 2000, less than 50% in the nominal value of the allotted shares in the company were held by or on behalf of the same persons.

 

Point at issue 

Whether the company is entitled to carry forward the unrelieved losses as at 30 September 1998 for set-off against its net income for the income year ended 30 September 1999 and in succeeding years.

 

Ruling

In accordance with Section 59 of the Income Tax Act 1995 and the conditions prescribed in Regulation 19 of the Income Tax Regulations 1996, losses incurred by a company in an income year may be carried forward and set-off against its net income of the following year and in the succeeding years, provided that at the end of each of those years, not less than 50% in the nominal value of the allotted shares in the company are held by or on behalf of the same persons.

The company is therefore entitled to carry forward the unrelieved losses as at 30 September 1998 for set off against its net income for the income year ended 30 September 1999 as the change in the ownership of shares as at that date did not exceed 50%.

At the end of the income year ended 30 September 2000, less than 50% in the nominal value of the allotted shares in the company were held by or on behalf of the same persons.  Any unrelieved losses as at 30 September 1999 cannot therefore be carried forward for set off against the company's net income for the income year ended 30 September 2000 and succeeding years.

 

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TR 25

 

Facts

On 21 July 1997, a company engaged in hotel industry applied for a Hotel Development Certificate.  The Ministry of Tourism and Leisure subsequently issued a letter of intent dated 25 August 1998 informing the company that the Government has approved the grant of a Hotel Development Certificate, subject to certain conditions.  The Hotel Development Certificate was duly issued on 8 December 2000.

 

Point at issue

Whether for the purposes of Section 36 of the Income Tax Act 1995, the company would be regarded as a tax incentive company as from the date the Ministry of Tourism and Leisure issued the letter of intent.

 

Ruling

The company became a tax incentive company as from 1 July 1999 under item 29 of Part IV of the First Schedule to the Income Tax Act 1995.  Had it not been for that new provision enacted by the Finance Act 1999, the company would have qualified  as a tax incentive company as from the date the Hotel Development Certificate was issued to it i.e. 8 December 2000.

The company cannot therefore be regarded as a tax incentive company for the purposes of Section 36 of the Income Tax Act 1995 as from the date the letter of intent was issued to it by the Ministry of Tourism and Leisure.

 

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TR 26

 

Facts

A resident company incorporated in Mauritius on 19 June 1998 hold an offshore certificate issued on 25 June 1998.  The company continues to be governed by the Income Tax Act 1974 as it has not opted to be taxed under the Income Tax Act 1995.

 

Point at issue

Whether a Mauritian resident subscribing to Participating Shares of that company will be entitled to Investment Relief thereon pursuant to Section 36 of the Income Tax Act 1995.

 

Ruling

The company is governed by the Income Tax Act 1974 and it does not qualify as a tax incentive company.  A Mauritian resident subscribing to shares in that company will therefore not be entitled to Investment Relief under Section 36 of the Income Tax Act 1995.

 

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TR 27

 

Facts

A Mauritian company is involved in the manufacture and sale of chemical products, water treatment equipment and spare parts for domestic and industrial use.

A foreign company has a royalty agreement with the Mauritian company to provide the latter with formulations for the production of water treatment chemicals.

A new company was incorporated to establish a joint venture between the Mauritian company and the foreign company.

A division of the Mauritian company was transferred to the newly incorporated company for a specific amount of money.

The transfer consisted of the existing staff of the division and the existing clients of the Mauritian company.

 

Point at issue

Whether the receipt by the Mauritian company constitutes a taxable income.

 

Ruling

The receipt by the Mauritian company representing consideration for the sale of "goodwill" is not chargeable to income tax.

 

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TR 28

 

Facts

A company incorporated by continuation in Mauritius holds a Category 1 Global Business License since 1998.

The company is registered with the Companies Registry in a foreign country as an overseas company.  The company has established a place of business in that country from where all the activities of the company are carried out.

The company maintains full time employees based in the foreign country to carry out its day to day business activities.  The company has no employees outside the foreign country.

Under the tax law of the foreign country, income not sourced in that country is exempt from tax.  However, where an overseas company carries on business in that country through a branch, it is required to declare all income (wherever sourced) attributable to the branch in that country even foreign source income is eventually exempt.

 

Point at issue

Whether the company is eligible to a tax sparing credit under Regulation 9(1) of the Income Tax (Foreign Tax Credit) Regulations 1996 in respect of profits tax which would otherwise have been payable but for the exemption effectively given as a result of the source basis of taxation in that country.

 

Ruling

The company is entitled to a tax sparing credit in respect of profits tax which would otherwise have been payable had foreign source profits not been exempt in that country.

 

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TR 29

 

Facts

A resident company incorporated in Mauritius holds a Regional Headquarters Certificate. A foreign company and its wholly owned subsidiary hold, each of them, 50% of the shares of the resident company.

All strategic decisions relating to the business of the foreign company and its subsidiary will continue to be made by the respective Board of Directors outside Mauritius.

The resident company will be providing a range of services including management, marketing, financial, coordination and other services to the foreign company and its subsidiary. As part of the service agreement, the resident company may issue sales invoices in the name of the foreign company/its subsidiary. However, pricing and all other terms relating to a transaction are pre-agreed by the foreign company/its subsidiary and the purchaser in a distribution contract. All sales and payments in respect of invoices issued by the resident company are entered in the accounts of the foreign company/its subsidiary.

The resident company will receive an arm’s length service fee from the foreign company and its subsidiary in respect of the provision of the above services.

Point at issue

Whether the foreign company/its subsidiary may be considered as having a branch or agency (or other form of permanent establishment) in Mauritius or a source of income taxable in Mauritius.

 

Ruling (issued in September 2002)

Provided the transactions between the resident company and the foreign company/its subsidiary are carried out at arm’s length and the issuing of invoices by the resident company is a pure administrative act, the foreign company and its subsidiary will not be considered as having a permanent establishment in Mauritius or other source of income taxable in Mauritius.

 

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TR 30

 

A Facts

A bank holding a Category 2 Banking Licence deals with companies holding Category 1 and 2 Global Business Licences, Freeport Companies and Trusts which carry out qualified global business. The bank provides services to clients from Mauritius in respect of activities carried out outside Mauritius.

 

Points at issue

  1. Whether the income from transactions with the entities as described above will be classified as foreign source income.
  2. Whether the 80% presumed foreign tax credit will be available.

 

Ruling (issued in September 2002)

Companies holding Category 1 and 2 Global Business Licences, Freeport Companies and Trusts carrying out qualified global business outside Mauritius are resident in Mauritius. Companies holding Category 2 Global Business Licence are resident in Mauritius by virtue of their being incorporated/registered here except that they are deemed not to be resident only for treaty purposes under Section 76 of the Income Tax Act.

Income derived by the bank from the loan/banking facilities and other services provided to the entities mentioned above are income derived from within Mauritius and not foreign source income. Accordingly, no presumed foreign tax credit will be available.

 

B Facts

A bank holds a Category 2 Banking Licence. As a result of certain international trading transactions regarding lendings and borrowings or buying and selling of foreign currencies, the bank made certain gains or losses, due to fluctuation in foreign currency rates.

 

Point at issue

Whether exchange gains or losses would be classified as capital gains/losses or income receipt/allowable expenses.

Ruling (issued in September 2002)

 

Exchange gains/losses arising on accounts that record a company’s ordinary business transactions are taxable or deductible as the case may be. However exchange gains/losses in connection with transactions involving capital assets are not recognized for income tax purposes.

 

C Facts

A new tax regime applicable to Global Qualified Corporations has been introduced whereby all such entities would be taxable at the rate of 15% on their income as from the year of assessment starting 01 July 2003. The basis period for the assessment year 2003/2004 is normally 01 July 2002 to 30 June 2003. The financial year of a bank holding a Category 2 Banking Licence ends on 31 March. The financial statement for the year ended 31 March 2003, which forms the basis for the assessment year 2003/04 will therefore include foreign source income earned from 01 April 2002 to 30 June 2002.

 

Point at issue

Whether the bank would have to pay tax on income derived during the period prior to 01 July 2002 at the rate of 15%. Alternatively, whether the income for the financial year ended 31 March 2003 could be apportioned so that the rate of tax in force during the period before and after 01 July 2002 could be applied for calculation of the tax payable and the allowable presumed foreign tax credit.

 

Ruling (issued in September 2002)

Pursuant to Section 4 of the Income Tax Act 1995, the income assessable for the year of assessment 2003/04 is the income derived during the preceding year ended 30 June 2003. However, as the bank has an approved return date under Section 118 of the Income Tax Act, the income for the financial year ended during that preceding year will form the basis of assessment for the assessment year 2003/2004.

Income tax payable for the year of assessment 2003/2004 should be computed based on the tax rate applicable for that year of assessment, i.e. 15%. Apportionment of the income of a financial year for calculation of tax payable or presumed foreign tax credit is not applicable.

 

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TR 31

 

Facts

A foreign company, registered in Mauritius and forming part of a Multinational Group present in many countries all over the world provides marketing, technical services (including installation and maintenance) and post-marketing assistance but is not allowed to accept and conclude any contract with any client nor is it involved in the provision of services to clients in Mauritius. The Multinational Group provides services on a global rather than territorial basis and revenue can be generated in one country but the related costs incurred elsewhere. The company applies a pre-determined cost plus percentages to various categories of costs, irrespective of the actual amount of revenue generated in a territory.

Point at issue

Whether the application of a cost plus basis method could be used for computing the company’s chargeable income in Mauritius.

Ruling (issued in September 2003)

The computation of chargeable income varies from one country to another depending on the level of activities and financial risk undertaken by the entities concerned. Cost plus basis is an acceptable method to arrive at the chargeable income as the company is providing some limited services which support the group’s core activity.

 

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TR 32

 

Facts

A shareholder holding the majority of shares in a company engaged in building services contemplates to sell all his shares to another potential new shareholder at a substantial amount in excess of the nominal value thus realising a capital gain. The existing shareholder does not trade in shares and this transaction is a one-off event.

Point at issue

Whether the gains accruing from the sale of shares are taxable in the hands of the seller.

Ruling (issued in November 2003)

The gains derived from the sale of shares are not subject to income tax by virtue of the exemption provided under Item 1 of Part IV of the Second Schedule to the Income Tax Act.

 

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TR 33

Point 1 : Taxation of Exchange Differences

Facts

A company incorporated in Mauritius holds a Category 1 Global Business Licence (GBC 1) for the purpose of holding investments of a group overseas. It intends to invest primarily in securities in some countries denominated in a currency other than its reporting currency viz US Dollars (USD).
At year end, the company may have in its balance sheet amounts due to and from brokers in different countries. The company may also have surplus cash in the bank account in these countries in the relevant underlying currencies for a number of reasons.

The debtors, creditors and cash balances at year end denominated in a currency other than the reporting currency will need to be translated at year end rates in accordance with generally accepted accountancy principles. This would result in exchange differences which would be taken to the statement of operations as results for the year.

Point at issue

Whether the exchange differences resulting from the above would be considered as a deduction or income, as the case may be, in computing the company’s chargeable income.

Ruling (issued in November 2003)

The calculation of profits for tax purposes should start with a consideration of the accounts drawn up in accordance with accepted principles of commercial accounting.

If the accounts of the GBC 1 company prepared in accordance with the Companies Act and generally accepted accountancy principles have to take account of translation profits and losses then these profits and losses should also be taken into account for tax purposes unless there are particular reasons relevant to the case in question, including whether they are in respect of capital items, for taking a different view.

In deciding what generally accepted accountancy principle is for this purpose, regard should be had in particular to IAS 21 – "The effects of changes in Foreign Exchange Rates" and to published accountancy practices.

Point 2 : Availability of tax sparing credit

Facts

The GBC 1 company would invest in an overseas company (Co A) which is resident in a State with which Mauritius has a Double Taxation Agreement. Co A operates in the Free Trade Zone and would accordingly benefit from certain tax incentives. It would thus enjoy a tax holiday for the first 5 years of operations and would pay tax at a concessionary rate for the next five years.
In the initial years of profitability when the full tax exemption is available, Co A proposes to retain the bulk of distributable profits for future plans and operations and distribute to the GBC 1 company only a small proportion.

Depending on future performance and actual results on budget, Co A proposes to distribute all surpluses in later years out of retained earnings accumulated over the 5 initial years. At that time the tax rate in force would be the reduced or concessionary rate.

Point at issue

Whether tax sparing credit would be available in the later years in respect of dividends received from profits earned in earlier years, which would but for the tax incentives have been taxed at the normal rate.

Ruling (issued in November 2003)

In accordance with the Double Taxation Agreement in force between Mauritius and the State concerned and the current provisions of the Income Tax (Foreign Tax Credit) Regulations 1996, tax sparing credit would be available to the Mauritian company in respect of dividends received from an investee company in that other State paid out of that investee company’s current and/or prior year profits.

 

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TR 34

Facts

A Mauritian citizen who is a Chartered Accountant returned to Mauritius after having spent more than 10 years abroad. She joined a Chartered Accountancy firm and worked there for some 15 months and afterwards took up employment in a company holding a Management Licence issued under Section 24(2) of the Financial Services Development Act 2001.

Point at issue

Whether the Mauritian citizen can be considered as a specified Mauritian employee as defined at Item 14(b)(i) of Part II of the Second Schedule to the Income Tax Act for the 50% tax exemption on emoluments.

Ruling (issued in January 2004)

The company licensed as a Management Company is not authorised to conduct any of the business activities referred to in Item 25 of Part IV of the First Schedule to the Income Tax
Act. Hence, the Mauritian citizen cannot be considered as a specified Mauritian employee and is therefore not entitled to the 50% tax exemption on emoluments.

 

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TR 35

 

Facts

A company is mainly engaged in the construction of golf courses of international standard. The construction of a golf course includes among other `works’ the levelling of land, landscaping, the construction of drainage system, the preparation of soil, construction of the basement for the purpose of installation of irrigation equipment and concrete works.

Point at issue

Whether the company engaged in the construction of golf courses is liable to income tax at the rate of 15%.

Ruling (issued in April 2004)

The company cannot be considered as a manufacturing company as defined in Section 2 of the Income Tax Act 1995. As it does not qualify as a tax incentive company, it is liable to income tax at the normal rate of 25%.

 

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TR 36

Facts

A company is engaged in the breeding and export of monkeys. It has for the accounting period ended 31 December 2003 prepared its Financial Statements in accordance with the Mauritius Companies Act 2001 and the International Accounting Standards ("IAS"). IAS 41 Agriculture has been adopted by the company and applied retrospectively. The primates held for sale designated as non-bearer biological assets are measured at fair value less estimated point of sale costs. The fair value of the primates held for sale is based on expected selling price and future direct costs to bring the primates to saleable condition, discounted at an appropriate discount rate to balance sheet date.

The company contends that should IAS 41 be applied for tax purposes this will discourage expansion of the business whereby any increase in stock level of non-bearer biological assets will lead to additional tax burden for the company on unrealised profits. To remedy this situation the company proposes to value stock under IAS 2 (lower of cost and net realisable value) for biological assets having a life cycle of more than 1 year.

Point at issue

Whether IAS 2 Inventories can be used to value the monkeys held for sale.

Ruling (issued in July 2004)

IAS 2 cannot be used to value the monkeys held for sale since producers’ inventories of livestock fall outside the scope of that IAS. However, for income tax purposes a standard value may be adopted in respect of the monkeys held for sale in accordance with Regulation 4 (3) of the Income Tax Regulations 1996.

In view of the high profit margin expected in that line of business, a standard value similar to that used in respect of cattle, i.e. the market value less 40 per cent thereof, may be adopted for the valuation of monkeys.

 

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TR 37

Facts

A private limited company engaged in the cultivation of sugar since its incorporation will undertake a restructuring exercise whereby a newly formed company will acquire all the shares of the private limited company and this new company will be in turn owned by the existing shareholders of the private limited company.

The sugar growing activities of the private limited company will be taken over by another newly formed company, which will pay a rent computed at an arm’s length basis, for the use of the fixed assets including land belonging to the private limited company. After the restructuring exercise, the private limited company may parcel some or all of its agricultural land.

Points at issue

(i)Tax losses

  1. (a) Whether the unrelieved tax losses of the private limited company will be available for carry forward irrespective of the fact that such losses arose partly from sugar growing activities and were partly transferred to the company by a related sugar milling company.
  2. (b) Whether the change in the shareholding of the private limited company will impact on the availability of the unrelieved tax losses for carry forward.

(ii) Profit on Sale of Land

Whether the profit derived by the private limited company from parcelling and sale of some or all of its agricultural land is taxable.

Ruling (issued in December 2004)

  • Tax losses
  1. The unrelieved tax losses of the private limited company will be available for carry forward and set off against its future profits irrespective of the fact that there is a change in the nature of the trading activities of the private limited company.
  2. On the understanding that as a result of the restructure, there will not be any change in the ultimate shareholding of the private limited company the unrelieved losses of the company will be available for carry forward.
  • Profit on Sale of Land

Land parcelling is an undertaking or scheme entered into or devised for the purpose of making profits which, by virtue of the provisions of Section 10(2)(c) of the Income Tax Act 1995, form part of taxable business profits.

The cost of land to be taken into account for the computation of the taxable profit will be the market value of the land just before it is made available for the development project.

 

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TR 38

 

Facts

A company incorporated in Mauritius and holding a Category 1 Global Business Licence (GBL 1), will acquire a limited partnership interest (Partnership A) in a jurisdiction where partnerships are fully transparent for tax purposes. This partnership will in turn acquire interest in another partnership (Partnership B) in the same jurisdiction. Partnership B will directly acquire and hold shares of a publicly listed company (PLC).

Points at issue

    1. Whether gains realized on the disposal of the shares held in PLC by partnership B and allocated to GBL 1 company in Mauritius will be treated as capital gains realized by the GBL 1 company.
    2. Whether the GBL 1 company will be subject to income tax in Mauritius on the gains.
    3. Whether in respect of dividends paid by PLC and allocated to the GBL 1 company, the latter company will be entitled to underlying tax credit for the tax paid by PLC on its profits.

 

Ruling (issued in December 2004)

  1. Share of profits, gains and losses allocated to the GBL 1 company by the partnerships A and B will retain their characteristics and each source of income will be taxed in Mauritius according to the taxation rules applicable to that source of income in Mauritius.Capital gains realized on the disposal of shares held by partnership B will therefore be treated as capital gains realized by the GBL 1 company.
  2. Capital gains realized on the disposal of shares are not subject to income tax in Mauritius.
  3. On the understanding that the GBL 1 company will indirectly own not less that 5% of the share capital of PLC, the GBL 1 company will be entitled to underlying tax credit in respect of the dividends paid by PLC and allocated to the GBL 1 company by partnerships A and B.

 

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TR 39

Facts

A foreign airline company is to appoint an agent to sell holiday packages on its behalf in Mauritius. The packages will include the airfare, hotel accommodation costs and ground handling arrangements in the country of destination.

Point at issue

What would be the tax implications if:

  1. the appointed agency will be remunerated with commission and all sales proceeds repatriated directly to the foreign airline company;
  2. the local branch office of the foreign airline is appointed as the agent of the foreign airline company and in that capacity is responsible for co-ordinating all activities of the foreign airline company in Mauritius.

Ruling (issued in March 2005)

  1. On the understanding that the agent in the first scenario is an independent agent (i.e. an agent not acting under instructions from the foreign airline company and not doing business solely for the foreign airline company) the foreign airline company would not have a permanent establishment in Mauritius and would therefore not be liable to tax in Mauritius. The agent would however be liable to tax in his own name on the commissions received.
  2. In the second scenario, as the local branch office of the foreign airline would be responsible for co-ordinating the activities of the foreign airline company in Mauritius, the latter would have a permanent establishment in Mauritius and would be liable to tax in Mauritius on the profits attributable to that permanent establishment.

 

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TR 40

 

Facts

A company is engaged in Segment B banking activities (previously Category 2 banking).It received its banking licence on 3 June 2002 and started its operation as from July 2002 .When calculating PAYE in respect of its expatriate employees, employed since the beginning, the company has been applying 50% exemption available under item 14 (a) (iv) of Part II of the Second Schedule.

 

Point at issue

Whether it can be confirmed that

  1. there is no limit on the number of expatriate employees who are entitled to claim 50% exemption
  2. each expatriate employee is entitled to the 50% exemption of income tax on his emoluments up to 30 June 2006.
  3. that further to the introduction of the Banking Act 2004, the 50% exemption up to 30 June 2006 will apply only to existing expatriate employees already benefiting from this exemption , and not to newly employed expatriates.

 

Ruling (given in September 2005)

It is confirmed that

  1. There is no limit on the number of expatriate employees who are entitled to the 50% exemption provided under Item 14(a)(iv), Part II of the Second Schedule to the Income Tax Act 1995.
  2. Each expatriate employee is entitled to the 50% exemption of income tax on his emoluments up to 30 June 2006.
  3. As the law presently stands, the 50% exemption will apply not only to expatriates employed prior to the coming into force of the Banking Act 2004 but also to newly employed expatriates up to 30 June 2006 on the condition that they satisfy the requirements (as amended) laid down in Item 14(a)(iv), Part II of the Second Schedule to the Income Tax Act.

 

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TR 41

 

Facts

A company wishes to incorporate a Category 1 Global Business Company (GBC 1). The company will be an investment holding company. One of its main activities would be to purchase promissory notes or bills of exchange or other financial instruments issued by companies outside Mauritius through offshore sellers. To finance the purchase of the promissory notes, bills of exchange or other financial instruments, the GBC 1 may in turn issue its own promissory notes, bills of exchange or other financial instruments to the offshore sellers.

 

Points at issue

 

Whether it can be confirmed that

 

  1. the payment made to offshore sellers by the GBC 1 company for the purchase of promissory notes, bills of exchange or other financial instruments will not be subject to any withholding income tax, stamp duties, value-added taxes and any other taxes or duties.
  2. the gains arising to the GBC 1 from the purchase and sale of the above financial instruments will not be liable to tax whereas the coupon interest received under the purchased promissory notes, bills of exchange or other financial instruments will be subject to tax at the rate of 15%.
  3. the gains arising to the GBC 1 if these financial instruments are sold before maturity will not be assessable as also stated in (2) above.
  4. the GBC 1 can apply for a certificate of residency in Mauritius through the Financial Services Promotion Agency if it satisfies the set criteria in order to benefit from lower withholding tax under the relevant Double Taxation Agreement between Mauritius and the country where the issuer is relevant.
  5. the GBC 1 will be entitled to claim as tax deduction the interest paid (at arm's length) for the purchase of the financial instruments
  6. in cases where the financial instruments are issued by the GBC 1 at a discount, the difference between the issue price and the redemption price will not be allowed as a deduction for income tax purposes.
  7. interest paid by the GBC 1 in paragraph 5 above will be allowed as deduction even if the recipient of the interest is resident in the British Virgin Islands.

 

Ruling (issued in November 2005)

 

  1. The payment made to offshore sellers by the GBC 1 company for the purchase of promissory notes, bills of exchange or other financial instruments will not be subject to any withholding income tax. Regarding the exemption from payment of stamp duties, value-added taxes and any other taxes or duties, it is suggested that these issues be addressed to relevant authorities.
  2. The gains arising to the GBC 1 from the purchase and sale of the above financial instruments will be liable to tax in the hands of the GBC 1 at the incentive rate of 15%.Moreover, the coupon interest received under the purchased promissory notes, bills of exchange and other financial instruments will be subject to tax at the rate of 15%. GBC1 may benefit from credits for taxes suffered at source where this can be evidenced. If taxes suffered at source cannot be evidenced, a unilateral tax relief of 80% of the Mauritius tax charge is available under the Income Tax (Foreign Tax Credit) Regulation 1996, thus resulting in an effective maximum tax rate of 3%.
  3. The gains arising to the GBC 1 if these financial instruments are sold before maturity will be assessable to tax in the same way as per paragraph (2) above.
  4. The GBC 1 may apply for a tax residence certificate to the Commissioner of Income Tax through the Financial Services Promotion Agency. The tax residence certificate will be delivered to the company on the strict condition that it can prove to the satisfaction of the Commissioner that it is either incorporated in Mauritius or has its central management and control in Mauritius.
  5. The GBC 1 will be entitled to claim as tax deduction the interest paid for the purchase of the financial instruments provided that the interest paid is at arms' length. The recipient of the interest will in principle be taxable in Mauritius.
  6. Where the financial instruments are issued by the GBC 1 at a discount, the difference between the issue price and the redemption price will be allowed as a deduction for income tax purposes.
  7. Interest paid by the GBC 1 in paragraph 5 above will be allowed as deduction even if the recipient of the interest is resident abroad. The recipient will on the other hand be taxable on the interest in Mauritius

 

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TR 42

 

Facts

A bank is proposing to implement a Domestic Medium Term Bond Programme under which it will issue unsecured bonds in tranches by private placement over a period of time. The bonds will have a term of maturity of more than 3 but less than 15 years. Interests on the bonds will be payable at the rates and dates as determined under the programme.

 

Point at issue

Whether interest payable on unsecured bonds that the bank is proposing to issue will be exempt from income tax under item 3(d) of Part III of the Second Schedule of the Income Tax Act.

 

Ruling (given in December 2005)

    1. Although from a purely banking law perspective, bonds are treated in the nature of a deposit in view of the adequacy ratio requirements and the equal ranking to a fixed deposit in the event of a distribution in a winding-up, for the purposes of income tax, interest payable on bonds are only exempt when such bonds are issued by the Bank of Mauritius as approved by the Minister of Finance and Economic Development as provided under item 3(e), Part III of the Second Schedule to the Income Tax Act.
    2. The Income Tax Act makes separate provisions for the exemption of interest on deposits. The provisions under item 3(d), Part III of the Second Schedule to the Income Tax Act are clear in that only deposits made and maintained for a continuous period of not less than 3 years by an individual in a bank bear tax-free interest. The exemption provided under this item in respect of interest payable on deposits cannot legally be extended to interest payable on bonds.

 

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TR 43

 

Facts

A Societe will construct a number of villas. Some of the villas will be sold together with the freehold land on which they are built whereas others will be sold with only leasehold interest in the land on which they are built. The leasehold interest will be for eighty years and the buyer will make one lump sum payment in respect of the acquisition of the villa together with the leasehold interest in the immoveable property.

 

Point at issue

Whether the Societe is allowed to claim a deduction in respect of the costs of the land and construction of the villas against the lump sum payment received from the sale of the villas and the leasehold right.

 

Ruling (given in December 2005)

The costs incurred in the acquisition of the land and construction of villas are allowable deductions against the gross income derived from the sale of freehold immoveable properties. As regards villas sold on leasehold interests for 80 years, the costs of land and construction of villas are not allowable.

 

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TR 44

 

Facts

A company holding a Category 1 Global Business Licence will make a loan to a foreign company which will in turn invest the money in a real estate project in another foreign country. The implementation period of the project is estimated to be between 3 to 5 years. The loan agreement will provide that while interest will be accrued annually, payment will only be effected on a date after the implementation period.

 

Point at issue

Whether the interest income and expenses can be accounted for tax purposes on a cash basis.

 

Ruling (given in December 2005)

Section 5 of the Income Tax Act provides that income shall be deemed to be derived by a person when it has been earned or has accrued.

The GBL 1 company will therefore be taxable on accrued interest income and will also on the other hand be able to deduct accrued interest expenses.

 

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TR 45

 

Facts

X Group is a UK quoted company and also a holding company of an international group. A large proportion of the group's activities are carried out in a country outside UK and the Group is planning to reorganize its operations in that country. The proposed structure will be such that there will be Mauritian Société holding a GBC 1 with two partners which will be companies holding GBC 1 also. One of these Mauritian Companies will advance interest-free loans to the holding Company incorporated in the country referred to above.

 

Point of Issue

Whether it can be confirmed that

  1. the société's profits allocated to the partners will be taxed on the partners at an effective rate of 3 %.
  2. only the partners of the Société will be subject to Mauritius taxation on their respective share of income from the Société and that the Société itself will not be subject to taxation as an entity.
  3. the interest-free loans from the Mauritian Company to the South African Holding Company will be treated as equity and Mauritius will not seek to impute tax on the interest adjustments on the loans.
  4. repayments of share capital, share premium and interest -free loans by the South African Holding Company will be treated as of a capital nature and not be reclassified as dividend income on applying anti-avoidance legislation.

 

Ruling

It is confirmed that

  1. Every partner of a société holding a Category 1 Global Business Licence (GBL 1)under the Financial Services Development Act is liable to income tax in respect of his income in the société at the rate of 15%. However,where the partner is a corporation holding a Category 1 Global Business Licence, the company will be entitled to presumed tax credit in accordance with the provisions of regulation 8 of the Income Tax (Foreign Tax Credit) Regulations 1996.
  2. A société is not liable to income tax except where a société holding a Category 1 Global Business Licence opts under Section 47(6) of the Income Tax Act to be liable to tax.
  3. In the context of the reorganization of the Group's operations in South Africa so as to comply with the Black Economic Empowerment Legislation, the interest -free loans advanced by the Mauritian Company to the wholly owned South African Holding Company will be assimilated to equity capital. The Mauritian company will not be subject to tax on any deemed interest receivable on such loans.
  4. Repayments of share capital, share premium and interest-free loans by the South African Holding Company to the Mauritian company will not be reclassified as income and will not be taxed by application of any anti-avoidance legislation.

 

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TR 46

 

Facts

A foreign company intends to set up a Category 1 Global Business Licence Company (GBC l) for the purpose of providing management and consulting services to the mining industry worldwide. The proposed GBC1 will employ foreign employees. They will carry out work wholly outside Mauritius. The proposed GBC1 will also have consultancy agreement with overseas contractors who will provide management and consulting services on behalf of the proposed GBC1 and such services will be carried out wholly from abroad.

 

Points at issue

  1. (a) Whether the foreign employees the GBC1 will be employing to carry out work wholly outside Mauritius will be subject to PAYE.
  2. (b) Whether the overseas contractors will be subject to income tax in respect of fees they will receive from the GBC1for consultancy work to be carried out from abroad.

 

Ruling (given in January 2006)

  1. The foreign employees the GBC1 will be employing to carry out work wholly outside Mauritius will not be subject to PAYE.
  2. The overseas contractors too will not be subject to income tax in respect of the fees they will receive from the GBC1 for consultancy work to be carried out from abroad.

 

However, where the overseas contractor is related to the GBC1, the fees payable to the GBC1 would still not be taxable in the hands of the contractor but those fees would have to satisfy the arm's length principles for tax purposes in the accounts of the GBC1.

 

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TR 47

 

Facts

A citizen of both Mauritius and the United Kingdom joined a company as marketing director on a contractual basis.
She was dismissed after 13 months of service on the ground that the company could not afford to continue to employ her at the rate agreed. By a statement of claim, she sued the company in tort for the injury she has suffered as a result of the company's wrongful acts and doing and "abus de droit" and claimed an amount of Rs17.8 m as damages.
The company contended that the parties who are linked by a contract can only ground any claim arising from the breach of the contract on the basis of contractual liability and not in tort.

An amount of Rs 5.6 m has been awarded to the plaintiff instead of Rs17.8 m claimed by her as damages.
According to the plaintiff the amount of Rs5.6m represents compensation for injury and not compensation for loss of office which is assessable by virtue of Section 10(1)(a)(ii) of the Income Tax Act.


Point at issue

Whether the amount of Rs5.6 m is emoluments under Section 98 of the Income Tax Act and therefore taxable, or whether it represents compensation payable for injury suffered by the plaintiff i.e damages for "abus de droit".

 

Ruling (issued in March 2006)

The amount of Rs 5.6 m and any other amount received by the plaintiff on her dismissal from her former employer in excess of severance allowance (to be computed at punitive rate in accordance with the Labour Act) constitute emoluments and therefore subject to PAYE.

 

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TR 48

 

Facts

A company has set up a Retirement Fund having as objective the provision of retirement, withdrawal, death and disablement benefits for the beneficiaries. The Fund has been duly registered with the Registrar of Associations under the Employees Superannuation Fund Act.

Usually a superannuation fund has to be approved by this Office to benefit from certain provisions of the Income
Tax Act viz:

  1. Lump sum received by an employee as commutation of pension and paid from an approved superannuation fund is exempt from tax (Item 6 of Part II of the Second Schedule to the Income Tax Act).
  2. The income of an approved superannuation fund is exempt from tax (Item 21 of Part I of the Second Schedule to the Income Tax Act).The Fund has not applied to this Office for approval since some specific features of the Fund do not meet the requirements of Regulation 5 of the Income Tax Act.

 

Points at issue

  1. That the benefit payable from the Fund upon reaching the appropriate retiring age will qualify for the exemption under Item 5 of Part II of the Second Schedule to the Income Tax Act provided that all conditions therein described are satisfied.
  2. That any income paid into the Fund will be, exempt from all taxes as provided for under Section 18(1) of the Employees Superannuation Fund Act.

 

Ruling (issued in March 2006)

  1. The benefit payable from the Fund upon reaching the appropriate retiring age, as defined under Section 23 (3) of the Income Tax Act, will qualify for the exemption under Item 5 of Part II of the Second Schedule to the Income Tax Act, provided that all conditions specified in Item 5 mentioned above as well as under Regulation 3(1) of the Income Tax Regulations are satisfied.
  2. Income paid into the Fund will be exempt from income tax as provided for under Section 18(1) of the Employees Superannuation Fund Act.

 

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TR 49

 

Facts

Two companies form part of the same group.

Company A is a domestic company holding a Category 1(previously domestic,or Class A) banking licence and as such is taxable at the rate of 25 % on its taxable profits. The company has accumulated tax losses.

Company B is a domestic company holding a Category 1(previously offshore, or Class B) banking licence and is taxable at the rate of 15 % on its taxable profits. It is also entitled to a deemed tax credit of 80% on its foreign sourced income. It has no tax loss.

With the coming into force of the new Banking Act 2004, as there is no distinction between the two class of licences, since replaced by a unique banking licence, the immediate holding company has taken the decision to merge the two companies into a single company, whereby Company A is the surviving company which will operate under a single business licence and report segment A and segment B income.

The merger will not involve a change of more than 50% of shareholdings of Company A.

 

Point of Issue

Whether it can be confirmed that

  1. the tax losses accumulated by Company A,the surviving company, can be carried forward against its future profits; and
  2. the transfer or sale price of plant or machinery will be deemed to be equal to their base value at the date of sale or transfer.

 

Ruling

On the basis of facts provided it is confirmed that

  1. the unrelieved tax losses of Company A will be available for carry forward against its future profits; and
  2. the transfer or sale price of plant and machinery of company B to company A will be deemed to be equal to their base value at the date of sale or transfer.

 

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TR 50

 

Facts

A Company holding a Category 1 Global Business Licence (GBLl) invests in securities or other vehicles abroad which provide for capital appreciation in the stock markets. There is an investment management agreement between the Company and the investment manager for the provision of investment management services in line with investment policies/restrictions approved by the board of the Company. The income of the Company consists of dividend income and gains on disposal of securities.

 

Point at issue

Whether the expenses incurred in the production of dividend income or gains on disposal of securities would not be disallowed.

 

Ruling (given in May 2006)

On the basis of facts provided

  1. expenses incurred in the production of foreign dividend income are allowable for income tax purposes; and
  2. expenses attributable directly to the sale of shares held as capital assets, being of a capital nature, are not allowable in accordance with Section 26(1)(a) of the Income Tax Act.

 

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TR 51

 

Facts

A company holds a Building and Civil Engineer licence.

Its business activities include amongst others:-

  1. Construction and rehabilitation of reservoirs, dams, etc.
  2. Construction of sewer network (i.e. laying of pipes and asphalting of roads etc.) .
  3. Construction of potable water distribution main, sub-main and house connection.

 

Point at issue

Whether the company can be considered as a tax incentive company under item 24 of Part IV of the First Schedule to the Income Tax Act which reads as fol1ows:

"A company deriving at least 75 per cent of its gross
income from construction activities in Mauritius"

 

Ruling (issued in May 2006)

"Construction of sewer network"(i.e laying of pipes and asphalting of roads, etc) and "construction of potable water distribution main,sub-main and house-connection" although labelled as "construction" are not construction. These activities would only fall within the term "construction" if they form an integral part of the construction of a building or a road construction project.
Since the company did not derive at least 75 per cent of its gross income from construction activities, it cannot be considered as a tax incentive company.

 

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TR 52

 

Facts

A foreign parent company, issued zero coupon bonds to its subsidiary, which is incorporated in Mauritius. The bonds were issued for a subscription amount of GBP 243.7 million and the amount payable on maturity would be GBP 297 million.

On the early redemption of the zero coupon bonds, the bonds had appreciated to GBP 265.9 million. In addition a late payment fee of GBP 0.76 million was paid since the redemption date as per the agreement was set on 5 April or 5 October whereas the redemption took place on 28 April 2006.

 

Point of Issue

A ruling is being sought as to whether

  1. the appreciation of the bonds, of GBP 22.2 million; and
  2. the late payment fee of GBP 0.76 million

will be subjected to income tax in the hands of the subsidiary.

 

Ruling

The subsidiary, being resident in Mauritius is liable to tax on its worldwide income. Pursuant to section 51 of the Income Tax Act, the gross income of a company includes the income referred to in section 10(1) (b), (c), (d) and (e).

 

In the present case the sum of GBP 22.2 million is the return on the bonds subscribed by the subsidiary. It is an income which is in the nature of interest and will fall under section 10(1)(d) of the Income Tax Act.

 

As regards the GBP 0.76 million, although described as a penalty fee, it is a return for holding the investment for a further 23 days and again falls under the purview of section 10(1)(d) of the Income Tax Act.

 

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TR 53

 

Facts

An employee was paid severance allowance on termination of his employment as from 1 July 2005. The severance allowance was computed on the basis of current monthly remuneration receivable by him at the time of termination of employment and included the following benefits:

  1. overseas passage
  2. car expenses
  3. telephone rental
  4. medical benefits contribution

 

Tax was withheld from the severance allowance after taking into consideration the first Rs 1,400,000, which is exempt from income tax under Part II of the Second Schedule of the Income Tax Act 1995.

 

Point of Issue

Whether the benefits included in the monthly remuneration used as basis for the computation of the severance allowance should not be excluded in the calculation of the tax liability of the employee on the grounds that overseas passage is not taxable by virtue of Section 10 (1) (a) (i) of the Act, and benefits under items (ii) to (iv) are expenditure wholly, exclusively and necessarily incurred in performing the duties of employment.

 

Ruling

Only the first 1,400,000 rupees of the sum received by way of severance allowance determined in accordance with the Labour Act is exempt from tax as provided under item 4 of Part II of the Second Schedule to the Income Tax Act.

 

The fact that non-assessable benefits have been included in the monthly remuneration used as the basis for the computation of severance allowance payable has no incidence on the amount of severance allowance provided as exempt under the Income Tax Act.

 

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TR 54

 

Facts

A company terminated the contract of employment of all its seven employees upon the decision of the shareholder to close the company and, in consideration of the termination of the employment contracts, effected the following payments:

  1. Severance allowance in accordance with the Labour Act.
  2. Three months' remuneration in lieu of notice.
  3. A payment made purportedly to restrain the employees from competing in Mauritius with another operation, a related company, owned by the same shareholder as that of the former company.

 

Point of Issue

Whether item 3, that is the payment which according to the company was made to restrain the employees from competing in Mauritius with the related company, is taxable in the hands of the recipients.

 

Ruling

On the facts and information provided, the amount paid under item 3 to the former employees of the company falls within the ambit of section 10 (1) (a) of the Income Tax Act which includes as taxable item any compensation for loss of office or other reward in respect of or in relation to loss or reduction of future income.

 

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TR 55

 

Facts

An individual born in Mauritius is married to a citizen of France, and is a citizen of both countries. Although he has retained a family home in Mauritius, which he visits from time to time , his personal and economic relations where he maintains permanent places of abode are principally in the UK, the United States and in the Bahamas.

 

Point of Issue

Whether under Section 73(a) of the Income Tax Act, for the purpose of considering a person resident in Mauritius, days of arrival and of departure are included for the calculation of 183 days or 270 days, as the case may be.

 

Ruling

For the purpose of considering a person resident in Mauritius under Section 73(a) of the Act, days of arrival and days of departure are included in the calculation of 183 days or 270 days, as the case may be.

 

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TR 56

 

Facts

Company A is incorporated in Mauritius. It is in the process of applying for a GBL 1 under the Financial Services Development Act 2001. Company A will acquire a proportion of the share capital of Company B, a company registered in China. The acquisition will be financed by an interest bearing loan from Company C, the holding company of Company A. Company C is registered outside Mauritius and does not have any permanent establishment in Mauritius. The interest rate on the loan will be computed on an arm's length basis.

 

Points in issue

Whether it can be confirmed that:

 

    1. Company A would be taxable on any dividend received from Company B;
    2. Company A would be taxable at the rate of 15%;
    3. Underlying Foreign Tax Credit would not be available to Company A;
    4. Company A would be entitled to claim presumed tax credit and that no grossing up would be required for the purposes of computing the presumed tax credit;
    5. Capital gains arising on disposal of shares would not be taxable and any trading profits from sale of securities would be exempt;
    6. Any tax loss incurred by Company A can be relieved in a maximum of five succeeding years of assessment;
    7. Company C would be exempt from tax in respect of any interest expense it would receive from Company A and no TDS would apply;
    8. Any interest payable by Company A to Company C in respect of loan to finance the purchase of shares would be deductible:
    9. For the purposes of Alternative Minimum Tax "book profit" excludes any profits on sale of securities and that the tax payable is before deduction of foreign tax credit; and
    10. Any distribution made by Company A to its holding company which does not satisfy the definition of "dividends" in Section 2 of the Income Tax Act would be taxable in the hands of Company C.

 

Rulings

 

  1. Dividend received by Company A from Company B: It is confirmed that Company A would be taxable on any dividend received from Company B
  2. Corporate tax rate Company A as a GBL 1 company would be taxable at 15%.
  3. Underlying Foreign Tax Credit: It is confirmed that Company A would not be eligible to underlying tax credit.
  4. Presumed Foreign Tax Credit Company A would be entitled to claim presumed tax credit. No grossing up would be required for the purposes of computing the presumed tax credit.
  5. Capital gains: It is confirmed that capital gains arising from disposal of shares are not taxable. Any trading profits that Company A would derive from sale of securities would be exempt from income tax.
  6. Tax losses: Any unrelieved tax loss incurred by Company A may be carried forward for a maximum of five income years, subject to the conditions provided in the income tax law.
  7. Interest expense: It is confirmed that Company C would be exempt from tax in respect of any interest it would receive from Company A. Such interest would also not be subject to tax deduction at source.
  8. Deductibility of interest payable by Company A: Any interest payable by company A in respect of loan used to finance purchase of shares of company B would be deductible.
  9. Alternative Minimum Tax (AMT): It is confirmed that for AMT purposes book profit excludes any profits derived from sale of securities and the tax payable is the amount before deduction of any foreign tax credit.
  10. Dividends payable by Company A to Company C: It is confirmed that any distribution made by Company A to its holding company and which does not satisfy the definition of "dividends" in section 2 of the Income Tax Act would be taxable in the hands of the recipient

 

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TR 57

 

Facts

A Company is tax resident in Mauritius and operates a gaming house. It has entered into a lease contract with a company registered and tax resident in South-Africa, in respect of the lease of certain Wheel of Gold Machines. The latter company does not have a PE in Mauritius. The consideration of the lease is based on the number of machines used per day and per machine, and lease payments are made accordingly. The Mauritius - South Africa DTA does not make specific mention of income in respect of operating lease.

 

Point of Issue

Can it be confirmed that the lease payments made by the company to the South African company are not Mauritian sourced income and therefore outside the scope of the Mauritian tax system?

 

Ruling

Lease income derived by the South African Company, from lease of equipment made to the company, constitutes income which falls under Article 22(1) of the Mauritius-South Africa Double Taxation Agreement and therefore taxable only in the country of residence of the recipient of the income, i.e. South Africa.

 

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TR 58

 

Facts

An investment company was incorporated in Mauritius. It holds a Category 1 Global Business Licence (GBC 1) and earns interest income on inter-group loans. Its central management and control is in Mauritius, but its effective management is in South Africa, so that it is tax resident in both countries as per the Mauritius-South Africa Double Taxation Agreement.

 

Point of Issue

Whether it can be confirmed that the company

  1. is a tax resident of South Africa and therefore has to comply with South African tax filing and tax payment requirements; and
  2. is not a tax resident of Mauritius, which therefore means that it does not have to file a tax return or pay any tax in Mauritius.

 

Ruling

  1. On basis of facts given, the company is deemed to be resident in South Africa by virtue of the tie-breaker clause in Article 4(3) of the Mauritius-South Africa Double Taxation Agreement (DTA). The taxation of income derived by the company from Mauritius and South Africa will be governed by the DTA. Thus, where the DTA confers the taxing right to the source country in respect of an item of income derived by the company from Mauritius, the company will have to file a tax return with the MRA with regard to that income and pay any tax accruing thereon.
  2. In the event the company derives income from abroad from a country other than South Africa, the company will have to declare such income in Mauritius as a resident of Mauritius taxable on its worldwide income. The company will however be entitled to claim foreign tax credit or presumed tax credit in respect of such foreign source income.Where a DTA is in force, the taxation of the foreign source income will be governed by the provisions of the DTA.

 

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TR 59

 

Facts

A company incorporated in the Netherlands forms part of an international group. Its core activities consist of the construction and maintenance of ports and waterways, land reclamation, coastal defence and riverbank protection. It was awarded a contract by the Mauritius Ports Authority for the execution of certain dredging works in view of the construction of an oil jetty and the extension of the berthing facilities at the Mauritius Container Terminal in the English Channel.

 

Points in issue

  1. Whether it can be confirmed that the company which is a foreign company will be taxable only on its Mauritian sourced income?
  2. Whether in accordance with Section 117A (2) of the Act it is correct to state that the return and accounts which the company will submit for the three months ended 31 December 2006 shall be deemed to be in relation to the income year ended 30 June 2007 ?
  3. Whether it can be confirmed that the company is involved in construction activities and its corporate tax rate would be 15% and not 22.5%?
  4. Whether the expenses incurred by the Head Office in respect of the contract executed by the branch are deductible under Section 57 of the Income Tax Act ?

 

Ruling

  1. It is confirmed that the company which is a foreign company will be taxable only on its Mauritian sourced income.
  2. The statutory date for the submission of its return in respect of the accounts for the period ended 31 December 2006 will be 30 September 2007, which shall be deemed to be in relation to the income year ending 30 June 2007.
  3. The tax rate applicable to the company for the income year ending 30 June 2007 will be 22.5% as the company will be engaged in dredging activities and not construction works.
  4. Expenses incurred by the Head Office in respect of the contract executed by the branch in Mauritius is deductible under section 57 of the Income Tax Act.

 

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TR 60

 

Facts

A non-resident societe acquired the entire share capital of five resident companies forming part of two different groups carrying business in the same business activity. For administrative reasons the boards of the said companies, referred to as the amalgamating companies, have proceeded to an amalgamation into one single company, viz Company A (Mauritius) Ltd, the amalgamated company.

 

Point of Issue

Whether consequent to the effect of amalgamation, the "property, rights, powers and privileges" of the amalgamating companies under the Companies Act are also the property, rights, powers and privileges of the amalgamated company, and as such whether the tax losses accumulated by the amalgamating companies can be used for carry forward and set off against the net income of the amalgamated company.

 

Ruling

Notwithstanding the fact that the "property, rights, powers and privileges" of the amalgamating companies continue to be the property, rights, powers and privileges of the amalgamated company under the Companies Act 2001, for income tax purposes the tax losses accumulated by the amalgamating companies cannot be said to have been incurred and accumulated by the amalgamated company. The amalgamated company can, under Section 59 of the Income Tax Act, carry forward only losses that it has itself incurred.

 

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TR 61

 

Facts

Company A and Company B are two companies registered in Mauritius forming part of a group. Company A is a company registered with the BOI under the Investment Promotion Act and will be engaged in the provision of health services. Company B is engaged in construction activities and has been awarded a contract for the construction of a clinic for Company A.

 

Point of Issue

Whether "additions, extensions and substantial renovations to building", subsequent to the initial construction, are "works" as defined in Section 111A of the Income Tax Act and the "supply of labour" for the execution of works incidental to civil construction by Company B will, as such, fall under the TDS mechanism, i.e. under the provisions of Sub-Part BA of the Act.

 

Ruling

It is confirmed that the "additions, extensions and substantial renovations to building" made to the initial construction and the "supply of labour" will be subject to tax deduction at source under Sub-Part BA of the Income Tax Act.

 

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TR 62

 

Facts

C Ltd, a company registered as a Grade A civil engineering contractor, has been awarded a contract for the construction of trunk sewer by an authority for a sewerage project. The main scope of the work under the contract includes the following:

  1. the construction of 450 reinforced concrete manholes along the pipeline route;
  2. the excavation of trenches;
  3. the installation of the pipes into the trenches and the backfill of the trenches after the pipeline has been laid;
  4. the road reconstruction and the reinstatement of services;
  5. any ancillary works required under the contract.

 

Under the contract it is agreed that the company will supply all material and labour required for the project, and subcontract the road reinstatement works.

 

Point in Issue

Whether in respect of the 'construction of sewer' contract in Mauritius, the company is involved in "construction activities" pursuant to item 24 of Part IV of the repealed First Schedule to the Income Tax Act , and therefore liable to tax at the rate of 15% for the year of assessment 2007/08.

 

Ruling

Construction of trunk sewers, which includes activities such as laying of pipes and road reinstatement, is not construction proper, although labelled as 'construction' This activity would only fall within the meaning of the term 'construction' if it formed an integral part of a construction undertaking, e.g. a building or a road construction project.
The company will therefore be liable to tax at the rate of 22.5% for the year of assessment 2007/08 and not 15%.

 

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TR 63

 

Facts

P Ltd, an insurance company, has a number of corporate clients which do not have their own pension schemes. However, they provide a pension benefit by making contributions to the respective Personal Pension Schemes of their employees.

 

Points in issue

 

Whether contributions made by an employer to a personal pension scheme subscribed by an employee

  1. is an allowable deduction to the employer?
  2. is a taxable benefit to the employee?

 

Ruling

The law entitles an employer to claim a deduction in respect of an amount irrevocably paid by him under a superannuation fund which is defined to mean "a fund or scheme established for the benefit of the employees of an employer and approved by the Director-General." The contributions made in this case, though not made under a superannuation fund but to a personal pension fund instead, is nonetheless an expenditure exclusively incurred in the production of gross income of the employer.

The contribution made by the employer to the personal pension scheme of the employee is therefore an allowable deduction to the employer under section 18 (1) of the Income Tax Act 1995, provided the following conditions are satisfied:

 

  1. the employee's contribution to the scheme is reasonable, having regard to the grade of the employee and his position in the organization ; and
  2. the contribution is not made by reason of any close connection existing between the employer and the employee such as blood relationship, marriage or share-ownership, etc.

 

On the other hand, the contribution is a taxable benefit in the hands of the employee in accordance with Section 10 (2) of the Income Tax Act 1995.

 

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TR 64

 

Facts

S Ltd, incorporated in the Netherlands Antilles, is a 100% owned subsidiary of S Ltd Paris, a corporation which has the status of a bank. It proposes to issue a capital guaranteed product, viz Euro Medium Term Note to be distributed through a local bank, referred to as the dealer.

The issue price will be 100% of the Nominal Amount in USD (to be determined) and the term will be for a period of 5 years. The investment is subject to a final redemption which will be an amount that corresponds to the amount initially invested on the issue date, plus the payment of an amount linked to the performance of the underlyings, if any. The issuer will redeem the Notes on the maturity date in accordance with the following formula:

Specified Denomination x [100% +Max(0;A% x Averaged Performance)]
(USD 100)

A% represents an amount that would be determined and may have a probable range of 140% to 200%, depending on the market conditions at the time of launch.
The underlyings used will normally be the indices shown below but other equity benchmarks may be used, provided the total weightings will always equal 100%:

 

 
Index Name
Exchange
Weight
1 S & P 500 New York Stock Exchange 25%
2 Dow Jones Euro
-
25%
3 Nikkei 225 Index Tokyo Stock Exchange 50%



Points in Issue

Whether any of the amounts, being either

  1. the repayment of the principal; or
  2. the payment of the amount linked to the performance of the underlyings (if any)

is subject to income tax, upon remittance to Mauritius.

 

Rulings

  1. The repayment of the principal does not constitute an income for the investor within the meaning of gross income under Section 10 of the Income Tax Act 1995 and therefore is not subject to income tax.
  2. Based on the facts provided, the payment of the amount linked to the performance of the underlyings represents a return from an investment and is more in the nature of an interest. Accordingly, any such payment would constitute an income accruing to the investor within the meaning of gross income under Sections 2 and 10 of the Income Tax Act 1995.

 

Please note that the Practice Notes of the MRA on taxation of gains from the sale of shares or other securities does not apply in the present case since a payment on redemption is quite different from a gain on the sale of securities.

 

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TR 65

 

Facts

A Mauritian national has taken employment with a construction company resident in Mauritius. He has left for Dubai with all the members of his family and is not expected to return to Mauritius. He has a contract of employment for an indefinite period in Dubai where he performs his duties as supervisor. His salary is paid in Mauritius and is banked in a local bank. He owns a property in Mauritius, viz. an apartment of the NHDC in co-propriété with the Mauritius Housing Company Ltd. The property is unoccupied.

 

Point in issue

Whether it can be confirmed that the Mauritian national who is resident in Dubai is not liable to tax in Mauritius by virtue of Article 15 of the Mauritius-United Arab Emirates Double Taxation Treaty.

 

Ruling

It is confirmed that on the basis of facts submitted the Mauritian national is resident in the United Arab Emirates (UAE) and therefore not liable to tax in Mauritius on remuneration derived in respect of the employment exercised in UAE by virtue of Article 15 of the Mauritius-United Arab Emirates Double Taxation Treaty.

 

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TR 66

 

Facts

 

L Ltd, incorporated in Mauritius on 4 December 2007, has not yet started its proposed business activity which will be to provide services consisting mainly of advisory and related services to its parent company in Hong Kong (HK Co) and affiliates in the group. The group entities will involve the parent company which is in the business of purchasing, processing and selling diamonds and ancillary activities related thereto, and one or more entities in Israël and elsewhere which will buy and distribute the finished products. The HK Co will sell the finished goods principally to a related company in Israël and possibly to other affiliates in the group, but may also sell to third parties.

 

The HK Co will require the services of L Ltd for back office and high level advisory services. The back office
services will entail processing invoices and providing administration, financial and management services of a general nature, while high level advisory work will, inter alia, constitute business planning, development, co-ordination, marketing, raw material sourcing and regional technical support services. The marketing services will be purely of advisory nature and L Ltd will not have the right or ability to bind the HK Co by entering into any contractual agreements on the latter's behalf in respect of any marketing services.

 

In consideration for such services, L Ltd will earn a service fee which will be set out in a Service Agreement with the HK Co. The fee will be determined on a cost plus basis which will be at arm's length.

 

Points in issue

Whether it can be confirmed that -

  1. by reason of L Ltd providing back office and advisory services to the HK Co, any profits arising at HK Co level through its selling activities will not be taxed in Mauritius;
  2. L Ltd will be taxed only on the net service fee arising under the Service Agreement with the HK Co.

 

Ruling

  1. It is confirmed that as L Ltd will be providing back office and advisory services, including marketing services of a purely advisory nature, any profits arising to the HK Co through its selling activities performed overseas will not be taxed in Mauritius as these will not constitute income derived from Mauritius under Section 74 of the Income Tax Act 1995.
  2. It is confirmed that L Ltd will be taxed in Mauritius only on the service fee arising under the Service Agreement and determined on arm's length principles.

 

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TR 67

 

Facts

A company holding a Category 1 Global Business licence, will invest in a subsidiary in France. The subsidiary will not own any immovable property in France.

 

Points in issue

Whether, in the event of the sale of part or the whole of the shares in the subsidiary in future:

    1. the sale of the shares will fall under paragraph 2 of Article 13 of the DTA between Mauritius and France, i.e. gains from the alienation of movable property, or under paragraph 4 of the Article, i.e. gain from the alienation of any property other than that referred to in paragraphs 1,2 and 3 of Article 13;
    2. the gains from the sale of the shares will be taxable only in Mauritius, and therefore exempt.

 

Ruling

  1. The sale of the shares will fall under paragraph 4 of Article 13 of the Mauritius-France Double Taxation Treaty, i.e. gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 of Article 13.
  2. The gains from the sale of shares will be taxable only in Mauritius, in accordance with paragraph 4 of Article 13 of the DTA. Since there is no capital gains tax in Mauritius, those gains will not be subject to tax.

 

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TR 68


Facts

F Ltd is incorporated in Thailand and holds 99.99 % of shares in another Thai company - E, which holds 100% shares in a Singaporean company - D. D holds 95% shares in a first Indonesian investment holding company - C, which in turn holds 73% shares in a second Indonesian investment holding company - B, a publicly listed company on the Indonesian Stock Exchange. B holds 100 % investments in an Indonesian coal mining company - A. This latter company generates income and pays Indonesian corporate income tax at the rate of 30 %.

 

Z Ltd has a plan to set up a GBL 1 company in Mauritius (MU Co) which will acquire 100% of shares in D from E.

Based on the above respective shareholdings , it follows therefore that

 

  • A will pay dividends to B
  • B will pay dividends to C
  • C will pay dividends to D
  • D will pay dividends to E
  • E will pay dividends to F

 

Dividends to be received by B from A and by C from B are exempted from tax under Indonesian tax laws, and so also are dividends receivable by D from C under Singaporean tax laws.

 

Points in issue

  1. Whether corporate taxes paid by A can be used as credit for foreign tax against corporate tax of MU Co, and if so the extent of the credit;
  2. What documents would be required to be produced in respect of corporate tax paid by A in order for MU Co to apply for foreign tax credit against Mauritius tax?

 

Rulings

  1. It is confirmed that by virtue of regulations 7 (2) and (3) of the Income Tax (Foreign Tax Credit) Regulations 1996, as MU Co will hold directly or indirectly more than 5 % of the shares in D, it will be able to claim as foreign tax credit the underlying tax charged on the income out of which the dividends was paid against its Mauritius tax. The credit to which the company will be entitled will be in proportion of its shareholding in the company paying the dividends.
  2. For the purpose of applying for credit in respect of foreign tax and underlying tax against Mauritius tax, MU Co will be required to produce a certificate of its shareholding in D as well as an official receipt from the relevant Tax Authorities in support of the foreign tax paid.

 

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TR69

 

Facts

A foreign company Z, proposes to be resident in Mauritius for tax purposes, and will hold 100% shares in Company Y registered in Singapore. The latter company will hold 100% shares in each of two sub-companies, one based in Singapore and another in Cayman Islands. The Singaporean sub-company will hold 70% shares in an operating company A in China while the Cayman sub-company will hold 100% shares in company B, also operating in China.

The operating companies A and B will pay tax at the rate of 15% to 30 % in normal circumstances. However, no tax will be payable by operating company A as it will benefit from a tax holiday period.

 

Points in issue

  1. Whether or not income tax payable by the operating companies A and B in China, including the tax spared in case of tax holidays, would be available for credit against Mauritius tax payable by foreign company Z after passing through the number of intermediate companies in the proposed structure;
  2. Whether, based on the proposed shareholding structure provided and the Double Taxation Agreement (DTA) between Mauritius and China which provides a special rate of 5 % tax on dividends payable by Chinese companies to Mauritius beneficial owners, company Z can avail itself of the DTA privileges in the capacity of beneficial owner of shares in the Chinese companies;
  3. If answers to (1) and (2) are positive,
  • what documents would be required in respect of corporate income tax and tax sparing credit of the operating companies A and B for company Z to apply for credit against its Mauritius tax ?;
  • what documents or evidences would be required for company Z to substantiate its status as 'beneficial owner' of the Chinese companies?


Rulings

  1. It is confirmed that in accordance with regulations 7 and 9 of the Income Tax (Foreign Tax Credit)Regulations 1996, any income tax, including the tax spared in case of tax holidays, payable by the operating companies A and B in China, would be available for credit against Mauritius tax payable by company Z in the proposed structure;
  2. On the basis of the proposed shareholding structure, as company Z will receive dividends from Singapore and not from China, the taxation of the dividends in Singapore will be governed by the Mauritius-Singapore DTA and not by the Mauritius-China DTA. In any case it would be for the Chinese Tax Authorities to decide whether the provisions of the Mauritius-China DTA could be applied for the taxation of dividends receivable by company Z;
  3. (i) For the purpose of applying for credit in respect of foreign tax and tax sparing against Mauritius tax, company Z will be required to produce a certificate of its shareholding in the Singaporean company, together with evidence of its shareholding in the operating companies A and B through its investment in the Singaporean and Cayman sub-companies, as well as official receipts from the relevant Tax Authorities in respect of foreign tax paid.
  4.  

        (ii) In view of the ruling given at (2) above, the question does not arise.

 

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TR 70

 

Facts

 

T Fund Limited holds a category 1 Global Business Licence and has been issued with a Tax Residence Certificate by the Office of the MRA. It invests in India securities or other vehicles which provide exposure to the Indian Stock Market for capital appreciation and, under an agreement, avails itself of the management services of an investment manager based in India. The income of the company is stated to consist of dividends and gains on disposal of securities.

 

Point in Issue

 

Whether expenses incurred in the production of both dividend income and capital gains on disposal of securities, i.e. expenses that cannot be attributed directly to the sale of shares, would be allowed for income tax purposes?

 

Ruling

 

Foreign dividend income being taxable, any expenditure which is exclusively incurred in the production of such income would be allowable. However, profit on sale of securities will be either capital gains not subject to income tax or revenue profit which is exempt, being derived by a GBL 1 company. As such, any expenditure incurred in the production of the profit on the sale of securities will not be deductible for income tax purposes.

As regards common expenses, i.e. expenditure incurred in the production of both foreign dividend income and profit on sale of securities, only a part of the expenses will be allowed for income tax purposes, which will be in the same proportion as the amount the foreign dividend income bears to the sum of foreign dividend income and the profit on sale of securities.

 

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TR 71

 

Facts

B is incorporated as a private company and holds an investment certificate issued by the BOI under the Investment Promotion Act. The company will be engaged in setting up a high-tech 200-bed multi-specialty hospital. The central management and control of B is in Mauritius.

A is incorporated as a public listed company in India and tax resident in India. Its principal activity as well as those of its subsidiaries and associates inside and outside India is to own, operate and manage health care institutions of international standards, and to provide comprehensive health care related consultancy, management and training services. Under an agreement (LOMA), certain staff members of A will be seconded to B, their emoluments will be borne in full by B and they will report to the Board of B.

 

Point in Issue

 

1. Corporate Status

Whether it can be confirmed that

(i) the income derived by B will be exempt from income tax for the first five succeeding income years starting as from the first year of operation;

(ii) should the company incur a loss during the exemption period, the loss would be allowable notwithstanding the provisions of Section 26 (1) (b) of the Income Tax Act;

(iii) any loss incurred during the exemption period will be subject to the restriction under Section 59 (b) of the Income Tax Act;

(iv) losses attributable to annual allowance in respect of capital expenditure incurred on or after 1 July 2006 will not be restricted to the five- year time limit and therefore available for carry forward indefinitely.

 

2. Capital Allowances

Transitional Rules

(i) Whether for the purpose of complying with Section 153 of the Act, such documents as the supplier's invoice, the construction contract, the leasing agreement and the maintenance contract are sufficient evidences in as much as keeping of books and records are concerned;

(ii) Whether it can be confirmed that in the event the company decides to exercise option to claim annual allowances under the pre-FA 2006 regime,

(a) this will apply to all class of assets and for the three years of assessment 2007/08,2008/09 and 2009/10;

(b) annual allowance would be available on the construction of the hospital;

(c) the irrevocable notice to be made to the Director-General should at latest be at the time the company submits its return for the year of assessment 2007/08.

 

Qualifying Expenditure

(a) whether B will be entitled to claim annual allowance at the rate of 5% on the construction of the hospital under the provisions of Section 63 of the Act;

(b) whether it can be confirmed that the items of capital expenditure, viz land development, landscaping and horticultural works and earthwork will not attract annual allowances as they are excluded from the definition of "industrial premises" ;

(c) whether it can be confirmed that the capital expenditure incurred by the company in respect of the construction of the road access to the hospital will be eligible for annual allowance.

 

3. Payments made by B to A

Whether it can be confirmed that:

(i) the payment B will make to A for the services provided by the latter company will be tax deductible under Section 57 of the Act;

(ii) the royalty payment B will make to A will be considered as Mauritian sourced income and therefore taxable in Mauritius at the rate of 15 %;

(iii) any other fees A will receive from B will not be subject to tax;

(iv) B will have to apply TDS on the royalties payable to A at the time of the transfer of such amounts to the latter;

(v) A will have to furnish an annual tax return to the MRA and pay any residual tax at the rate of 5% on the gross amount of royalties as, pursuant to the DTA, the tax rate on the royalties is 15%.

 

4. Emoluments derived by staff members of A seconded to B

Whether it can be confirmed that the staff members seconded to B will be subject to income tax in Mauritius on their emoluments derived in Mauritius.

Ruling

 

1. Corporate Status

It is confirmed that:

(i) B will be exempt from income tax by virtue of item 13(a) of Sub-Part C of Part II of the Second Schedule to the Act for the five succeeding income years as from the income year it starts its operation;

(ii) in case the company incurs a loss during the period of exemption of its income, the loss will be allowable for deduction and carry forward under Section 59 (b) of the Act, in accordance with the provisions of item 13 (b) of Sub-part C of Part II of the Second Schedule to the Act;

(iii) any loss incurred during the exemption period will be subject to the restriction under Section 59 (b) of the Income Tax Act;

(iv) losses attributable to annual allowance claimed in respect of capital expenditure incurred on or after 1 July 2006 will not be restricted to the five year time limit and therefore available for carry forward indefinitely in accordance with Section 59 (c) of the Act.

 

2. Capital Allowances

Transitional Rules

(i) Although the Company would be expected to keep documents for a period of five years, these documents will not be sufficient to comply fully with Section 153 (1) of the Act, the provisions of which will need to be satisfied in full in order for a person to be entitled to annual allowance under Section 63 of the Act;

(ii) It is confirmed that:

(a) in the event the company decides to exercise option to claim annual allowances under the pre-FA 2006 regime as provided under the transitional provisions of Section 161A of the Act, this will apply to all class of assets and be in respect of the three years of assessment 2007/08,2008/09 and 2009/10;

(b) annual allowance would be available on the construction of the hospital under the current provisions of Section 63 of the Act;

(c) the irrevocable notice to the Director-General should be made as early as possible but at any rate not later than the due date for the submission of the annual return of the company for the year of assessment 2007/08.

 

Qualifying Expenditure

It is confirmed that:

(a) B will be entitled to claim annual allowance at the rate of 5 % on the construction of the hospital under the current provisions of Section 63 of the Act;

(b) the items of capital expenditure ,viz land development, landscaping and horticultural works and earthwork will not attract annual allowances as they are not subject to depreciation under normal accounting principles in as much as these are excluded from the definition of " industrial premises" under Section 2 of the Act;

(c) capital expenditure incurred by the company in respect of the construction of the road access to the hospital will be eligible for annual allowance at the rate of 5 % on the cost, as the capital expenditure is subject to depreciation under normal accounting principles.

3. Payments made by B to A

It is confirmed that:

(i) the payment B will make to A for the services provided by the latter company will be tax deductible under Section 57 of the Act;

(ii) the royalty payment B will make to A will be considered as Mauritian sourced income under Section 74 of the Income Tax Act and therefore taxable in Mauritius at the rate of 15 %;

(iii) any other fees A will receive from B will not be subject to income tax in accordance with paragraph 1 of Article 22 of the Mauritius -India DTA;

(iv) B will have to apply TDS at the rate of 10 % on the royalties payable to A at the time any amount of royalties is made available to A in accordance with Section 111 C (1) of the Act;

(v) A will have to furnish an annual tax return to the MRA and pay any residual tax at the rate of 5% on the gross amount of royalties as, pursuant to the DTA, the tax rate on the royalties specified at paragraph 2 of Article 12 of the Mauritius-India DTA is 15 %.

4. Emoluments derived by staff members of A seconded to B

It is confirmed that the staff members of A seconded to B will be subject to income tax in Mauritius on their emoluments derived in Mauritius in accordance with paragraph 2 of Article 15 of the Mauritius- India DTA.

 

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TR 72

 

Facts

Company P is a UK Fund Manager appointed under an umbrella agreement to manage a number of investments on the balance sheet of AQ, a UK company. The investments are held all over the world. Company P and AQ are not related companies and do not have common
directors.

Company P intends to subcontract the management of some of the investments to a Mauritius company (Company M), and this is permissible under the umbrella agreement. Company P will meet in London to provide recommendations to Company M which will consider these recommendations to decide whether or not to invest or disinvest. In this respect there will be an agreement between Company P and Company M.

Company M is a wholly owned subsidiary of Company P and holds a GBL 1 licence. It will receive an investment management fee for its services on which it will pay Mauritius income tax. The fee will reflect the management of assets already identified to be managed in Mauritius. Company P is also considering subcontracting management of more or all AQ securities to Company M at a second stage.

 

Point in Issue

Whether it can be confirmed that as a result of subcontracting of investment management by Company P to Company M, the mere management of part of or the majority or all of the AQ assets by Company M will not create a permanent establishment for AQ and Company P in Mauritius and AQ and Company P will not have any tax filing requirement with the Mauritian Tax Authorities.

 

Ruling

Company P is a Fund Manager and manages the investments of AQ under an umbrella agreement with the latter. Company P and AQ are not related companies. The management of the assets of AQ is subcontracted by Company P to Company M which has the power to act in an independent capacity. It is confirmed that Company M will not be considered as a permanent establishment of either AQ or Company P. Neither Company AQ nor Company P will have to file any tax return in Mauritius with regard to the activities carried out by Company M.

 

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TR 73

 

Facts

F company Limited has been registered in Mauritius as a foreign company. The company (Head Office) is incorporated in India. The company has been awarded a contract by the Mauritius Ports Authority to construct an oil jetty in Port Louis harbour. The contract is expected to last for a period of 18 months.

The project is managed by personnel delegated from the Head Office. The Head Office has financed the working capital and also made arrangements for the materials, equipment and the workforce for the project to be made available to the branch. The human resource employed on the project is constituted of the following:

(i) personnel from the Head Office to supervise the engineering works, monitor the project and carry out all administrative and accounting functions.

(ii) the workforce which is actually carrying out the project work.

The workforce is supplied by an Indian subcontractor who has to be present in Mauritius for the duration of the contract. The workforce is paid by the Indian subcontractor and receive their remuneration from India.

The Head Office has incurred expenditure on the acquisition of materials in India for exclusive use on the project. Second hand heavy duty equipment has also been brought in from India and Europe in respect of which Head Office has incurred transport and freight charges. These equipment will have to be rehauled and returned to their respective locations at the end of the project. In addition, Head office provides service of administrative nature and technical knowhow.

The branch has incurred air transport expenses for and in respect of the technical and administrative staff.

 

Points in issue

1. Expatriate Staff

Whether

(a) the Indian subcontractor should register with the MRA in respect of the supply of labour for the project.

(b) the members of the workforce are subject to PAYE.

(c) the branch should apply tax deduction at source in respect of the amounts made available to the Indian subcontractor for carrying out works.

(d) the members of the workforce are entitled to income exemption threshold.

 

2. Cost of Materials

Whether the actual amount expended as the cost of materials which will be wholly and exclusively used on the project is deductible as input cost.

 

3. Equipment Wear and Tear

Whether wear and tear in respect of second hand heavy duty equipment imported from overseas and used on the project can be claimed as annual allowance under Section 24 of the Act.

 

4. Jack Up

Whether the amount paid to subcontractors in India by Head Office for dismantling the jack up used in the project can be claimed by the branch as an allowable expense.

 

5. Transport of Equipment and Freight Charges

Whether maritime freight and transport charges incurred by Head Office are allowable expenses to the branch.

 

6. Air Transport Expenses

Whether air transport expenses incurred by the branch for the technical and administrative personnel can be claimed as allowable deductions.

 

7. Head Office Administrative Expenses and Transfer of Technical Know-how

Whether administrative expenses and services provided for the transfer of know-how by Head Office can be claimed by the branch as allowable expenses.

 

Ruling

 

1. Expatriate Staff

(a) The Indian subcontractor is making a supply of labour for carrying out works in respect of civil construction and will have a permanent establishment in Mauritius in accordance with Article 5 of the Mauritius-India Double Taxation Agreement (DTA). As it will be liable to tax on income derived from this project, it will have to register with the MRA.

(b) The members of the workforce will be subject to PAYE on their emoluments as it is income derived from their employment in Mauritius in accordance with the provisions of Section 74 (1) (a) of the Income Tax Act and liable to tax in Mauritius by virtue of the Mauritius-India DTA..

(c) The branch should apply tax deduction at source in respect of the amounts made available to the Indian subcontractor for carrying out works in respect of civil construction in accordance with Sections 111A (1) (k) (ii) and 111B (d) of Sub-Part BA of the Act.

(d) The members of the workforce will be entitled to IET in accordance with Section 27 (1) of the Act provided that they are resident in Mauritius during the period of the contract.

 

2. Business Expenses

(i) Items 2, 3, 5, 6 and 7 will be business expenses wholly and exclusively incurred in the production of gross income and may be claimed by the branch as allowable expenses, but subject to the application of the arm's length principle with regard to such expenditure incurred on its behalf by the Head Office.

(ii) Expenditure incurred on the Jack up(item 4)has been incurred and paid outside Mauritius and cannot be said to be an expenditure wholly and exclusively incurred in the production of gross income for the project in Mauritius and therefore cannot be claimed as an allowable expense.

 

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TR 74

 

Facts

 

E Ltd are consultants providing services to insurance companies in respect of

(i) insurance loss adjustment, and

(ii) investigations into suspected fraudulent insurance claims

in addition to other types of services on which tax deduction at source apply.

The principal and associate of the company are Chartered Quantity Surveyors. The fees receivable by the company from insurance companies in respect of the services at (i) and (ii) are subjected to tax deduction at source by the payers.

 

Point in issue

Whether it can be confirmed that the services of loss adjustment and/or investigations into suspected fraudulent insurance claims fall outside the scope of TDS under Section 111B (e) of Sub-Part BA of the Income Tax Act i.e. specified services under the Fifth Schedule to the Act.

 

Ruling

E Ltd is a company whose principal and associate are registered Chartered Quantity Surveyors and the company provides consultancy services to insurance companies in its capacity as Quantity Surveyor. The services therefore fall under the scope of TDS under Section 111B (e) of Sub-Part BA of the Act i.e. specified services under the Fifth Schedule to the Act.

 

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TR 75

 

Facts

 

G Inc., a company incorporated in BVI, is proposed to be re-domiciled to Mauritius as a
registered domestic company under the Companies Act 2001. It is the ultimate holding company
of the following companies in the G group:

 

G LUX - incorporated in Luxembourg
G Capital S.A - incorporated in Switzerland
G Corporate Services Ltd - incorporated in Mauritius by way of continuation (holds a
GBL 1 licence)
G Trust Ltd - incorporated in Mauritius (licensed as a Management
company by the FSC)
G Capital Management Ltd - incorporated in Mauritius (holds a GBL 1 licence)

According to the corporate structure of the Group,

 

  • G LUX holds 100 % of the shares in G Capital S.A
  • G LUX holds 100 % of the shares in G Corporate Services Ltd
  • G Inc. holds 100 % of the shares in G Trust Ltd
  • G Inc. holds 100 % of the shares in G Capital Management Ltd

Dividends will be paid by each operating company to its holding company which will in turn pay dividends to the ultimate holding company. As a domestic company G Inc. will be subject to tax at the rate of 15% as from year of assessment 2007/08.

 

Points in issue

 

1A. Whether it can be confirmed that as the dividend income G Inc. will receive from G LUX is sourced abroad, the company will benefit from foreign tax credit and underlying tax credit, i.e any dividend withholding tax and any underlying taxes suffered by G LUX S.A and G CAPITAL S.A can be claimed back, and by the application of the foreign tax credit and underlying tax credit the tax liability of G Inc. can be reduced to 0 % if the tax credit (including the underlying tax credit) is equal to or more than 15 %.

 

1B. Whether it can be confirmed that, as part of the dividend distribution G Inc. will receive from G LUX S.A has a Mauritian source element, dividend received from G Corporate Services Ltd , being a Mauritian source income, will not be treated as ordinary income by G Inc. in its books and therefore be exempt from income tax and no foreign tax credit will be applicable.

 

2. Whether it can be confirmed that any dividend income received by G Inc. from G TRUST LTD will not be subject to withholding tax and be an exempt income. Also, as this will not be a foreign source income G Inc. will not be able to apply for foreign tax credit and underlying tax credit in respect of this income.

 

3. Whether it can be confirmed that irrespective of G Capital Management Ltd holding a GBL1 licence, any dividend income received by G Inc. from G Capital Management Ltd will not be subject to withholding tax and be an exempt income. Also, as this will not be a foreign source income, G Inc. will not be able to apply for foreign tax credit and underlying tax credit in respect
of this income.

 

Ruling

 

1A. It is confirmed that as the dividend income G Inc. will receive from G LUX is sourced abroad, the company will benefit from foreign tax credit and underlying tax credit, i.e. any dividend withholding tax and any underlying taxes suffered by G LUX S.A and G CAPITAL S.A can be claimed back, and by the application of the foreign tax credit and underlying tax credit the tax liability of G Inc. can be reduced to 0 % if the tax credit (including the underlying tax credit) is equal to or more than 15 %.

 

1B. G Inc. will receive dividend income from G LUX S.A. This dividend income cannot be said to be income derived by G Inc. from Mauritius, and is therefore not exempt from income tax. It is a foreign source income on which G Inc. will be liable to tax and can apply for foreign tax credit and underlying tax credit.

 

2. It is confirmed that dividend income received by G Inc. from G TRUST LTD will not be a foreign source income and is therefore exempt. G Inc. will not be able to apply for foreign tax credit and underlying tax credit in respect of this income.

 

3. It is confirmed that dividend income received by G Inc. from G Capital Management Ltd will not be a foreign source income and is therefore exempt. G Inc. will not be able to apply for foreign tax credit and underlying tax credit in respect of this income.

 

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TR 76

 

Facts

L India Holdings, which holds a GBC 1 Licence, is proposing to its investment advisers based overseas an option to acquire shares in the company at a price which will be below market value at the time the option to acquire the shares is exercised. This will constitute part of the consideration for services rendered as investment advisers, and will give rise to a benefit- in -kind to the overseas investment advisers, to whom also capital gains would accrue in case of disposal of these vested shares.

 

Points in issue

1. Whether the difference between the exercise price and the market value of the shares in question would be taxed on the overseas investment advisers as benefits- in- kind at the time the options are exercised.

2. Whether the profits made on the disposal of the exercised shares vested on the overseas nonresident
investment advisers are subject to taxation in Mauritius under the scenarios below:

(i) Investment advisers are based in Treaty Countries;

(ii) Investment advisers are based in Non-Treaty, Third Party Countries

 

Rulings

1. It is confirmed that by virtue of Section 74 (1) of the Income Tax Act 1995 and paragraph 1 of Article 14 of a Double Taxation Treaty based on the OECD model, the overseas investment advisers would not be liable to tax in Mauritius on the difference between the exercise price and the market value of the shares at the time the option is exercised, as the benefit-in-kind accruing to them will constitute an income derived for proferring independent professional services from overseas and not from Mauritius.

2. It is confirmed that the profits made on the disposal of the exercised shares vested on the overseas non-resident investment advisers in both scenarios, i.e. being based either in Treaty Countries or in Non-Treaty, Third Party Countries, will not be subject to income tax in Mauritius, being given that the investment advisers will not have a permanent establishment for trading in shares in Mauritius.

 

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TR 77

 

Facts

M Ltée is a company incorporated in Mauritius as a private company on 2 October 1985. It is the owner of land of an approximate acreage of 1200 Arpents since 17 March 1986, purchased in several lots on account of the existence of the main road dividing these lots. Out of these owned lands the company had in the year 2000 extracted 18 Arpents, 75% of which being for the purpose of subdivision and development into residential plots sold to the public under a special scheme, and whereby also 25% was sold to the Government at nominal prices.

 

It is engaged mainly in sugar cane plantation since 1986, and approximately 50 % of the land not suitable for cane cultivation is used for deer farming. It is also, since recently, engaged in the export of monkeys, but this is only ancillary. Though the company's objects include purchase and resale of lands and other property, its primary object has always been the cultivation of sugar cane, and throughout its existence the company has been engaged in agricultural activities. The land was acquired for the purpose of cane cultivation. It was not acquired for the purpose of being sold at a profit. The land is situated in the south-western part of the island which is the driest region, and according to the company it is not profitable to cultivate sugar cane, given that the cost of production is constantly rising while it is also known that revenue will be decreasing in the near future. For this reason the shareholders have decided to sell a certain portion of the land.

 

As it has been found to be practically impossible to sell the land in one lot on account of its size, an area of 419 acres divided into five different lots will be sold to one single purchaser, not related to the company. There is no agreement of any kind with the eventual purchaser, and it is confirmed that the company will not carry out any land development prior to the disposal of the said lands.

 

Point in issue

Whether the proceeds of the sale will be subject to income tax.

 

Ruling

On the basis of the facts given, it is confirmed that the gain on the sale of the five plots of land of a total area of 419 acres will not be subject to tax as it will constitute a gain of a capital nature derived on the realization of a capital asset and therefore outside the scope of Section10 of the Income Tax Act 1995.

 

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TR 78

 

Facts

V Ltd is a private limited company incorporated in Mauritius and has the activity of running a hotel in the island and offers its services to T, a tour operator in Italy. T is the sole proprietor of V Ltd and sends tourists to this company; so that the latter's turnover is mostly made up of amounts invoiced to the tour operator.

V Ltd has two bank accounts, one held in the Euro currency and the other in the Mauritian currency (MRU). Invoices are issued by V Ltd to T in Euro, and all payments by the latter for amounts invoiced by the company are made in Euro and subsequently transferred to the MRU account as and when needed. Therefore, on account of the fact that payments are received in Euro, exchange gains and losses arise to the company.

 

Point in issue

At what point in time is gain or loss on exchange realized by the company:

(a) when the amounts invoiced by V Ltd are settled by T and credited in the Euro account?
Or
(b) when the amounts in the Euro account are transferred by the company to the Mauritian Rupee account?

 

Ruling

On the basis of facts given, the gain or loss on exchange arising as a result of the fluctuation in the rate of exchange is, in accordance with the provisions of Section 6 (3)(a) of the Income Tax Act, deemed to be realized by V Ltd on the date on which the amount invoiced to T is settled by the latter.

Where the amount invoiced is remitted in an income year other than the income year in which the transaction occurs, apart from accounting for the gain or loss on exchange at the date of settlement as stated above, any difference on exchange arising as a result of the fluctuation in the rate of exchange between the date of the invoice and the end of the income year in which the invoice is issued, should also be taken into account for income tax purposes by virtue of Section 6 (3) (b) of the Act.

Please note that any gain or loss on exchange arising on transfer of the amount from the Euro account to the MRU account should also be recognized and accounted for in the income tax return in respect of the year in which the transfer is made.

The treatment set out in the foregoing paragraphs is also in accordance with the principles laid down by IAS 21.

 

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TR 79

 

Facts

An individual is contemplating to set up a business as tour operator. A company will be formed for the purpose of undertaking the said business. In carrying the tour operator business, the company will incur expenses, including expenses connected with overseas marketing and trade fairs which qualify for a 200% deduction under the law. It is assumed that in the event the company will have already started its operations, in the first instance it will be allowed to deduct the total amount of the overseas marketing and trade fair expenses from its profit and loss account; and to a deduction in respect of the same item of expenditure a second time, when computing its chargeable income for income tax
purposes.

 

Point in issue

Whether it can be confirmed that the tour operator company will be entitled to a 200% deduction in respect of overseas marketing and trade fair expenses.

 

Ruling

It is confirmed that the tour operator company will be entitled to a deduction of 200% of the amount of overseas marketing and trade fair expenses, in accordance with the provisions of Section 67A of the Income Tax Act 1995.

 

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TR 80

 

Facts

L Investments Ltd is a GBL 1 company incorporated in Mauritius. It holds 100% shares in P Holdings(Pty) Ltd, a company incorporated in South Africa, since November 2002. The only employee and director of the company is Mr T. P Holdings (Pty) Ltd holds 74% of the shares in a subsidiary in South Africa, viz. M (Pty) Ltd, an investment company. The difference, 26% shares are owned by Mr T. A resolution has been passed on December 2002 to transfer the effective management and control of both companies to Mauritius and all operations of the companies are done in Mauritius. By letter dated 20 March 2008, the South African tax authorities (SARS) have been informed of these operations and also requested to remove the companies from the South Africa tax register.

 

Both companies have 30 September as the date of annual balance of accounts. They do not have taxable income until September 2005, but M (Pty) Ltd is liable to tax since the year to 30 September 2006.

 

Point in issue

A guidance is sought as to what procedures should be followed to get the companies registered as taxpayers in Mauritius.

Ruling

 

Based on the facts provided, being given that P Holdings(Pty) Ltd and M (Pty) Ltd have their effective control and management transferred to Mauritius, they are resident in Mauritius for income tax purposes and therefore liable to tax on their worldwide income. As these companies are not incorporated in Mauritius, it is the obligation of the taxpayer companies to officially inform the Mauritius Revenue Authority that their control and management have been transferred to Mauritius. But this does not seem to have been done.

 

Under the provisions of Section 116 (1) of the Income Tax Act 1995, and subject to other provisions of the law, every company, whether or not it is a taxpayer, has the obligation to submit to the Director-General a return in such manner and in such form as may be approved by him and at the same time pay any tax payable in accordance with its return.

 

The Income Tax Act lays the obligation on all companies resident in Mauritius to submit their returns of income within the due date, whether or not they are registered with the MRA or have received a return form from the MRA.

Both companies should therefore comply with the requirements of the Income Tax Act with regard to submission of returns of income and payment of tax.

 

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TR 81

 

Facts

ZM, a limited partnership formed in Cayman Islands, proposes to incorporate a subsidiary in Mauritius (P Ltd) which will hold a Global Business Category 1 Licence. P Ltd will invest in an Indian company which would be engaged in the business of development of a Special Economic Zone (SEZ) in India, under the Special Economic Zones Act. Section 80-IAB of the Indian Income Tax Act 1961 allows a deduction in respect of profits and gains derived from development of a SEZ. Additionally, Section 115-O of the said Act grants an exemption to undertakings engaged in the development of a SEZ from dividend distribution tax payable @ 16.995% on distribution of dividends. The Mauritius company will hold 49% interest in the Indian company.

 

Point in issue

Whether, in relation to the profits and gains derived by the Indian company from its business of developing a Special Economic Zone in India, P Ltd is eligible for a tax sparing credit under Regulation 9 (1) of the Income Tax (Foreign Tax Credit) Regulations 1996 in respect of Indian profits tax which would otherwise have been payable but for the exemption effectively given as a result of the enactment of Section 80-IAB and Section 115-O of the Indian Income Tax Act

 

Ruling

Regulation 9 (1) of the Income Tax (Foreign Tax Credit) Regulations 1996 of the Income Tax Act 1995 provides that, where the Director-General is satisfied that provisions have been introduced in the law of a foreign country with a view to promoting industrial, commercial, scientific, educational or other development in that country and that under those provisions income has been exempted from tax which would otherwise have been chargeable to foreign tax, "he shall allow a credit for the amount of foreign tax which would have been chargeable had those provisions not been enacted." A similar tax sparing clause has been provided in the Mauritius-India tax treaty. Section 80-IAB of the Indian Income Tax Act does not satisfy the above conditions since no relief is provided either by exemption of income or by reduction in the amount of income tax payable. However, Section 115-O provides for an exemption of tax on distributed profits derived by enterprises operating in a SEZ. In accordance with the provisions of Section 115-O of the Indian Income Tax Act 1961 P Ltd will be eligible for a tax sparing credit in respect of the dividend distribution tax which would otherwise have been payable.

 

The tax sparing credit, however, will be limited to and in the proportion of the share of interest of P Ltd in the Indian company.

 

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TR 82

 

Facts

A Ltd holds a Category 1 Global Business Licence, and operates as a collective investment scheme. The preference shares issued by the Company have been categorized as liabilities in the balance sheet, in accordance with International Accounting Standards, and are therefore debt in nature. In lieu of a performance fee, which is usually an allowable expense, a preference share dividend is declared and payable to the manager, based on the performance of the Company

 

Point in issue

Confirmation as to whether preference share dividend should be treated as an allowable expense.


Ruling

On the basis of facts provided, it is confirmed that dividends paid on the preference shares which have been classified in the balance sheet as a liability in accordance with International Accounting Standards, should be treated as an allowable expense.

 

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TR 83

 

Facts

ASB (hereinafter referred to as the "Board") has been granted land conversion permit to sell land in order to recover the cost of the Voluntary Retirement Scheme (VRS 1) in the year 2001.The lands were used for sugarcane plantation and have been owned by the Board for a considerable length of time. The Board has never been engaged in property development.

 

The land for sale was divided into 9 lots after obtaining Land Conversion Permit under Voluntary Retirement Scheme, in accordance with the Sugar Industry Efficiency Act 2001. Two of the lots were sold in 2007 for a total sum of Rs X million odds. The remaining lots have not yet been sold. The Board was directly involved in the conversion, development and parcelling of the land and the only development costs were the survey fees, which were minimal.

The Board has spent some Rs Y million for the VRS scheme, financed by two loans contracted in 2001 and 2005 respectively from a domestic bank, and from its own working capital. The proceeds of the sale are being used to service the debts contracted.

 

Point in issue

Whether the surplus realised will be taxable or not.

 

Ruling

On the basis of facts provided, as the proceeds are used by the Board exclusively for the implementation of the 2001 Voluntary Retirement Scheme, the surplus realised on the sale of lands will not be taxable, in accordance with item 1 of Sub-Part C of Part II of the Second Schedule to the Income Tax Act.

 

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TR84

 

Facts

A company intends to purchase a villa under the IRS scheme which will be financed wholly by an interest-free loan advanced by its sole shareholder. The latter intends to make use of the villa as his residence. It is not intended to be let to others. No business will be carried out by the company, and any surplus of the loan remaining after the purchase of the villa will be deposited in a bank. The interest accruing to the company on any such deposit will be used for paying the maintenance costs of the villa. Also, the interest receivable by the company will be subject to tax without any claim for deduction in respect of expenses incurred for the maintenance of the villa. The company is only a vehicle through which the property is to be purchased and held.

 

Point in issue

1. Whether in the above circumstances, the shareholder will be subject to tax whilst residing free of charge in the villa.

2. Whether the company will be subject to tax on an "adequate rent" to be determined by the Mauritius Revenue Authority (MRA).

 

Ruling

1. The provisions of Section 86A (Benefit to Shareholder) are as follows:

   "Where a benefit of any nature, whether in money or money's worth, other than payment of dividend, is made by a company to any shareholder or a relative of the shareholder, the value of that benefit, to the extent that it exceeds the payment, if any, made therefor, shall be deemed to be income referred to in section 10 (1)(f) and received by the shareholder or the relative of the shareholder, as the case may be."

 

On the basis of facts provided, whilst residing free of charge in the villa belonging to the company, a benefit is deemed to accrue to the shareholder, which is therefore a taxable benefit in accordance with the above provisions.

 

2. The provisions of Section 88 (1) of the Act state that

"……….where property owned by a company is leased to a shareholder or a relative of a shareholder or to any other person, and the rent is not an adequate rent for the property or the lease makes no provision for the payment of rent, there shall be deemed to be payable under the lease a rent that is equal to an adequate rent for the property, and that rent shall be deemed to be income derived by the lessor-

(a)        ............

(b)        where no rent is payable under the lease, in respect of such periods as the Director-General determines."

In accordance with the above provisions, the company will be subject to tax on an adequate rent which shall be determined by the MRA.

 

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TR 85

 

Facts:

Company A, holding a Category 1 GBL licence, has acquired USD 200m bonds having a maturity period of 24 months and bearing interest at the rate of 10% p.a payable quarterly from a resident of the People's Republic of China (The Issuer). It has invested in the bond as a mechanism to acquire shares in the Initial Public Offer (IPO) vehicle at a more advantageous price. Obtaining the shares was the sole objective of making the investment in the bonds. The other salient facts and terms of the bonds are thus:

  • Company A funded the purchase by issuing equity of USD 5m and an overseas loan of USD 195m from one of its shareholders at 9.5% p.a interest payable quarterly.
  • The issuer will repay the bond by cash or by the transfer of shares in another overseas company (Company B/The IPO Vehicle) in which the issuer has substantial interests.
  • If the obligations are extinguished as above, Company A will derive a premium depending on the timing of the transfer.
  • The purpose of the premium is an inducement to Company A to commit early to the investment in the form of bonds and allowing its name to be used in marketing the shares in the IPO vehicle to other investors.
  • If Company A receives shares, it may, in due course, sell them at the prevailing price,  which may result in a  profit.
  • Company A may also sell the bonds at market price, resulting in a profit or loss.
  • In line with IAS 39, Company A will record the bond as a non current asset in its Balance Sheet and will periodically recognize mark-to-market adjustments in its financial accounts to reflect the fair value of the stocks.

 

Points at Issue

  • Whether interest paid by Company A on the USD 195m loan will be deductible against income received and whether the interest margin of 0.5% will be considered to be compliant with the arm's length principle?
  • Whether the premium/gain derived by Company A on exchange of shares in Company B is exempt from income taxation in Mauritius?
  • Whether, the premium paid by the Issuer on retirement of the bonds to Company A will be exempt from taxation in Mauritius, if the bonds are repaid in cash?
  • Whether gains derived by Company A from sale of the Company B shares shortly after conversion will be exempt from taxation in Mauritius?
  • Whether gains derived by Company A from sale of bonds prior to their maturity or early redemption, will be exempt from income taxation in Mauritius?
  • Whether the mark to market adjustments that will be recognised under IAS 39 in Company A's accounts will be considered capital in nature and thus not subject to taxation?

 

Ruling

(a) Any expenditure incurred on interest in respect of capital employed exclusively in the production of gross income specified in Section 10(1)(b), (c) or (d), of the Income Tax Act as the case may be will be allowed as a deduction in accordance with Section 19 of the Act.

Regarding the issue of arm's length, MRA will not rely solely on interest margin to decide whether the arm's length principle is being adhered to. Other factors as laid down in Section 75 of the Act will also be considered in the application of the arm's length test to arrive at a reasonable amount of net income that would normally be expected from this type of activity undertaken by Company A.

 

(b)&(c) On the basis of the facts provided, and having regard to the risk taken by Company A, the rate of interest applicable on the bonds considered as a reasonable commercial interest rate under the current economic environment and the fact that Company A is acting as a force of attraction for other prospective investors, it is ruled that premium/gain derived by Company A either on exchange of shares in Company B or paid in cash is of a capital nature and not subject to tax.

 

(d) Gains derived by Company A from the sale of shares are exempt from income tax by vitue of Item 8 of Sub-part C of Part II of the Second Schedule to the Income Tax Act.

 

(e)  Gains derived by Company A from the sale of bonds prior to their maturity or early redemption is exempt from income tax as in (d) above.

 

(f)   The mark to market adjustments under IAS 39 will not be subject to taxation as in (d) above inasmuch as the gain is not yet realised.

 

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TR 86

 

Facts:

 

The Directors of a Category 1 GBL company wish to transfer the registration of the company to another jurisdiction in accordance with Section 301 of the Companies Act 2001. On re-registration of the company, it will cease to be Mauritius resident and will forego its Global Business Licence. The assets of the company comprise quoted and unquoted investments.

 

Points in issue:

(a) Whether the migration will be treated as a cessation of business in Mauritius and deemed disposal of the investments?

(b) If deemed disposal applies, whether:

(i) the transfer of the assets will be taxable?

(ii) any capital gains arising will be considered as 'exempt income' and whether there will be an implication of 'expenditure incurred in the production of income'?

(iii) there will be any other tax implications on the re-registration of the company?

 

Ruling:

(a) The migration will be treated as a cessation of business in Mauritius as the company will be removed from the register of companies and the transfer of the quoted and unquoted investments will be treated as deemed disposal.

(b) (i) By virtue of Item 7 of Sub-part C of Part II of the Second Schedule to the Income Tax Act 1995, gains or profits derived from the sale of units or of securities by a company holding a Category 1 Global Business Licence is exempt from income tax.

(ii) By virtue of Section 26(1)(b) of the Income Tax Act, no deduction shall be made in respect of any expenditure or loss to the extent to which it is incurred in the production of income which is exempt income.

(iii) There will be no other tax implication in Mauritius on re-registration of the company in another jurisdiction. However on deregistration in Mauritius, the company has an obligation to:

  • furnish to each employee, within 7 days, a Statement of Emoluments and Tax Deduction for such period as appropriate;
  • submit forthwith, a return of income for the period ending with the cessation  of the business; and
  • pay any tax due by the company

 

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TR 87

 

Facts:

G an Indian company is incorporated in Mauritius and holds a GBL 1 licence. Appointed as Investment Manager, it provides investment advisory services to an Indian closed-ended fund incorporated in Mauritius holding a GBL 1 licence. In addition to a fixed advisory or management fees ranging between 1.5% to 2% it earns from the Fund, it may get a variable element alongside the investors in the economic benefits of the Fund, in accordance with the distribution waterfall which sets out how the proceeds from the sale of investments should be distributed between the investors and the Advisor. The Fund has two classes of shares, viz. Preference Shares and Management Shares. The Preference Shares are issued to investors who commit capital in the Fund and take the risks. G holds Management Shares which are of a nominal amount of USD 10 in the Fund, and is not entitled to receive any dividend.  In case of winding up, it will receive the nominal paid up value of the Management Shares, after holders of Preference shares will have received the nominal paid up value of the Preference Shares.
The Fund has subscribed for units in an Indian Trust, a contributory trust incorporated in India. The Indian Trust has, in turn, made direct equity investments in Indian companies. The Indian Trust has remitted proceeds from divestments to the Fund by way of redemption of the units subscribed. In accordance with the constitutive documents of the Fund, the allocation of the redemption proceeds representing the cost of the units and any capital gains from the transaction is as follows:

(i) return of the cost of capital contributed by the shareholders in the Fund ;

(ii)an additional amount (a preferred return) to the Fund's shareholders to be calculated at an annual rate of 9% compounded semi-annually on all capital contributions from the time of drawdowns; and

(iii)the balance of divestment proceeds in the ratio of 80% to the Fund's shareholders and 20% to G.

G may be entitled to a share of 25% of the preferred return at (ii) above varying between 6% and 9%; and in addition to this preferred return, a 20% share in the allocation of the balance of divestment proceeds.

 

Points in issue:

Whether the allocation of the redemption proceeds of the units to G will qualify either as exempt income or capital gains, and hence not be taxable in Mauritius.

 

Ruling:

Unlike other investors who commit capital in the Fund, G holds Management Shares which are of a nominal amount of USD 10, which do not entitle it to dividends. It cannot therefore, in the circumstance, be said that the allocation of the redemption proceeds represents a capital gain in the hands of G. The amount receivable by G is in fact remuneration for the advisory and management services it provides to the Fund, and is therefore subject to tax in Mauritius, in accordance with Section 10 of the Income Tax Act 1995. 

 

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TR 88

 

Facts:

A Limited is incorporated in Mauritius as a domestic company and has its registered office in Port Louis. Its sole shareholder and director is a UK national resident in Mauritius. The company will be engaged in arranging for the purchase of commodities from suppliers worldwide and its resale to clients overseas. For that purpose, under an agreement, A Limited will act as an agent for a UK company (the Principal) by offering procurement services from Mauritius. The agreement will not constitute any association, partnership, joint venture or other relationship.

 

For the purpose of this operation, ’procurement services' has been defined in the Memorandum of Agreement entered into between the UK company and A Limited to mean as acting for the Principal, opening and operating a bank account, co-ordinating the purchase and shipment of commodities, clearance of commodities from Customs & Excise in the respective countries of the suppliers and customers, arranging for payments to suppliers and receiving payments from customers, placing orders, entering into correspondences, invoicing and the preparation of all documentation relative to conducting the supply of commodities.

 

A Limited has made arrangements with a local clearing and forwarding agent to oversee trans-shipment of goods both by air or sea routes from suppliers to clients. All transactions and settlements on supplies and sales will be undertaken on the Agent's name (A Limited). The latter will manage funds on behalf of the Principal and maintain accounting records in Mauritius to disclose all such transactions in its books. Billing to customers will be initiated from here. Also, Board meetings will be conducted in Mauritius.  

 

As consideration for acting as Agent on behalf of the Principal, A Limited will receive an amount equal to 8% of the gross profit on the transactions, and this will be used as the tax base to calculate its tax liability, if any. Any profit remaining shall belong to the Principal and will be repatriated to the United Kingdom where it will be subject to UK tax laws. The income of 8% pertaining to A Limited will be calculated at the end of the financial year and will be based on the accounting profit made out of the above transactions. The accounting profit will be determined by using the generally acceptable accounting principles and standards.

 

Points in issue:

Whether:

1.  the way of determining the tax base for computing the tax liability of A Limited  is acceptable;

2.  A Limited will receive deduction for all the business expenses and disbursements.

 

Ruling:

1 & 2. For the purpose of determining the chargeable income and tax liability of A Limited, the MRA will apply the arm's length test and allow such business expenses to which it will be entitled, in accordance with section 57 of the Income Tax Act 1995. 

However, being given that A Limited will be acting as a dependent agent for and on behalf of the UK company, it will constitute a permanent establishment in respect of the latter. The UK company will therefore be taxed on the profit attributable to the permanent establishment.

 

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TR 89

 

Facts:

S is a GBC 1 company, and its main activities are the licensing of IPR's (intellectual property rights), manufacture of pharmaceutical products under licence and the purchase of patent and generic medicines for distribution, all carried out overseas. It maintains an office in Mauritius  which acts as operational headquarters and employs local as well as expatriate staff. For the expatriate staff, S pays relocation expenses  equivalent to one month's salary as part of their contract of employment to enable the employees to shift to Mauritius with their personal  belongings.

 

Point in issue

Whether the relocation expenses paid by S         

(a)  while the staff is still overseas;      
(b)  to the staff on reaching Mauritius but before obtaining an occupational permit from Government;

(c)  to the staff on reaching Mauritius and after obtaining an occupational permit from Government

is a benefit in kind on which tax is payable in Mauritius.

 

Ruling

On the basis of facts provided, the relocation expenses payable by S to the expatriate staff equivalent to one month's salary as part of their contract of employment for enabling them to shift to Mauritius with their personal belongings fall within the meaning of emoluments as defined in Section 2 of the Income Tax Act. The payment thus constitutes emoluments receivable by the expatriate staff in each of the above  circumstances, and therefore subject to income tax by virtue of the provisions of Section 10 (1) (a) of the Act.

 

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TR 90

 

Facts:

H has been incorporated in Mauritius as a private company, and holds a GBL 1 Licence to carry out investment holding activities. No investments to-date, however, have been made by the Company. It has uninvested cash in its bank account in Mauritius, and earns interest  thereon at commercial rates. It has no other income from any other source and incurs usual business operating expenses.

 

Points in issue

Confirmation that

(a)interest income earned by the Company on its uninvested cash would not be considered as exempt income for the purposes of Section 26 of the Income Tax Act and GN 140 of 2003;                                                                                               

(b) the Company would be allowed to carry forward its tax losses for set-off against future taxable income in five subsequent income years;

(c) in the event that the Company derives both taxable income (e.g. dividends), exempt income (e.g. gains from  disposal of shares) and interest income on uninvested cash from its Mauritian bank account in future, such interest income would not be taken into account for the purposes of applying the formula set in GN 140 of 2003 to calculate the quantum of unauthorized deductions.

 

Rulings

(a)  Item 3 (b) of Sub-Part B of Part II of the Second Schedule to the Income Tax Act provides that the interest payable on a call and deposit account held by a corporation holding a GBL 1 Licence with any bank under the Banking Act 2004 is exempt. It is therefore clear that the interest income earned by the Company on its uninvested cash in a bank account in Mauritius should be treated as exempt income.

 

(b) It is confirmed that the Company would be allowed to carry forward its tax losses for set-off against future taxable income in five subsequent income years in accordance with the provisions of Section 59 (b) of the Income Tax Act. However, these tax losses would not include any expenditure or loss incurred in the production of interest income referred to above, given that expenditure or loss incurred in the production of income which is an exempt income is not deductible by virtue of the provisions of Section 26 (1) (b) of the Act.

 

(c) In view of the ruling given at (a) above, in the event the Company derives both taxable income (e.g. dividends) and exempt income (e.g. interest income and gains from disposal of shares) such exempt income would be taken into account for the purpose of applying the formula set out under GN 140 of 2003 of the Act to calculate the quantum of unauthorized deductions.

However, in accordance with regulation 8 (2) of the Act, no proportion of the common expenditure will be disallowed where the proportion of exempt income to total gross income is 10 per cent or less.

 

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TR 91

 

Facts:

X is a private limited company incorporated and domiciled in Mauritius, and is engaged in property development for the benefit of companies within a Group. It holds an appropriate licence as land promoter and property developer from the relevant authority. Y is another private limited company incorporated and domiciled in Mauritius and operates a chain of supermarkets throughout the island. X and Y are wholly owned subsidiaries of Z and are both VAT registered. All land and buildings belonging to X are presently rented to Y under an operating lease. The Management of X is considering the sale of all X's properties to Y. The capital expenditure incurred by Y will be exclusively incurred in the production of gross income.

 

Points in issue

1 .In case the disposal of the land and buildings by X is treated in accordance with Section 21 (7) (a) of the VAT Act, whether-

(a) the profit arising on disposal of the said assets in the books of X will be treated as a  capital gain; and

(b) the credit for input tax will be allowed as a deductible expense for the purpose of corporate tax.

 

2. Whether Y will be able to claim capital allowances on the amount attributable to the buildings?

 

Ruling:

 

1. It is confirmed that the sale of land and buildings is subject to VAT in view of item 48 (b) of the First Schedule to the VAT Act which reads as follows:

for any other purposes except land with any building, building or part of a building, apartment, flat or tenement together with any interest in or right over land, sold or transferred by a VAT registered property developer to a VAT registered person.

On the basis of the ruling given above, the issues raised do not arise.

 

2. It is confirmed that Y will be entitled to claim annual allowance on the amount attributable to the buildings, in accordance with the provisions of Section 24 of the Income Tax Act 1995.

 

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TR 92

 

Facts


A Ltd is a Mauritian freeport operator engaged in clearing, freight forwarding and other associated activities. It is 100% owned by B Ltd a Mauritian company holding licence as third party freeport developer engaged in handling, storage, transshipment of frozen fish, and rental of building. X is a foreign company registered in the United States of America and is a client of A Ltd and of D Ltd, a Mauritian company which operates a fish processing plant.

X purchases fish from Y, a foreign company registered in Taiwan and which has a subsidiary in Mauritius, namely C. The latter purchases fish from fishing vessels for resale, and is also a client.of A Ltd. Fish purchased by X is subsequently sent to D Ltd for processing and thereafter the value-added finished product is forwarded to X, its rightful owner in USA, or to other destinations chosen by the latter. The whole transaction of the purchase and re-export of fish is carried out under the control of the freeport zone of Mauritius. Fish offal is sold by D Ltd to G and H, two Mauritian companies which treat fish offal and produce fish meal which is sold to animal feed producers. All the Mauritian companies referred to above form part of the same Group of Companies.

The whole Customs transaction is handled by A Ltd within the Mauritian Freeport zone by preparing the appropriate Customs Declaration Form to which are allocated a Customs Procedure Code (CPC) for each specific transaction, in accordance with Customs procedures. On the Customs Declaration form A Ltd has to appear as an importer and exporter of fish when in substance it is only an independent facilitator and a clearing and forwarding agent for X. Its only income is the fees it receives from different clients or parties to the transactions for handling the product.

 

Point in issue


Whether, in view of the Customs Declaration Form, A Ltd will be considered as the purchaser and seller of fish and deemed to derive income as such under Section 5 of the Income Tax Act, and therefore liable to income tax?

 

Ruling


On the basis of information provided to the effect that the fish is actually owned by X, and on the understanding that A Ltd does not operate as a dependent agent for X but is only acting as a facilitator and clearing and forwarding agent for X, it will be liable to income tax only on the fees it derives in that capacity. It will therefore not be considered as the purchaser and seller of fish.

 

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TR 93

 

Facts


P Ltd is a company engaged in the distribution of petroleum products, and has a distribution network which comprises various retail outlets spread all over the island. In respect of a few recent retail outlets, the company has had to bear the cost of the access road to and exit from the retail outlets. The roads are set up either on leased property or form part of public roads.

 

Points in issue
(i) Whether the initial costs of the roads are eligible for annual allowance?
(ii) Whether the future costs of maintaining the roads are allowable expenses?

 

Rulings
(i) The provisions of Section 24 (1) (a) of the Income Tax Act apply to capital expenditure incurred on the acquisition, construction or extension of commercial premises, while the provisions of Section 24 (1) (f) apply to "the acquisition or improvement of any other item of a capital nature which is subject to depreciation under the normal accounting principles. "
The access roads to and exit from the retail outlets do not form part of the commercial premises of the company and are also not capital expenditure of a nature which is subject to depreciation under normal accounting principles. The initial costs of the roads are therefore not eligible for annual allowance.

 

(ii) It is confirmed that the future costs of maintaining the roads will be allowable as a deduction in the accounts of the Company, in accordance with the provisions of Section 18 of the Income
Tax Act.

 

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TR 94 (Replaced by TR 99)

 

Facts
K Limited is a company incorporated in Mauritius and holds a Category 1 Global Business Licence. It invests in securities in India and has percentage holding in Indian companies which is less than 5%. It derives dividend income from the Indian companies; and on payment of dividends, Dividend Distribution Tax (DDT) is payable to the tax authorities.

 

Point in issue
Whether K Limited is eligible to claim the DDT as a credit against Mauritius tax payable.

 

Ruling

It is confirmed that K Limited is eligible to claim the DDT as a credit against Mauritius tax payable, in accordance with the provisions of Regulation 3 of the Income Tax (Foreign Tax Credit) Regulations 1996. DDT is regarded as a direct tax paid on dividends receivable by the shareholder.

 

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TR 95

 

Facts


P (the Company) is a company registered and incorporated in Mauritius. It carries on business as promoter and distributor of pharmaceutical products. The Company has incurred expenditure to secure intellectual property as set out below:


1. During June 2008, USD 338,024,265 to acquire X intangible assets.

 

2. During April 2003, USD 8,028,090 to acquire Y intangible assets.

 

3. During April  2008, USD12,856,189 - an upfront royalty payment to acquire the right
to use Z intangible assets, with regular payments thereafter.

 

4. During December 2008, USD26,225,000 - an upfront royalty payment to acquire the right to use G intangible assets, with regular payments thereafter. The Company has assessed the intangible assets at 1 and 2 above to have an indefinite useful life and is therefore not amortizing these assets yet. It is of the view, however, that it is inevitable at some point in the future the indefinite life assessment will be reviewed, and that events and circumstances will no longer support an indefinite useful life. At that point the assessment will be changed to a finite useful life assessment and the. assets will become subject to amortization in terms of normal accounting principles. The Company is therefore of the view that the expenditure incurred to acquire these assets must be allowed to be deducted at the prescribed rate from the date the assets would be first available for use in terms of Section 24 of the Income Tax Act.

 

As regards the intangible assets at 3 and 4 above, the Company has assessed their finite useful life to be 25 years. In its books of accounts, the Company has already recognized a deferred tax liability equal to the deductions in respect of these assets. In other words, if it were to dispose of the assets, it would recoup the deductions allowed, and this recoupment is already recognised as a deferred tax liability. The Company is therefore of the view that the upfront expenditure incurred to acquire these assets must be allowed to be deducted at the prescribed rate in terms of Section 24 of the Income Tax Act.

 

Points in issue


Whether it can be confirmed that -
(i) in respect of each of the items 1 to 4 , the Company may claim annual allowance on the cost of expenditure incurred to acquire the intangible assets in terms of Section 24 of the Act, notwithstanding that currently for accounting purposes the assets at items 1 and 2 are regarded by the Company as having an indefinite useful life, and are thus not amortized in terms of normal accounting principles, but will be changed to a finite useful life assessment in the future and become subject to amortization in terms of normal accounting principles.

 

(ii) the annual allowance rate of 5% per annum on cost is acceptable.

 

Rulings


(i) It is confirmed that by virtue of the provisions of Section 24 of the Income Tax Act, the Company will be entitled to claim annual allowance on the capital expenditure incurred to acquire the intellectual property rights as follows:

(a) in respect of items 1 and 2 , from the date the intangible assets will be considered to have a finite useful life and thus become subject to amortization in terms of normal accounting principles.

(b) in respect of items 3 and 4, since the time they are first available for use.

 

(ii) It is confirmed that the annual allowance rate of 5% per annum on cost is acceptable, in accordance
with item 8 of the Second Schedule to Regulation 7 of the Income Tax Regulations 1996.

 

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TR 96

 

Facts


X Ltd is incorporated and registered in Mauritius and holds a GBL I Licence. It owns 100 % share in
Y Ltd, a company resident in Hong Kong which in turn holds 100% share in Z Ltd, another company registered in Mauritius holding a GBL 1   Licence. Z Ltd owns 70 % share in A Ltd, a company incorporated in China.
In accordance with the above shareholding structure, the dividends flow is as follows: A Ltd (China) pays dividends to Z Ltd ( Mauritius)

  • Z Ltd pays dividends to Y Ltd (Hong Kong)
  • Y Ltd pays dividends to X Ltd (Mauritius)
  • Y Ltd has not suffered any tax on dividends received from Z Ltd, and the dividends flow from Y Ltd to X Ltd is free of withholding tax.

 

Point in issue


Whether X Ltd (Mauritius) is entitled to underlying foreign tax credit in respect of dividends received indirectly from A Ltd (China) by virtue of Regulation 7 of the Income Tax (Foreign Tax Credit) Regulations 1996 (GN 80 of 1996) although Z Ltd (Mauritius), one of the payers of dividend, is a GBL I company ?

 

Ruling


Regulation 7 (2) of the Income Tax (Foreign Tax Credit) Regulations 1996 lays down that a company resident in Mauritius can make a claim for underlying tax where it has received dividends from a company not resident in Mauritius which "has itself received a dividend, from another company not resident in Mauritius... ", provided that the company paying the dividend holds directly or indirectly not less than 5% of the share capital in that company.
As Y Ltd (Hong Kong) has received dividends from Z Ltd, which is a company resident in Mauritius, X Ltd will not be entitled to claim underlying tax credit, in respect of dividends received indirectly from A Ltd (China) through the intermediary Y Ltd, in accordance with the above regulation.

 

TR 97

 

Facts


Z, a company incorporated in Mauritius as a private company, holds a GBL 1 Licence. It employs professionals, mainly expatriates of different nationalities, who provide consultancy services to Y, another GBL 1 company, and to all companies under the portfolio of this latter company with respect to the day-to-day management and general administration. Y is an investment holding company based in Mauritius with offshore portfolio companies.
Certain employees of Z have `professional permit' pursuant to Part III of the Investment Promotion Act 2000, and the rest hold `occupational permit' issued under Section 9A of the Immigration Act. These employees carry out work outside Mauritius. Presently all employees have been seconded to the portfolio companies of Y, based in various African countries outside Mauritius.

 

Point in issue


Whether the expatriate employees of Z are subject to income tax in Mauritius.

 

Ruling


As the expatriate employees of Z are based outside Mauritius and their services are wholly performed outside Mauritius, they are not subject to income tax in Mauritius, in accordance with the provisions of Section 5 of the Income Tax Act.

 

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TR 98

 

Facts


A major multinational operating in the technological industry worldwide is proposing to set up a Category 1 Global Business Licence company (Company A) in Mauritius for investment in Country X. Company A will hold 100% stake in the investee company (Company B) to be situated in Country X and which will in turn set up operations in that country to manufacture technology-related products. Given the substantial amount of foreign direct investment involved and the likely impact on its economic, industrial and commercial development, Country X has entered into a Memorandum of Understanding (MOU) with the multinational to, inter-alia, refund 100% of the corporate income tax to be paid by Company B in Country X for a period of 10 years.
Under the provisions of the accounting standard to be adopted by Company B, the income tax refund will be treated as income and will be subject to income tax in the next accounting period; and the. "additional" tax suffered in that accounting period will also be refunded as part of 100% refund of corporate tax referred to above.

 

Points in issue


Whether it can be confirmed that -

  1. notwithstanding a corresponding refund/amount of tax suffered in the first year being refunded in the subsequent year, Company A can claim the underlying tax credit, and/or;
  2. Company A will be allowed to claim tax sparing credit in respect of the income tax refunds received by Company B, and in the affirmative;
  3. the relevant extract, certified and apostilled, of the MOU will be sufficient to substantiate the claims.

 

Rulings

 

  1. It is confirmed that Company A can claim the underlying tax credit on the corresponding amount of income tax refunded in respect of a year which will be treated as income in the subsequent year, by virtue of the provisions of Regulation 7(1) of the Income Tax (Foreign Tax Credit) Regulations 1996.
  2. It is also confirmed that Company A will be allowed to claim tax sparing credit in respect of the income tax refunds received by Company B, on the understanding that the agreement reached through the MOU by Country X with the multinational is tantamount to provisions having been introduced in the law of Country X with a view to promoting industrial, commercial and economic development in that country, pursuant to regulation 9 (1) of the above Regulations.
  3. It is confirmed that for the purpose of regulations 8 and 9 of the Income Tax (Foreign Tax Credit) Regulations 1996), the relevant extract, certified and apostilled, of the MOU will be sufficient to substantiate the claims.
  4. Notice is hereby given that Ruling TR 94 issued by the MRA and published in the Government Gazette No. 99 of 7 November 2009 is hereby revoked as from this date and replaced by a new ruling TR 99 as shown hereunder.

 

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TR99

 

Facts

K Limited is a company incorporated in Mauritius and holds a Category 1 Global Business Licence. It invests in securities in India and has percentage holding in Indian companies which is less than 5%.  It derives dividend income from the Indian companies; and on payment of dividends, Dividend Distribution Tax (DDT) is payable to the tax authorities.

 

Points in issue

Whether K Limited is eligible to claim the DDT as a credit against Mauritius tax payable.

 

Rulings

DDT, being tax paid out of the profits/reserves of the company declaring dividend, cannot be considered as a withholding tax suffered by the recipient of the dividend. In fact the liability to DDT rests with the paying company and not with the shareholder.

DDTwill therefore be treated as an underlying tax in accordance with the provisions of Regulation 7 of the Income Tax (Foreign Tax Credit) Regulations 1996.

 

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TR100

 

Facts

A Ltd is engaged in the provision of management services, including financial and human resource services to related companies. B Ltd which operates a Beach Resort Hotel is a related company in which A Ltd holds shares, representing 23% of the total shares. A  Ltd derives management fee from B Ltd as a consideration for the service it provides to this company under a management agreement. There is, however, no formal written management agreement between the two companies.

 

Pursuant to a restructuring exercise, the management agreement between the two companies has terminated and consequently B Ltd has to compensate A Ltd. The compensation has been computed at some Rs 203 m and is based on an independent valuation. The consideration for the compensation will be by way of shares, so that B Ltd will issue new shares to A Ltd.

 

Points in issue

Confirmation that pursuant to the termination of the management agreement between A Ltd & B Ltd -

  1. the compensation payment that will be made by B Ltd (by way of issue of new shares) should be treated as capital income to A  Ltd and therefore should be outside the tax net.
  2. in the event the compensation payment is capitalized in the books of B Ltd for accounting purposes and is depreciated, annual allowance at the rate of 15 % would be available to B Ltd on a straight line basis.

 

Rulings

  1. Facts provided show that there did not exist between the two companies a formal written contract agreement requiring the mandatory payment of compensation in the event of its termination, nor the amount thereof. Also, the management fee derived by A Ltd from B Ltd did not constitute a substantial part of the income of A Ltd for provision of such services to related companies, so that the termination of the said agreement did not fundamentally affect the structure of its business. It cannot therefore be confirmed that the compensation receivable by A Ltd is a capital receipt and therefore outside the tax net. It is a receipt of revenue nature constituting gross income under Section 51 of the Income Tax Act, and therefore subject to tax.
  2. On the basis of the ruling given at (i) above no annual allowance will be available to B Ltd.

 

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TR 101

 

Facts

 

A (the "Fund") will be established as a limited partnership formed under the laws of the Province of Ontario, Canada. Under the Canadian Tax Act a partnership does not have legal capacity and is not treated as a separate legal person. The Fund would therefore not be subject to income tax in Canada. Partners of the Fund who are tax resident in Canada would, however, be liable to tax in Canada on their share of profit from the Fund.

 

The Fund will seek to achieve long-term capital appreciation through investing directly or indirectly in a balanced portfolio of investments generating income and capital gains in medium-sized enterprises, or having their principal operations in south-east Asia. Certain investments will be made by the Fund through a Singapore holding vehicle. The Singapore holding company will be wholly owned by the Fund for purposes of investing into portfolio companies. The Singapore holding company will be managed and operated from Singapore by a Singapore management company.

 

The Fund will not derive income from Mauritius and will not invest in shares, debentures or other securities in Mauritius. All the income it will derive will be derived from Singapore or, where investments are made by the Fund directly, from other target countries in south-east Asia.

 

The General Partner of the Fund will be a Cayman Islands exempted limited company. The officers and directors of the General Partner will be Mauritius-resident and its board meetings will be held in Mauritius. The General Partner will be entitled to delegate powers to a manager, provided that the management and conduct of the activities of the Fund shall remain the sole responsibility of the General Partner and all decisions relating to the selection and disposal of the Fund's investments shall be made exclusively by the General Partner. 

 

The Manager of the Fund will be established as a limited company under the laws of Mauritius and will apply for a GBL 1 Licence with the Financial Services Commission. It will operate from Mauritius and its board will mainly comprise Mauritius-resident directors.  Board meetings of the Manager will be held in Mauritius. The persons who will be directors on the board of the Manager will be different from those on the board of the General Partner. It will, under a management agreement entered into with the General Partner, provide portfolio management services for the benefit of the Fund including investigating, analysing, structuring and negotiating potential investments, monitoring the performance of portfolio companies and effecting thedisposal of investments. The Manager will receive an annual management fee payable by the Fund.

 

Points in issue

Confirmation that -

(i) the Fund would be treated as a sociétéfor tax purposes in Mauritius;

(ii) the Fund would be treated as a  resident société for tax purposes in Mauritius;

(iii) the partners of the Fund who are not tax resident in Mauritius would not be liable to income tax in Mauritius in respect of their share of income in the Fund.

 

Rulings

It is confirmed that-

(i) the Fund would be treated as a sociétéfor tax purposes in Mauritius, in accordance with the definition given to the term in Section 2 of the Income Tax Act.

(ii) the Fund would be treated as a resident société for  tax purposes in Mauritius in accordance with the definition assigned to the term in Section 73 (c) (ii) of the Act.

(iii) the partners of the Fund who are not resident in Mauritius would not be liable to income tax in Mauritius in respect of their share of income in the Fund, being given that the Fund will not derive any income from Mauritius.

 

Please note, however, that the Manager of the Fund will be liable to income tax on the fees it will derive from Mauritius, in accordance with the provisions of Section 5 (1) of the Act. The General Partner will on the other hand be liable to income tax in respect of the share of income the Fund will derive from Singapore or from other target countries, as it will be resident for tax purposes in Mauritius.

 

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TR 102

 

Facts

X Ltd (the Company) has been incorporated in Mauritius as a company holding a GBL 1 Licence. The principal activity of the Company is investment holding, and it actually holds the majority of the shares of a bank in Indonesia. Its main income from the bank is dividend, and it suffers tax at source in that the bank pays tax in Indonesia prior to distributing dividend. The Company normally distributes the majority of its reserve to its holding company, Y Ltd, which is also incorporated in Mauritius and holds a GBL 1 Licence. However, due to future investment opportunities the Company has changed its strategy, and instead of paying dividend to its holding company funds will be transferred to the latter on a refundable basis. The main reason for doing so is that the Company can call back these funds to invest elsewhere as it may seem good.

 

Points in issue

1.Whether any interest received by the Company for advance made to its holding company is taxable?

2.If the interest income is taxable, whether tax suffered on income derived from the bank in Indonesia or from any other foreign source is deductible against tax liability on the interest income?

3. Whether all types of income, derived from investment made in companies incorporated outside Mauritius, are taxable in the case of the Company? 

 

Rulings

It is confirmed that -


(i)  the interest income derived by the Company for advance made to its holding company  is taxable in accordance with the provisions of Section 51 of the Income Tax Act.

(ii) the tax suffered by the Company on income derived from the bank in Indonesia or from any other source is not deductible against its tax liability on the interest income   derived from the local source.

(iii) all types of income derived by the Company from investment made in companies incorporated outside Mauritius are taxable. It is also confirmed that in respect of such income the Company will benefit from foreign tax credit in accordance with the provisions of the Income Tax (Foreign Tax Credit) Regulations 1996.

 

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TR 103

 

Facts

A Ltd intends to set up a wholly owned Mauritius subsidiary, B Ltd (the Company), which will be incorporated in Mauritius and hold a GBL 1 Licence. The Company will be the 100% beneficial owner of a US trust which will be engaged in aircraft leasing. Currently a Bermuda company is the beneficiary of the trust. The nature of the trust will be similar to that of a bare trust in that the beneficiary, i.e. B Ltd, will be considered the owner of the aircraft for US tax purposes. The Company will have full control on the aircraft with power to instruct the trustee, and the interests and rights of the trust will be transferred to the Company when it will have been set up.

 

The US trust will lease an aircraft from a Cayman Island company under a finance lease, and the principal and interest payments will be payable to this latter company. The US trust will lease the aircraft on operating lease to a South African airline company for a period of 10 years. The sole income of the US trust will consist of rental income from the South African airline company. It will not derive any income from Mauritian source.
                                                     
Points in issue

Confirmation as to whether -

  1. the US trust will be considered as transparent for Mauritius tax purposes so that the finance lease will be treated as if entered into between the Cayman Island company and B Ltd, and the operating leaseentered into between B Ltd and the South African airline company;
  2. B Ltd may claim treaty benefits under the Mauritius-South Africa Double Taxation Agreement; 
  3. B Ltd will be entitled to claim capital allowances on the aircraft which would be leased by the trust to the South African airline company as if it had itself purchased the aircraft on finance lease, and the rate of capital allowances will be 100% of cost.

 

Rulings

 

(i)&(ii) The US trust will, for all intents and purposes, be considered as a company in accordance with the Income Tax Act, and therefore no issue of transparency for tax purposes arises. B Ltd will be the beneficial owner of the US trust, and therefore will not be concerned with the Mauritius-South Africa Double Taxation Agreement. As such, it will be liable to tax on any distribution it will receive from the trust.

 

(iii)   As B Ltd will not be involved in any leasing activities but will receive distribution income from the US trust, it will not be entitled to any capital allowances.

 

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TR 104

 

Facts

S (the Company) is a company incorporated in Mauritius and holds a Category 1 Global Business Licence. The principal activities of the Company are investment holding and the provision of management services. It receives management fees, marketing fees, development fees and dividend income from Seychelles, Tanzania and other foreign countries.

 

Points in issue

1. Whether a source of income can be determined by reference to the type of income, so that in the case of the Company management fees will be regarded as one source of income and marketing fees another source? Also, whether source of income can be determined by reference to a particular country, so that total income from Tanzania will be regarded as one source  and total income from Seychelles another source?

2. Whether for a particular year of assessment, the actual tax suffered on one foreign source income can be claimed as foreign tax credit and a presumed foreign tax of 80% on a second source of income?

 

Rulings

1. It is confirmed that source of income can be determined either by reference to the type of income or to the country from where the income is derived.

 

2. It is confirmed that on the basis of the above ruling, for a particular year of assessment, the Company can claim the actual tax suffered on one foreign source income and a presumed tax credit of 80% on a second source of income, in accordance with the provisions of Regulations 6 (3)(b) and 8 (3) of the Income Tax (Foreign Tax Credit) Regulations 1996, provided that credit for actual tax suffered does not exceed the amount of Mauritius income tax payable on that foreign source income, as laid down by Regulation 6 (1) of the aforementioned regulations.

 

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TR 105

 

Facts

 

M Limited (the Company) is a private company incorporated and domiciled in Mauritius, and holds a Category 1 Global Business Licence. It receives dividend income, subscription fees, management fees, satellite fees and other fees from Nigeria, Ghana, Kenya, Tanzania and Zambia.

 

Points in issue

 

1.Whether a source of income can be determined by reference to the type of income, so that in the case of the Company dividend income, subscription fees, management fees, satellite fees and other fees will each be regarded as a source of income? Also, whether source of income can be determined by reference to a particular country, so that the aforesaid income from one country will be regarded as one source and the same income received from another country regarded as another source?

2. Whether for a particular year of assessment, the actual tax suffered on one foreign source income can be claimed as foreign tax credit and a presumed foreign tax of 80% on a second source of income?

3. Whether, in case the Company opts to compute the amount of credit for foreign tax by reference to all foreign source income derived by it in accordance with regulation 6 (3) (a), the amount of credit shall be the higher of 80% of Mauritius tax payable and the actual foreign tax suffered on that income?

 

Rulings

 

1.It is confirmed that source of income can be determined either by reference to the type of income or to the country from where the income is derived. 

2. It is confirmed that on the basis of the above ruling, for a particular year of assessment, the Company can claim the actual tax suffered on one foreign source income and a presumed tax credit of 80% on a second source of income, in accordance with the provisions of Regulations 6 (3)(b) and 8 (3) of the Income Tax (Foreign Tax Credit) Regulations 1996, provided that credit for actual tax suffered does not exceed the amount of Mauritius income tax payable on that foreign source income, as laid down by Regulation 6(1) of the aforementioned regulations.

3.In case the Company opts to compute the amount of credit for foreign tax by reference to all foreign source income derived by it in accordance with Regulation 6 (3) (a), it is confirmed that the amount of credit shall be the higher of the actual foreign tax suffered or 80% of the Mauritius tax chargeable with respect to all foreign source income, provided that credit for actual tax suffered does not exceed the amount of Mauritius income tax payable on all the foreign source income, as laid down by Regulation 6 (1) of the aforementioned regulations.

 

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TR 106

 

Facts

 

An international company, Company A registered in South Africa employs a direct selling approach to bring its products to market. It wishes to enter into a "Depot partnership" arrangement in Mauritius. For that purpose, a Mauritian company (Company B) has been incorporated as a domestic company to act as an agent of Company A for selling and distributing the products in Mauritius on behalf of the latter. It has Mauritian resident directors and shareholders who are independent of and distinct from the directors and shareholders of Company A.

Company B will import Company A’s products into Mauritius and sell these on a commission basis to network marketing agents who will have independent contractor status, i.e they will purchase the products for their own use or for on-selling, and will not be employees either of Company A or Company B.

The products will be manufactured by Company A in South Africa and delivered to Company B, which will monitor stock levels of the products before delivery to network marketing agents. Company B will issue invoices and also collect payment for the products it sells on behalf of Company A. It will then remit the proceeds of sales to Company A, thus deriving a commission based on the sales. Under the proposed model, at no time will ownership of the products pass to Company B.

 

Points of Issue

 

Whether, under the partnership arrangement between Company A and Company B it can be confirmed that Company A does not have a business presence, i.e a permanent establishment in Mauritius, and therefore not liable to tax in Mauritius?

 

Rulings

 

On the basis of facts provided, and since the activities of Company B will be performed wholly or almost wholly on behalf of the Company A, it cannot be said to be an agent of independent status acting in the ordinary course of its business. As the facts submitted also indicate that the Company B will issue invoices and collect payments for the products sold on behalf of Company A, Company A shall be deemed to have a permanent establishment in Mauritius in respect of any activities which the Company B will undertake on its behalf, by virtue of the provisions of paragraph 5 of Article 5 of the Mauritius–South Africa Double Taxation Agreement.

Accordingly, Company A will have a business presence in Mauritius and therefore liable to tax in Mauritius. 

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TR 107

 

Facts

 

PPP Fund, (the Fund) together with its non-resident partners (the Partners) will set up a special purpose vehicle (Mauritius SPV) organised as a partnership under the laws of Mauritius. The Fund and its Partners will be non-tax resident in Mauritius.

The Mauritius SPV will acquire a 15% to 17.5% equity interest in S Ltd, a partnership organized under the laws of Norway. S Ltd currently holds varying equity interest in companies located in Benin, Gabon, Ghana, Gibraltar, Liberia, Sierra Leone, Tanzania and Togo.

The Fund will set up a holding company H Ltd, a company resident in Mauritius with a Category 1 Global Business Licence to own its shareholding in the Mauritius SPV.

 

Points of Issue

 

  1. Whether the Mauritius SPV will be considered as a resident société?
  2. If the Mauritius SPV is treated as a transparent entity, whether share of income of H Ltd in the Mauritius SPV will be deemed to be foreign source income in the hands of H Ltd, and whether H Ltd would be eligible for credit in respect of any foreign tax suffered in the African countries or the presumed 80% tax credit?
  3. If the Mauritius SPV holds a GBC 1 Licence and opts to be liable to tax, whether the Mauritius SPV will benefit from the 80% presumed tax credit or the actual tax suffered to set off against the Mauritian tax payable ?
  4. If the Mauritius SPV opts to be liable to tax at 15 %, whether the distribution by Mauritius SPV to H Ltd is exempt from any Mauritian tax?
  5. Whether the non-resident partners of the Mauritius SPV will be taxable in Mauritius on their share of income in the Mauritius SPV derived outside Mauritius?

 

Rulings

 

It is confirmed that -

1.the Mauritius SPV will be considered as a resident société for tax purposes in Mauritius, in accordance with the definition given to the term in Section 73 of the Income Tax Act.

2.since the Mauritius SPV will be considered as a resident société, and since it will derive income solely from sources outside Mauritius, the share of income of its associate H Ltd will be deemed to be foreign source income. Accordingly, H Ltd will be entitled to claim credit for foreign tax suffered in the African countries or the presumed 80% tax credit.

 3.if the Mauritius SPV holds a GBC 1 Licence and opts under Section 47 (6) of the Act to be liable to tax, it will benefit from the 80% presumed tax credit or the actual tax suffered to set off against the Mauritian tax payable in accordance with the provisions of regulations 3 and 8 of the Income Tax (Foreign Tax Credit) Regulations 1996.

4. if the Mauritius SPV opts to be liable to tax at 15 %, the distribution of income will be treated as dividend which is exempt from Mauritian tax in accordance with the provisions of Sub-Part B of Part II of the Second Schedule to the Act.

5.the non-resident partners of the Mauritius SPV would not be liable to income tax in Mauritius in respect of their share of income in the Mauritius SPV, being given that the latter will derive income from outside Mauritius.

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TR 108

 

Facts

 

P Ltd and its subsidiaries are engaged in the operation and management of hotels. Both P Ltd and its Mauritian subsidiaries require cash for their current operating activities. P Ltd is not in a position to raise any external debt as a result of the collaterals already provided to third party banks and its existing financial obligations.

It is proposed that the existing shareholders of P Ltd will provide the appropriate level of funding through convertible bonds (CB), which will be listed on the Stock Exchange of Mauritius and convertible after three years. Any CB that has not been converted will be redeemed by P Ltd after seven years. The income from the CB, referred to as the "CB interest" will be computed as to the aggregate of the Prime Lending Rate and 1.5%.

The funds raised from the CB will be applied towards the trading operations of P Ltd and its operating subsidiaries. For administrative convenience, P Ltd will issue the CB and then apply same in accordance with the requirements of its operating subsidiaries. The operating subsidiaries will be funded in one of the following ways:

  • Interest bearing loans
  • Convertible Bonds
  • Redeemable Preference Shares
  • Equity; or
  • Zero Coupon Bonds

Interest Bearing loans

P Ltd is not a financing company and as such the income from the loans to the subsidiaries would be the same as the CB interest that P Ltd would incur. However, to ensure that P Ltd is remunerated for the services it provides for arranging the whole financing structure, the interest income on the loans would be computed as to the aggregate of the Prime Lending Rate and 1.5015%.

Convertible Bonds

P Ltd is not a financing company and as such the income from the secondary CB would be the same as the CB interest that P Ltd would incur. However, to ensure that P Ltd is remunerated for the services it provides for arranging the whole financing structure, the income from the secondary CB will be computed as to the aggregate of the Prime Lending Rate and 1.5015%.

 

Point of Issue

 

Whether the tax treatment applicable to each of the proposed funding methods of the funds raised by P Ltd from the CB can be confirmed. 

 

Ruling

 

1. Interest bearing loans

On the basis of facts given and on the understanding that the interest rate is at arm's length, it is confirmed that where P Ltd  funds the Mauritian subsidiaries through the 'interest bearing loans', the interest income will be fully taxable in accordance with the provisions of Section 10  (1) (d) of the Income Tax Act 1995. It is also confirmed that the CB interest will be fully deductible, subject to the provisions of Section 19 of the Act.

2. Convertible Bonds

It is confirmed that in the event P Ltd itself funds the Mauritian subsidiaries through CB ( "the secondary CB"), on the understanding that the interest rate is at arm's length, the income derived by P Ltd would be fully taxable and the interest incurred fully deductible as ruled above. In the event the secondary CB is converted into equity shares, however, the CB interest would be disallowed.

3. Redeemable Preference Shares

It is confirmed that, subject to the conditions of the issue of the Redeemable Preference Shares (RPS), the distribution on the RPS will be considered, in accordance with the Statement of Practice ( SP 6/10)issued by MRA, as dividend or interest.

4. Equity

It is confirmed that in case of the funding through equity investments, P Ltd will derive dividend income from subsidiaries which will be exempt from corporate tax, subject to the distribution satisfying the definition of "dividends" under Section 2 of Part 1 of the Act. In such case the CB interest would not be deductible, and any expenditure incurred in the production of exempt dividends would be disallowed in accordance with the provisions of Section 26 of the Act. 

5. Zero Coupon Bonds

It is confirmed that interest receivable by P Ltd on the zero Coupon Bonds will be subject to tax on accrual basis in accordance with Section 5 of the Act.

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TR 109

 

Facts

 

'A' is a trust administered by C Ltd (the Company) in its capacity as a trustee. All the beneficiaries of 'A' appointed as to date, as well as the settlor are non-residents of Mauritius, and none of the assets of the trust are located in Mauritius. 'A' has for each and every year up to date filed a declaration of non-residence with the MRA, under Section 46(3) of the Income Tax Act.

'B' is a charitable trust administered by the Company and is a trust registered with the MRA, thus benefiting from income tax exemption. The Company would like to appoint 'B' as a new beneficiary to ‘A’, so that 'B' would be entitled to the distributions made by 'A'. 

 

Point of Issue

 

Whether the appointment of 'B' as a new beneficiary to 'A' would affect the tax status of 'A', and if yes, whether 'A' would still be exempt from income tax under Section 46 (3) of the Act?

 

Ruling

 

On the basis of facts given, as 'B' has been registered by the MRA as a charitable trust, it is therefore a trust which is resident in Mauritius under the Trusts Act 2001. In order for 'A' to benefit from the exemption provided under Section 46(3) of the Act, it must satisfy the condition laid down under subsection (2)(b) (i) of the above Section, i.e. "all the beneficiaries of the trust are, throughout an income year, non-residents."

With the appointment of 'B' as a new beneficiary which is resident in Mauritius, not all the beneficiaries of the trust will be non-residents. Since 'A' will not qualify under subsection 2 of Section 46, it will therefore not benefit from the exemption under Section 46 (3) of the Act. 

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TR 110

 

Facts

 

A Ltd is a private limited company incorporated and domiciled in Mauritius. It is engaged in the processing of by-products from fishing and canning industries for the production of animal feed. B Ltd, another private limited company incorporated and domiciled in Mauritius, is engaged in the processing of tuna loins and its by-products. B Ltd is the principal supplier of raw materials of A Ltd. Both A Ltd and B Ltd are wholly owned by C Ltd.
Management is considering the transfer on a going concern basis of all activities actually carried out by A Ltd to B Ltd, the objective being to benefit from synergies which will:

  • enhance production efficiency and effectiveness
  • mitigate production, administrative and financial costs
  • improve the use of financial resources amongst others

The above scheme will not give rise to loss of employment but will rather facilitate the mobility of human resources within the operations. Following the transfer, A Ltd will cease all its activities and will eventually be wound up.

 

Point of Issue

 

(a)  whether A Ltd will be allowed to transfer its tax losses to B Ltd as per Section 59A of the I.T.Act ?;
(b)  whether B Ltd will be able to carry forward the tax losses indefinitely as per Section 20(2) of the I.T Act?

 

Ruling

 

(a)  Subsection 1 of Section 59A of the I.T.Act (Transfer of loss on takeover or merger) provides for the transfer of the tax losses from a company (the acquiree) to another company (the acquirer) under such conditions relating to safeguard of employment which require the approval of the Minister. As the above conditions have not been satisfied, the transfer of the losses of A Ltd to B Ltd will not be allowed.


(b)  In view of the ruling given above, the question does not arise.  

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TR 111

 

Facts

 

A Ltd (the "Fund") and B Ltd ("Associate Fund") constitute limited liability partnerships which were set up under the laws of Guernsey. The Fund and the Associate Fund invest in parallel in terms of a co-investment agreement between them. The limited partners of the Fund and Associate Fund comprise various South African and non-South African resident entities. The limited partners of the Fund are not M group entities, i.e they are third party investors. The limited partners of the Associate Fund are C Limited, an employee trust and various employees.

The general partner of both the Fund and the Associate Fund is D Ltd, a company which is 100% owned by C Ltd, a wholly owned subsidiary of E, a company listed on the London Stock Exchange.

 

Capital Structure

 

It is proposed that a company, G be incorporated in South Africa and capitalized as follows:

  • The Fund will hold one ordinary voting share.
  • Pursuant to the alternative investment clause in the partnership agreement of the Fund /Associate Fund:

 

  • all the Fund's South African resident limited partners (third party investors) will invest directly in a specific class of non-redeemable preferred shares (A Pref Shares) in G;
  • the Fund's non-South African resident limited partners (third party investors)will, through an intermediary company (H) incorporated and tax resident in Guernsey, invest in A Pref Shares in G;
  • the Associate Fund will through H indirectly invest in a second specific class of non-redeemable preferred shares (B Pref Shares) in G;
  • D Ltd will, through H, indirectly invest in a third specific class of non- redeemable preferred shares (C Pref Shares) in G

The A, B and C Pref Shares will have the following terms:

  • the shares will be bought back by G after 8 years. This represents the term of G's underlying investment. In addition, the holder will have the right to require G to buy back the shares and;
  • dividends will be paid with reference to a formula of which the interest received by G on its underlying investment, i.e the loan, will be issued to each of the A,B and C Preference Shares. It is anticipated that the borrower of the loan from G will pay interest quarterly and, accordingly, G will pay preferred dividends on a quarterly basis as well. The terms of the A, B and C Preference Shares will require that dividends be paid in accordance with the formula referred to above. As such the directors would not have discretion as to whether to declare dividends on the  A,B and C Preference Shares;
  • The price at which the shares will be bought back will be the sum of the subscription price and any dividends which were due but remained unpaid (i.e accrued dividends) at date of buy-back. The holder therefore has a contractual right through the buy-back arrangement to dividends from G;
  • for accounting purposes, the Preference Shares will be reflected as a liability on the balance sheet of G, and any preference share dividends which are declared and paid will be accounted for in the income statement of the issuer as a finance cost. 

Activities of G
G will utilize the funding so raised to advance an interest bearing loan to a third party South African resident. The loan will have a floating interest rate between 15 – 29% for the first two years, and thereafter it will become a fixed rate. The loan will be repaid in 2018 and will be subordinated. The sole business of G will be to advance the loan to the South African resident.

Location of Central Management and Control
D Ltd forms part of the M Group which operates in the Financial Services Industry. Another division of the group, namely the group’s banking arm has existing operations in Mauritius and D Ltd intends to utilize the existing presence in Mauritius by appointing, inter alia, one or two directors from this part of the group, which directors are located in Mauritius to the Board of G. In addition, it is intended that additional Mauritius resident directors be appointed to the Board of G. No South African resident directors will be appointed to G’s Board. Furthermore all Board meetings will be held in Mauritius, strategic decisions will be taken in Mauritius, an auditor and company secretary will be appointed in Mauritius and the implementation of the decisions will take place in Mauritius. As such, G will have all its world activities managed and controlled in Mauritius.

As a result of the above, G will be registered as a foreign company as set out under Section 276 of the Companies Act 2001. G does not intend to apply for a Global Business Licence.

 

Point of Issue

 

1. Whether -
(i) G would be considered as a tax resident in Mauritius and benefit from the double taxation avoidance agreement between Mauritius and S. Africa; and
(ii) G will be issued a tax residency certificate by the Mauritius Revenue Authority?
2. Whether preference share dividends that would be paid on A, B and C Pref. Shares will be treated as interest / finance cost in Mauritius and be deductible for Mauritius tax purposes?
3. Confirmation that there will not be any withholding tax implications in Mauritius on payment of the Preference share dividends or the ordinary share dividends by G.

 

Ruling

 

1.(i) On the basis of facts submitted, since G will have its central management and control in Mauritius, it will qualify as a company resident in Mauritius in accordance with our domestic legislation,viz. the provisions of Section 73 (1) (b) of the Income Tax Act. It will also be resident in South Africa by reason of being incorporated in South Africa. Therefore as it will be a resident of both Mauritius and South Africa, its residence status for the purposes of the Mauritius-South Africa DTA will have to be determined in accordance with the tie-breaker clause of Article 4(3) of the above treaty.
(ii)  In the light of the ruling given above, a tax residence certificate may be issued to G certifying that it is resident in Mauritius, subject to the condition that G shall at all times be able to demonstrate that its central management and control is in Mauritius.
 
2. On the basis of facts given, the A,B and C Pref Shares would be classified as long-term liability in the balance sheet of G, and since the distribution that would be made on these shares does not satisfy the definition of "dividends"  in Section 2 of the Income Tax Act, it will be treated as  interest, and therefore deductible for income tax purposes.

3. It is confirmed that there will be no withholding tax implications in Mauritius on payment by G of dividends on the ordinary shares. As regards the distribution on the Pref Shares, it will be treated as interest, and it will not be subject to tax deduction at source in accordance with the provisions of Sub-Part BA of the Act, given that the recipients of such interest are non-residents. However, in accordance with Section 111K (2) of the Act, G will have to submit to the Director-General a statement in respect of each payee, where such aggregate interest payable exceeds Rs 50,000.

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TR 112

 

Facts

 

A GLOBAL PENSION (the "Trust") has been set up as a trust under the Trusts Act 2001. The "Trust" is a pension benefit plan that is licensed by the Financial Services Commission as a Retirement Benefit Scheme, pursuant to Section 14 of the Financial Services Act 2007.
B (Mauritius) Ltd, a Mauritius resident company, is the settlor of the "Trust". Other members, worldwide, will contribute to the "Trust" and receive distributions there from as per the trust deed.
C (Mauritius) Limited (the "Trustee"), a Mauritius resident company, has been appointed as the trustee of the "Trust", and D (the "Pension Manager"), a Mauritius resident insurance service provider, has been appointed as the pension manager. 
The pension manager shall undertake the following activities:
(i) undertaking, pursuant to a contract or other arrangement, the management of the funds and other assets of the "Trust" for the purposes of investments;
(ii) providing consultancy services of the investments of the Trust;
(iii) reporting or disseminating of information concerning the assets available for investments.
The assets of the "Trust" will be invested worldwide, and the revenue of the "Trust" will consist of dividends, interests from bank deposits, and potential capital gains from disposal of shares.

 

Point of Issue

 

1. Whether the "Trust" will be considered as resident for tax purposes in Mauritius and, if in the affirmative-

  1. what will be the taxation treatment of the "Trust" in Mauritius ?
  2. whether the "Trust" will be eligible to claim credit for foreign taxes paid on its foreign source income ?
  3. in the event the "Trust" obtains a Category 1 Global Business Licence -

(i) whether the "Trust" will be eligible to claim a presumed tax credit of 80% of the Mauritius tax chargeable with respect to its foreign source income ?

(ii) what will be the tax treatment of the gains that the "Trust" will derive from disposal of shares / investments ?
2. Whether the distributions made out of the Trust to the members/beneficiaries, as and when the distributions become due under the trust deed, will be subject to tax in Mauritius?

 

Ruling

 

1.(a) On the basis of facts given, it is confirmed that the "Trust" meets the criteria of a resident trust under section 73 (d) of the Income Tax Act, and therefore liable to income tax on its chargeable income in accordance with the provisions of section 46 of the Act.
(b) It is also confirmed that as a resident trust, the "Trust" will be entitled to claim credit for foreign tax paid on its foreign source income, in accordance with the provisions of section 77 of the Act.
(c) It is confirmed that in the event the "Trust" obtains a Category 1 Global Business Licence, it will be treated as a qualified corporation and be eligible to claim a presumed tax credit of 80% of the Mauritius tax chargeable with respect to its foreign source income, in accordance with regulation 8 of the Income Tax (Foreign Tax Credit) Regulations 1996.  Also, the gains derived from disposal of shares/ investments will be exempt from income tax, in accordance with item 8 of Sub-Part C of Part II of the Second Schedule to the Act.
2.   It is confirmed that since the definition of "company" in the Actincludes a trust, any distribution by the "Trust" will not be a deductible item for the "Trust", and will be treated as exempt from income tax in the hands of the beneficiaries in the same manner as "dividends."

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TR 113

 

Facts

 

B Ltd (the Company) raises part of its capital by borrowing money from some of its shareholders, i.e. through shareholder loans. Such loans are unsecured, are repayable at call and carry interest at an annual rate ranging from 6% to 7%, depending on the average prevailing bank rates available to the Company. For the purpose of the ruling application, the shareholders are referred to as "loan at call shareholders" and are assumed to be tax resident in Mauritius.
Following confirmation received from the MRA in 2007 to the effect that the Company has the obligation to apply tax deduction at source (TDS) in accordance with Sub-Part BA of Part VIII of the Act on the interest income receivable by the said shareholders, the Company has been applying TDS on the interest paid and remitting the relevant amount of income tax to the MRA.
The Finance (Miscellaneous Provisions) Act 2010 has, inter alia, brought the following changes to the Act:

  1. For the purpose of TDS under section 111C, the threshold of the aggregate amount of deposit in Part II of the Sixth Schedule has been raised from Rs 2,000,000 to Rs 5,000,000, and the rate of tax under Part I of the Schedule revised from 15% to 10%.
  2. interest payable on a savings or fixed deposit accounts held by an individual, a société or a succession with any bank or a non-bank deposit taking institution under the Banking Act is now exempt;
  3. introduction of the "solidarity income tax", applicable to a resident individual.

 

Point of Issue

 

1. Whether the Company should continue to apply TDS at the new rate of 10% on interest paid to its shareholders where the corresponding shareholders' loan amount exceeds Rs 5,000,000?


2. Whether the interest received in the hands of the "loan at call shareholders" from the Company will qualify for exemption from income tax under item 3 (c) of Sub-Part B of Part II of the Second Schedule to the Act, assuming that their total income for the purpose of "solidarity income tax" does not exceed Rs 2,000,000 ?


3. If the answer to question 2 above is in the negative, at what rate should "loan at call shareholders" pay income tax?


4. Whether the "loan at call shareholders" who have a total income in an income year not exceeding Rs 2,000,000, including interest income received from the Company are liable to solidarity income tax?


5. If the answer to question 4 above is in the negative, at what rate should "loan at call shareholders" pay income tax on such interest income?


6. Whether the "loan at call shareholders", who have a total income in an income year exceeding Rs 2,000,000 which includes interest income received from the Company on the shareholders loan that does not exceed Rs 5,000,000, are liable to solidarity income tax on the interest income received from the Company ?


7. If the answer to question 6 above is in affirmative, at what rate should "loan at call shareholders" pay income tax on such interest income received?


8. If the answer to question 6 above is in the negative, at what rate should "loan at call shareholders" pay income tax on such interest income received?


9. Whether the "loan at call shareholders" who have a total income in an income year exceeding Rs 2,000,000, including interest income received from the Company on the shareholders loan which exceeds Rs 5,000,000, are liable to solidarity income tax on the interest income received from the Company?


10.If the answer to question 9 above is in affirmative, at what rate should "loan at call shareholders" pay income tax on such interest income received? Whether the Company should apply TDS on the interest paid to the "loan at call shareholders", and if so at what rate? 


11.If the answer to question 9 above is in the negative, at what rate should "loan at call shareholders" pay income tax on such interest income received? Whether the Company should apply TDS on the interest paid to the "loan at call shareholders", and if so, at what rate? 

 

Ruling

 

1.It is confirmed that the Company should continue to apply TDS at the rate of 10% on interest paid to the "loan at call shareholders", in accordance with the provisions of section 111C of the Act.


2. It is confirmed that the interest received in the hands of the "loan at call shareholders" from the Company will not qualify for exemption from income tax under item 3 (c) of Sub-Part B (A)of the Second Schedule to the Act, given that the interest receivable by the shareholders is from loan advanced to the Company, and not from "a savings or fixed deposit account held with a bank or a non-bank deposit taking institution under the Banking Act."


3. On the basis of the ruling given at 2  above, it is confirmed that the rate of tax applicable on the interest income is 15%.

4. It is confirmed that the "loan at call shareholders" who have a total income in an income year not exceeding Rs 2,000,000, including interest income received from the Company, are not liable to solidarity income tax, in accordance with the provisions of Sub-Part AA of the Act.


5. Following the ruling given at 4 above, it is confirmed that the rate of tax applicable on the interest income is 15%.


6. The interest income received does not fall within the meaning of 'specified exempt income' as defined under section 16A of the Act and accordingly, it is confirmed that the "loan at call shareholders" are not liable to solidarity income tax on the interest income received from the Company.


7 & 8. The answer to question 6 above is not relevant. The "loan at call shareholders" should pay income tax at the rate of 15% on the interest income received.


9. Please refer to ruling given at 6 above.


10&11.The answer to question 9 above is not relevant. The "loan at call shareholders" should pay income tax at the rate of 15% on the interest income received and the Company shall apply TDS at the rate of 10% on the interest paid to the "loan at call shareholders."

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TR 114

 

Facts

 

C Ltd is a private limited company incorporated and domiciled in Mauritius. It holds a GBL 1 Licence and a freeport developer licence, and is engaged in the construction and repairs of ships.
The shareholding of the company is made up as follows:
D Ltd        50%
F Ltd        50%
F Ltd holds a GBL 1 Licence and does not possess immovable property. C Ltd holds substantial long term leasehold rights with the Mauritius Ports Authority, and in order to carry out its business it has been undertaking land reclamation and construction of immovable structures. These assets have been booked at historical cost and are being depreciated over the minimum lease period of the land.

F Ltd intends to sell its 50% shareholding in C Ltd. D Ltd will acquire some of the shares and will subsequently control C Ltd. The remaining shares will be sold to newcomers, i.e new shareholders.

 

Point of Issue

 

1. What shall constitute the "proceeds" as stipulated in section 10A (3) of the Income Tax Act ?


2. What shall, in the opinion of the Director-General, constitute acceptable values of immovable property under section 10A (9) (c)  of the Act ?


3. Are gains derived from disposal of leasehold rights subject to tax under section 10A? If yes, how shall the proceeds be assessed in respect of share transfer?


4. How do we assess the original cost of the leasehold rights under section 10A (3) ?


5. Whether, for the purpose of assessing the 95% threshold under section 10A (9) (d) -


(i)  the value of leasehold rights (which is not recognised in the balance sheet) shall be included in the total assets ?
(ii) the open market value shall be used in respect of the immovable property booked at historical cost ?


6. Whether gains on immovable property will be taxed on the shares giving control to D Ltd or on the whole 50 % shares disposable ?

7. Whether in the event that D Ltd and the others will acquire 100% shares in F Ltd, the transaction will give rise to gains from immovable property?

 

Ruling

 

1.It is confirmed that the value of the shares representing the value of the immovable property with leasehold rights at the time of transfer of the shares held by F Ltd in C Ltd will constitute the proceeds under section 10A (3) of the Income Tax Act.


2. It is confirmed that for the purpose of section 10A the open market value of the immovable property with leasehold rights as may be determined by a sworn property valuer may constitute an acceptable value, unless the Director-General is dissatisfied with the value of the immovable property, in which case he shall determine the value thereof in accordance with section 10A (9) (c).             

                                                              
3. It is confirmed that leasehold rights constitute "interest in immovable property" as laid down in section 10A (1), and therefore gains derived from disposal thereof are subject to tax in accordance with the provisions of the aforesaid section. It is also confirmed that, unless the value is correctly reflected in the statement of financial position at the time of transfer of shares, the proceeds shall be the open market value of the property as may be determined by a sworn property valuer.


4. For the purpose of section 10A (3), the original cost of the leasehold rights shall be the value of the leasehold rights at the inception date plus any related costs incurred thereon. In case the value of the leasehold rights is not available, the value shall be determined in accordance with the provisions of section 10A (8).


5.(i) It is confirmed that leasehold rights include interests in immovable property, and therefore in terms of Section 10A (1) of the Act, for the purpose of assessing the 95% threshold under section 10A (9) (d), the value of leasehold rights even if not recognised in the balance sheet shall be included in the total assets of the company.
(ii)It is confirmed that in view of the provisions of subsections 9 (b) and (c), the open market value of the immovable property with leasehold rights shall be used to determine the value of the immovable property disclosed in the financial statements.


6.As F Ltd will sell the whole of its 50% shares to D Ltd and to other shareholders, gains will be taxed not only on the shares giving control to D Ltd but on the whole of the shares that would be disposed of, in accordance with the provisions of section 10A (9) (a) of the Act. 


7. Since F Ltd does not own any immovable property, in the event D Ltd and the others will acquire 100% shares in F Ltd, section 10A of the Income Tax Act will not apply, i.e the transaction will not give rise to any gains from immovable property, pursuant to the provisions of subsection 9 (a) of the above section.
To note that 'immovable property' is not defined in the Act. However, as mentioned in the guide issued by the MRA "interest in immovable property" comprises any rights relating to such property.

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TR 115

 

Facts

 

Mr Z invested in Bank Bonds on 9 September 2005. The bank paid him interest earned on the bonds from the date the investment was made up to 31 December 2009 (date of maturity of the Bonds). Before payment of the interest due, tax deduction at source (TDS) was appropriately applied pro-rata for the period 1 October 2006 to date of maturity, and the income tax deducted remitted to the MRA. When filing his return for the year of assessment 2010 Mr Z calculated and paid income tax on the whole amount received as interest.

 

Point of Issue

 

Whether the amount paid as income tax for the period 9 September 2005 to 30 June 2006 can be claimed back ?

 

Ruling

 

Pursuant to item 3 (e) of Part III of the Second Schedule to the Income Tax Act only interest on such bonds bearing interest at progressive or variable rate and issued by the Bank of Mauritius was exempt from income tax until 30 June 2006. On the basis of facts given, the amount of income tax paid in respect of the period 9 September 2005 to 30 June 2006 cannot be claimed back as these were not bonds issued by the Bank of Mauritius.

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TR 116

 

Facts

 

A Ltd (the company) is a GBL 1 Company incorporated in Mauritius and is authorized to operate as a Collective Investment Scheme (CIS) Manager by the Financial Services Commission. It is licensed to provide both investment management and advisory services to fund entities and other investment managers respectively. It is the CIS Manager to the following Funds in addition to B Ltd and C:

  1. D
  2. E
  3. F
  4. G.

Entities (i) to (iii) are Mauritius based funds and entity (iv) is a Jersey registered fund. The Company also provides investment advisory services to the following entities:

  1. H, a Singapore based entity; and
  2. J, a Mauritian based CIS Manager.

In accordance with its strategy and plan to continuously look for and build up its business, the Company has targeted and acquired the investment management contracts of an existing GBL 1 CIS Manager, K Limited, which acted as CIS Manager to two Mauritian based GBL 1 Funds, namely B Ltd and C.

The transaction was carried out by the Company through the acquisition of K Limited and its holding company R Limited and, after the amalgamation and consequential dissolution of the other two companies, the Company remained as the sole surviving entity.

Following conclusion of the transaction, the Company had successfully expanded its business operations with two additional investment management contracts with B Ltd and C respectively. This, in turn, contributed to generating additional income streams for the Company. The Company incurred sizeable professional fees in connection with the crystallisation of the transaction, including costs of legal counsel, tax advisors and various other service providers. It also secured a long term interest-bearing loan to finance the acquisition/amalgamation and transaction costs. An upfront arrangement fee was also payable in respect of the loan agreement.

 

Point of Issue

 

Whether, for the purposes of determining the chargeable income of the Company, the following expenses would qualify as deductible expenses:

  1. professional fees incurred in connection with acquisition/amalgamation;
  2. interest payable on the loan contracted; and
  3. arrangement fee paid to secure the loan.

 

Ruling

 

1. On the facts provided, the professional fees in connection with, and the arrangement fee paid to secure a loan to finance the acquisition/amalgamation of K Ltd and its holding company R Ltd by the Company are expenses of a capital nature, and therefore do not qualify as deductible expenses from the gross income of the Company for the purpose of computing its chargeable income, in accordance with the provisions of section 26 (1) (a) of the Income Tax Act.

2. However, since the purpose of the loan was to finance the acquisition/amalgamation transaction, thereby benefiting the business of the Company by generating additional income, the interest incurred thereon constitutes an expenditure on capital employed exclusively in the production of gross income under section 10 (1) (b), and therefore qualifies as a deductible expense in accordance with the provisions of section 19 (1) of the Act.

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TR 117

 

Facts

 

A is a limited company that was incorporated in Mauritius, and its central management and control is also in Mauritius. The Company proposes to transfer its registration to Cyprus so that subsequent to its transfer it will be deemed to be a Cypriot incorporated company. Subsequent to the transfer, however, the central management and control of the Company will continue to be in Mauritius, and the effective management of the Company would be in Mauritius in terms of the Cyprus/ Mauritius double taxation agreement.

 

Point of Issue

 

Whether it can be confirmed that -

(a)  the Company would continue to be tax resident in Mauritius;

(b)  the Company's corporate tax affairs would be unaffected as a result of the proposed transfer; and

(c)  the proposed transfer should not have any Mauritian corporate tax implications. 

 

Ruling

 

On the basis of facts given, it is confirmed that-

(a)   the Company would continue to be tax resident in Mauritius since -

  • its central management and control will be in Mauritius in accordance with the definition of "resident" under section 73 (b) (ii) of the Income Tax Act; and
  • its effective management will be situated in Mauritius, in accordance with Article 4 (3) of the Cyprus/Mauritius double taxation agreement (DTA).

(b) and (c)  the Company's corporate tax affairs would be unaffected as a result of the proposed transfer in so far as regards -
(i)  its liability to income tax on its Mauritian sourced and its world-wide income;
(ii) its entitlement to foreign tax credit on foreign sourced income, in accordance with the provisions of the Income Tax (Foreign Tax Credit) Regulations 1996;  and
(iii) any other provisions of the Income Tax Act 1995 and the  Cyprus/Mauritius DTA.

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TR 118

 

Facts

 

D is an individual intending to set up a company (''X'') to be incorporated in Mauritius. The company will hold a Category 1 Global Business Licence and will do business with other Mauritius incorporated companies which hold GBC 1 Licence.

 

Point of Issue

 

Whether the income derived by "X" from the GBC 1 Companies will be classified as "foreign source income" ?

 

Ruling

 

In the case of a corporation holding a Category 1 Global Business Licence under the Financial Services Act, "foreign source income" as defined in section 2 of the Income Tax Act means income which is not derived from Mauritius and includes "income derived from its transactions with non-residents or corporations holding a Global Business Licence."

On the facts provided, it is therefore confirmed that the income derived by "X" from business carried on with other Mauritius incorporated companies holding a GBL 1 Licence will be classified as foreign source income.

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TR 119

 

Facts

 

S is a corporation organized under the laws of country A and is a global leader in the design and supply of passport personalisation systems (the System) in country A and worldwide. The System constitutes the equipment and the software.

Background facts

 

1. In 2004, S and the Government of Mauritius, duly represented by the Commissioner of Police (CP), entered into a contract (the 2004 Contract) for the supply of passport booklets and the design and supply of a new passport System for the Government of Mauritius. The 2004 Contract included the supply of passport printing equipment, readers, customized holographic film and ink ribbon, training of Passport & Immigration Office (PIO) personnel in the operation of the System, and maintenance services.

2. Under the 2004 Contract, S was responsible for importing the System and the different components as the Government of Mauritius did not wish to be involved in the importation and clearance of these items. Under the Contract, S was also authorized to subcontract or delegate the supply of services and tangible components to third parties, with the prior approval of the CP. In accordance with the terms of the Contract therefore, S hired the services of R Ltd, a Mauritius-based independent agent, to provide customs clearance services for the goods on consignment in favour of S and to deliver such goods to the CP as well as providing maintenance services (the Subcontract).

 

3. Both the 2004 Contract and the Subcontract expired on 29 June 2009, but have been extended by the parties, as they negotiated follow-on contracts at the CP's request.

 

4. S had not submitted any income tax and VAT returns to MRA on the grounds that it had not carried out any business in Mauritius, and has not made any taxable supplies in Mauritius. The MRA, however, reached the conclusion that income accruing to S from the whole 2004 Contract was subject to income tax and the supplies were taxable supplies. Subsequently, the income tax and VAT assessments made on S were settled by the Government of Mauritius by virtue of a clause to that effect in the Contract.

 

5. Prior to the 2004 Contract expiring, the CP expressed the wish for its renewal in order to obtain the necessary support for the issue of passports and the operation of the System by the PIO. The 2004 Contract is proposed to be renewed by the parties with terms and conditions substantially different from the original Contract, as stated in the proposed new contracts.

 

6. Under the proposed new contract between S and the CP (the 2011 Contract):

  • the CP will be the importer of the passport booklets, passport printing equipment, readers, customized holographic film and ink ribbon. S will have no responsibility whatsoever to deliver any of the components to the CP in Mauritius. In other words, the CP will be responsible for clearing all the items from Customs and pay all taxes and duties on importation;
  • the System implemented under the 2004 Contract will continue to be run in Mauritius by the CP/ PIO, and not by S;
  • S will have no office or staff in Mauritius to perform any part of the 2011 Contract;
  • a three-way Contract (the 2011 Maintenance Contract) is proposed to be signed between S, R Ltd and the CP for the provision of certain spare parts and maintenance and technical support directly to the CP.

 

7.     Under the proposed 2011 Maintenance Contract between G, R Ltd and the CP:

  • R Ltd will be the first-tier supplier of technical support and spares, and S will be the second-tier service provider. Any secondary support by S will be provided online through phone, fax, teleconference and emails;
  • if it should be determined by all three parties that a visit by S to R Ltd or CP's principal operating site is necessary, S will agree to make such visit, provided that S will not make more than two short trips per calendar year to Mauritius. Since the secondary support will be provided online, the visit of S's staff to Mauritius and the activities, if any, undertaken by them in Mauritius will be merely auxiliary in nature.
  • S will invoice R Ltd directly for any spare parts, online secondary support and for any on-site trips exceeding two.
  • R Ltd will be responsible to pay any duties and taxes on any import of spare parts;
  • R Ltd will be responsible to account for VAT on any supplies made and pay any taxes on income arising under the (Maintenance) Contract.  

 

Point of Issue

 

1. Whether S will be subject to income tax in Mauritius on export of goods to the CP under the 2011 Contract ?

2. Whether S will be subject to income tax on income arising from the supply of spares and on online secondary support under the 2011 Maintenance Contract ?

 

Ruling

 

On the basis of facts submitted, it is confirmed that -

 

1. S will not be subject to income tax on the export of goods to the CP under the 2011 Contract, as the activity will not constitute "income derived from any business carried on wholly or partly in Mauritius" in accordance with the terms of section 74 (1) (c) of the Income Tax Act.

 

2. S will not be subject to income tax on income arising from the supply of spares and on online secondary support under the 2011 Maintenance Contract, as this will not constitute "income derived from any contract carried on wholly or partly performed in Mauritius" in accordance with the terms of section 74 (1) (d) of the Income Tax Act.

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TR 120

 

Facts

 

A Ltd is a company incorporated and registered in Mauritius since July 2004. It is a subsidiary of the French group X based in France, specialised in language teaching through telephone and internet in France, making use of its software "Cyberteacher".  A Ltd which is specialised in language teaching on the European market has entered into a contract with X for the use of the latter's software with private enterprises and individuals. It holds an investment certificate under the ICT scheme for the setting up of a call centre to provide e-learning services and is as such engaged in the export of services. 

The activities of A Ltd comprise production and sale of tutored e-learning language teaching services destined to students throughout the world as well as back-office services. The languages taught are mainly English, French and Spanish, and not less than seven languages in all may be taught. The mode of teaching is currently through the telephone, and through Skype in the case of the English language.

For the purpose of carrying out its activities and to drive prospective clients to its websites, A Ltd incurs marketing and advertising expenses. Two modes of advertising are in use, off-line and on-line. Off-line advertising comprises use of bill-boards, media and seminars whereas on-line advertising is done through the internet. More than 99% of the advertising is done in Europe.

 

Point of Issue

 

Whether A Ltd is entitled to deduct from its gross income twice the amount of the expenditure incurred in respect of marketing and promotional expenses under the provisions of section 67A of the Income Tax Act?

 

Ruling

 

Section 67A of the Act provides that "a company engaged in tourism and export activities may deduct from its gross income twice the amount of any expenditure incurred in that income year on overseas marketing, export promotion...,overseas advertising and preparation of tenders for the export of goods and services."

On the basis of facts provided, any off-line marketing and advertising carried out overseas through the use of media, billboards and seminars would qualify as deduction under the above provisions of the Act. However, advertising carried out through the internet which is an access available to anybody both locally and abroad cannot be said to be 'overseas marketing and advertising' and therefore will not qualify for deduction under the above provisions.

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TR 121

 

Facts

 

D Private Limited (the Company) is incorporated in Mauritius and holds a Category 1 Global Business Licence. The company is engaged in investment holding and shipping activities. It has acquired vessels (tugboats and barges) which have been registered under Mauritian flag. The vessels are rented out to foreign companies and ply in the Indian coastline, Persian Gulf and South East Asia and will not sail in Mauritian waters. The company will appoint nationals / citizens of Philippines, Indonesia, Singapore and India as crew members on a contractual basis and none of the crew members will perform any part of their duties from Mauritius.

 

Point of Issue

 

1. Whether the crew members will be considered as resident for income tax purposes in Mauritius?

2. Whether the crew members employed by the company will be subject to tax (PAYE) in Mauritius on the income they will receive from the company?

3. Whether the company will have to be registered as an employer for PAYE purposes in Mauritius?

 

Ruling

 

1. In accordance with the provisions of Section 73(a) of the Income TaxAct 1995, the crew members will be non-residents for income tax purposes.

2. The crew members employed by the company, being non residents, will not be subject to tax in Mauritius on income derived from any employment, the duties of which are performed wholly or mainly outside Mauritius.

3. In case the company employs residents of Mauritius, it will have to be registered as an employer for PAYE purposes.

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TR 122

 

Facts

 

The company is incorporated in UK and intends to seek a listing on the London Stock Exchange. It will become the new holding company of a multinational conglomerate having interest across the globe. It has already obtained confirmation from the HMRC that by reason of its incorporation, it is tax resident in UK.


The group is undergoing management restructure and will have its Head Office in Mauritius, its board meetings will be held in Mauritius and all its key business decisions will be taken in Mauritius.

 

Point of Issue

 

(a)  Whether the company will bet tax resident in Mauritius?
(b)  Whether a Tax Residence Certificate (TRC) will be issued to the company on an annual basis?

 

Ruling

 

(a) The company will be tax resident in Mauritius in accordance with Section 73 (b) of the Income Tax Act 1995  on condition that it has its central management and control in Mauritius.


(b) Concerning TRC the company will be required to apply to this office on an annual basis and TRC will be issued provided the company shows that its central management and control is in Mauritius and gives an undertaking that all conditions necessary for it to be treated as having its place of effective management in Mauritius are at all times complied with.

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TR 123

 

Facts

 

B Ltd is a company incorporated and registered in Mauritius. It services clients in that it sends its employees, comprising both Mauritians and foreigners, to work for such clients in Africa.

In the case of the Mauritian employee sent to work abroad,he stays abroad for eleven consecutive months and the salary is paid into a Mauritian Bank account. As regards the foreigner, he does not reside in Mauritius at all and his salary is paid in a Mauritian Bank account in his name. The foreigner accesses the Mauritian Bank account and uses the salary in any part of the world that he wants to.

 

Point of Issue

 

Whether the Company should withhold income tax from the emoluments of the Mauritian employee and the foreign employee?

 

Ruling

 

On the facts provided, the Mauritian employee is a resident of Mauritius and is therefore liable to tax in Mauritius in respect of his worldwide income to the extent that any foreign income is remitted to Mauritius. As the emoluments are paid in a Mauritian bank account in his name, the emoluments are deemed to be derived by him by virtue of section 5 of the Income Tax Act. The Company should therefore withhold income tax from the emoluments of the Mauritian employee and remit same to the Director-General in accordance with the provisions of section 93 of the Act.

As regards the foreign employees, they are not resident in Mauritius and are therefore not liable to tax in Mauritius on the emoluments derived from outside Mauritius although paid into a bank account in Mauritius. No withholding of income tax should therefore be made from their emoluments.

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TR 124

 

Facts

 

ABC  Trust, hereinafter referred to as the applicant holds a Category 1 Global Business Licence and is also authorised by the FSC to operate as a Collective Investment Scheme. The applicant is resident in Mauritius and liable to tax here whereas its settlor and beneficiaries are non residents of Mauritius.


The applicant is considering a restructure whereby a Category 1 Global Business Licence company will be added as the sole beneficiary of the applicant instead of the existing non resident beneficiaries.


After the restructure, the applicant will continue to be a tax resident of Mauritius and will have a single beneficiary, i.e the Holding Company, which will, itself, be held by the original beneficiaries of the applicant.


Following the restructure, the applicant will be making distributions only to the Holding Company, instead of the non-resident beneficiaries.

 

Point of Issue

 

Whether the distributions by the applicant to the new company will be deemed to be dividends and hence dealt with as exempt income in the hands on the company?

 

Ruling

 

Dividends or other distributions paid by a company holding a Global Business Licence under the Financial Services Act to another company holding a Global Business Licence under the Financial Services Act will constitute exempt income in accordance with the current provisions of the Income Tax Act.

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TR 125

 

Facts

 

The ABC group has a collective investment scheme in Botswana called the ABC Unit Trust Scheme (Scheme). The Scheme, comprising several portfolio funds, is established by way of a Trust in Botswana and is regulated by the Non-Bank Financial Institutions Regulatory Authority (NBFIRA).
The group intends to 'move' the Scheme from Botswana to Mauritius by winding down the Scheme and establishing a Collective Investment Scheme(CIS) in Mauritius that mirrors the structure and investment objectives of the Botswana Scheme. As part of its migration process, the scheme will seek to:

  • Establish a trust in terms of the Trust Act, 2001;
  • register the trust as a CIS;
  • Register the CIS as a Category 1 GBL trust; and
  • Appoint a CIS manager; a custodian trustee and a managing trustee as required per the relevant legislations.

 

Point of Issue

 

Whether the entity will be governed by Section 45A (CIS) of the Income Tax Act 1995 or can it be considered as a non-resident trust under Section 46 (Trust) of the Income Tax Act 1995?

 

Ruling

 

On the basis of information contained in your application, it is ruled that the proposed Collective Investment Scheme will be governed by Section 45A of the Income Tax Act 1995.
You may wish to note that Category 1 Global Business Licences are issued to resident corporations only.

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TR 126

 

Facts

 

ABC is a trust established in Mauritius and its objective is to generate medium to long term capital growth from its investments for distribution to its beneficiaries which include a number of charities and philantrophics.The sole trustee of ABC is XYZ Trustees, a resident corporate trustee, whereas the settlor and all the beneficiaries of ABC are non residents of Mauritius. ABC deposits a declaration of non-residence with the MRA on an annual basis and, accordingly, avails of income tax exemption in Mauritius under Section 46 (3) of the Income Tax Act 1995.
ABC is presently considering consolidation of all its charitable and philantrophics activities through a new trust to be set up in Mauritius to achieve greater efficiency in its operations. The new trust will be settled by XYZ trustees, as trustee for ABC.  In addition, all the beneficiaries of the new trust will be non-residents of Mauritius. Accordingly the ultimate beneficiaries of ABC will still remain non-residents of Mauritius despite the interposition of the new trust in Mauritius.

 

Point of Issue

 

1. Whether the new trust will be eligible to deposit a declaration of non-residence under Section 46(3) of the Income Tax Act and be exempted from tax; and

2. Whether ABC will still be eligible to deposit a declaration of non-residence and be exempted from income tax in Mauritius under Section 46(3) of the Income Tax Act following the addition of the new trust as an additional beneficiary.

 

Ruling

 

1. The new trust will be considered as a resident of Mauritius under Section 73(d) of the Income Tax Act as the trust will  be administered in Mauritius and a majority of its trustees are resident of Mauritius.

 

2. ABC will no more be eligible to deposit a declaration of non-residence as one of its beneficiaries (the new trust) will be considered as a resident of Mauritius.

 

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TR 127

 

Facts

 

ABC is a Protected Cell Company (PCC) incorporated with limited liability and holds a Category 1 Global Business License issued by the Financial Services Commission. It is governed by the Companies Act 2001 and the Protected Cell Companies Act 1999. The PCC is only available to Expert Investors and has been authorised by the Financial Services Commission as an Expert Fund.

 

Points at issue


a) If a particular cell (Cell A) of a PCC has insufficient cellular assets to pay any particular income tax due under the Income Tax Act 1995, can the Mauritius Revenue Authority recover the income tax due by Cell A from any other cell of the PCC?

 

b) Alternatively can the MRA recover the income tax due by Cell A only from the corresponding cellular assets of Cell A?

 

Ruling


In accordance with Section 48(2) of the Income Tax Act 1995, where a cell of a protected cell company owes income tax, the Director General of the MRA may have recourse to assets of any cell as well as non-cellular assets of the PCC.

 

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TR 128

 

Facts


A Ltd, hereinafter referred to as the applicant is a company holding a Category 1 Global Business License (GBC1) and is tax resident in Mauritius. Its main activity is investment holding. The applicant has 100% shareholding in both B Inc and C Inc. C Inc has 26% interest in D. C Inc is also an investment holding company. Accordingly the main source of income of C Inc is dividend income. Both B Inc and D pay tax in Philippines. The business activity of B Inc is to employ people for D which owns a power plant and sells electricity generated. C Inc received dividend from D over several financial years. The profit out of which dividend was distributed by D to C Inc has been subject to income tax in Philippines. C Inc in turn loaned the dividend income to affiliates of A and they appeared as receivables in the books of C Inc. Some of the loans are interest free and some are interest bearing. The retained earnings of C Inc are made up of mainly dividend from D and some of the affiliates of A. B Inc also loaned money to some of the affiliates of A and suffered corporate tax in Philippines. Now, both C Inc and B Inc intend to distribute the receivables as dividends to their parent company A.

 

Points at issue

 

a) Whether corporate taxes paid by B Inc in Philippines can be used as underlying tax credit against corporate tax of A?


b) Whether, in the proportion to its indirect shareholding, corporate taxes paid by D in Philippines, can be used as credit against corporate tax of A?

 

Rulings


In accordance with Regulation 7 of the Income Tax (Foreign Tax Credit) Regulations 1996, it is confirmed that:


a) corporate taxes paid by B Inc in Philippines can be used as underlying tax credit against corporate tax of A, and

 

b) in the proportion of its indirect shareholding, corporate taxes paid by D in Philippines, can be used as credit against corporate tax of A.

 

The above ruling is being issued on the understanding that the profits out of which the dividends (i.e the receivables) to be distributed by D and B Inc have actually suffered Corporate Tax in Philippines.

 

 

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TR 130 (Government Gazette of 1st September 2012 No.87)

 

Facts

 

A Ltd is a company holding a Category 1 Global Business Licence and is a tax resident in Mauritius.  Its main activity is investment holding.  A Ltd subscribed in B Ltd, a company incorporated in the Cayman Islands in 2006.

At 31 December 2006, A Ltd held mandatory convertible preferred shares at par value US$ 0.01 per share.  In May 2008, the preferred shares were converted into common shares.

Subsequently, B Ltd became listed on the Hong Kong Stock Exchange in 2009. As part of the arrangement, the pre-listing investors, including A Ltd, were guaranteed a minimum return by B Ltd’s chairman upon disposal of their shares if the company’s shares fell below HK$ 3.50 within a year of listing.

A Ltd thus received an amount of US$ 39 million as guarantee payment during the financial year end 31 December 2010, given that B Ltd’s share price fell to HK$ 3.14 in 2010. Subsequently, in November 2010, the company had disposed of its shareholding held in B Ltd.

 

Point at issue

 

Whether the guarantee payment received by A Ltd will be treated as a non-taxable item?

 

Ruling

 

On the basis of the information given, it is confirmed that the guarantee payment of US$ 39 million received by A Ltd is not subject to tax since it is of a capital nature.

Please note that any expenditure incurred in connection with the guarantee payment is not an allowable deduction in accordance with Sections 18 and 26 of the Income Tax Act.

 

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TR 131 (Govt Gazette of 8 December 2012 No. 124)

 

Facts

 

X Ltd belongs to a multinational software group and sells software products to the entire Europe, Middle East and Asia region (EMEA) which includes the territory of Mauritius. X Ltd maintains no permanent establishment, has no tax presence and does not carry on business in or within Mauritius. X Ltd software sales throughout EMEA are contracted, performed and billed from Ireland.

 

X Ltd sells its products to Mauritian Distributors who, in turn, sell them to resellers here and each Mauritian Distributor acts for its own account, is not a dependant agent of X Ltd, is not doing business solely for X Ltd and is totally independent from X Ltd.

There are three licensing options in which X Ltd's products are sold and exported to Mauritius, viz:

 

(a) Retail

Sale of software products as individual packaged products also referred to as 'boxed products' or 'full packed products'. Distributors do not have any right to use, reproduce, open the packaging or otherwise modify the retail product. The end-user licence agreement is entered into electronically, separately and directly between X Ltd and the end-user upon activation of the software.

 

(b) Volume Licensing

Sale of software products for use by multiple users in a single organization or enterprise. Distributors do not have any right to reproduce or otherwise modify the software products; they simply acquire the software product and on-sell to the customers. The software licence agreement is entered into separately and directly between X Ltd and the customer.

 

(c) Original Equipment Manufacturing

Sale of software products for the purpose of installation and integration into hardware items such as personal computers, which are manufactured by independent third parties. The manufacturer is given a version of the software and has the right to reproduce the software in its hardware or PC. The Original Equipment Manufacturing agreement calls for the Distributors to pay for a 'royalty' to X Ltd for each instance where they have loaded particular software into a machine.

 

Point at issue

 

Under what category, either 'business profits' or 'royalty', does each of the above sales fall?

 

Ruling

 

It is hereby confirmed that:

 

(i) proceeds from the sale of Retail products and Volume Licensing respectively are characterised as sale of copyrighted articles and treated as business income;

 

(ii) proceeds from the sale of softwares to Original Equipment Manufacturers for the purposes of installation and integration in hardware items are characterised as a sale of copyright rights and treated as royalty income subject to Mauritius withholding tax.

 

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 TR 132 ( Govt Gazette of 12 January 2013 No. 4 )

 

Facts

 

A Ltd is a company incorporated in the British Virgin Islands and is not resident in Mauritius. It aims to provide internet related services in Mauritius and overseas. Its first project is a real estate portal which will offer services to real estate agencies and companies both local and overseas. Users will be able to post their advertisements on the web site. The server hosting the web site is located in the United States. There is no contract between the company and the server operator and fees to the latter are paid yearly through bank transfer.

 

The revenue of the company will be from advertising fees paid by the real estate agencies and companies, both local and overseas, which advertise on the web site. The company does not charge any commission on business transactions concluded via the web site. The site only provides information with regard to properties available for rent and sale. Users cannot place any orders or transact through the web site.

 

Marketing of the web site will be done both online and offline. Online marketing will be done mainly through e-mails and offline marketing made in local newspapers which will be VAT registered persons. The company will have no physical presence in Mauritius with respect to the operation of the business.

 

Points at Issue

 

Whether the income derived from the internet related services would be subject to corporate tax.

 

Ruling

 

The income from the activities of the company through the web site will not constitute ‘income derived from any business carried on wholly or partly in Mauritius' in accordance with the provisions of section 74(1)(c) of the Income Tax Act. Hence, the company will not be subject to corporate tax in Mauritius.

 

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 TR 133(Govt Gazette of 23 February 2013 No. 16)

 

Facts

 

ABC is a company incorporated in UK and it carries out banking business through a branch in Mauritius, hereinafter referred to as Company Z. The branch is duly registered in Mauritius as a foreign company and holds a banking licence under the Banking Act. D Ltd is a Mauritian incorporated company and is wholly owned by ABC.

 

Company Z and D Ltd have approved a scheme under which D Ltd would undertake the banking business currently being operated by Company Z from both a commercial and legal standpoint. The scheme has been presented to the Bankruptcy Division of the Supreme Court in the form of a petition in accordance with Sections 261 to 264 of The Companies Act. The implementation of the scheme would involve the transfer of the whole of the current business of Company Z to D Ltd and the latter shall issue shares to ABC in consideration for the transfer of the business.

 

Points at Issue

 

Whether the implementation of the scheme will give rise to any corporate tax consequences under the Income Tax Act.

 

Ruling

 

On the basis of the facts given, there will be no corporate tax on transfer of the business. The provisions of Section 56 of the Income Tax Act will apply.

 

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TR 134 ( Govt Gazette of 16 March 2013 No 25 )

 

Facts

 

X Ltd is a company incorporated on 14 August 2008 in Jersey. It has a holding of 49.5% of the shares in Y Company, a Mauritius domestic company. Y is engaged in property development and also holds land and properties in Mauritius.

X is held by a fund (an English limited partnership) which is managed by Z.  The latter wishes to transfer the incorporation and tax residence of X from Jersey to Mauritius (i.e to re-domicile X from Jersey to Mauritius, or continue the company in Mauritius).

 

Points at Issue

 

  1. Whether any tax liability would arise in Mauritius, with regard to its 49.5% shareholding in the domestic company, on the transfer of incorporation and tax residence of the company from Jersey to Mauritius;

     

  2. Whether any tax liability would arise in Mauritius, following the registration of the company in Mauritius, on the disposal of its 49.5% shareholding in the domestic company in one lot or in several lots; and

     

  3. Whether the decision at points (1) and (2) would be different should the company obtain a Category 1 Global Business Licence from the FSC.

     

 

Ruling

 

On the basis of facts given, it is confirmed that:

 

  1. There would be no income tax implication on the registration and continuation of the company incorporated in Jersey as a company in Mauritius. The provisions of Section 56 of the Income Tax Act will apply.

     

  2. In line with the Practice Note dated 30 October 2006 issued by the Mauritius Revenue Authority on "Taxation of gains from sale of shares or other securities", any gains or profits derived from the disposal of investment held in the domestic company for a period of at least 6 months would be treated as capital gains and hence would not be subject to income tax.

     

  3. Should the company obtain a Category 1 Global Business License from the FSC, the decision given at point (1) above would not be affected. However, regarding the decision at point (2), the timing for the disposal of the shares would not be relevant, given that any gains or profits derived from the sale of the shares would be exempt from income tax in accordance with the provisions of item 7 of Sub-Part C of Part II of the Second Schedule of the Income Tax Act.

     

 

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TR 135 (Govt Gazette No. 27 of 30 March 2013)

 

Facts

 

The Income Tax Act was amended by the Finance Act 2006 to restrict the exemption from income tax of gains or profits derived from the sale of units or of securities only to a company holding a Category 1 Global Business Licence issued under the Financial Services Act 2007. Consequent to the amendment, a Practice Note was issued on the 30 October 2006 to give guidance on the tax treatment of gains derived from the sale of shares or other securities.

 

Points at Issue

 

The question is whether the definition of "securities" for the purposes of the Practice Note is the same as in the Securities Act 2005.

 

Ruling

 

The meaning of "securities" for the purposes of interpretation and application of the Practice Note is the same as the meaning given to "securities" in section 2 of the Income Tax Act.

 

 

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TR 136 (Govt Gazette No. 27 of 30 March 2013)

 

Facts

 

B Limited holds a GBC 2 licence issued by the Financial Services Commission under the Financial Services Act 2007. In accordance with the Act, no trade or activity is carried out within Mauritius, and all such activity of the company is based outside the country. The management and control of the company is exercised in Mauritius. The company has a registered agent in Mauritius, and the directors of the company are resident in Mauritius.

Points at Issue

 

  1. whether the GBC 2 company will have any income tax obligations in Mauritius; and

     

  2. whether in the above scenario which can also apply to a foreign-based (offshore) entity, i.e not having any trading activity or a permanent establishment in Mauritius, the entity will have any income tax obligations.

     

Ruling

 

On the basis of facts given, it is confirmed that the GBC 2 company will have no income tax obligations in Mauritius in accordance with Item 19 of Part 1 of the Second Schedule to the Income Tax Act which gives an exemption status to all holders of GBC 2 licence holders.

As the second issue raised by you is based on an assumption, we regret to inform you that we are unable to give you a ruling on that issue.

However, you may wish to note that apart from a GBC 2 company, any company whose central management and control is being exercised from Mauritius is considered to be resident in Mauritius under the provisions of Section 73 (1)(b) of the Income Tax Act and is therefore liable to Mauritius income tax on its worldwide income.

 

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TR 137 (Govt Gazette No. 48 of 01 June 2013)

 

Facts

 

A is a domestic partnership registered in Mauritius under the Mauritius Limited Partnership Act 2011. The General Partner is B, a company registered in Seychelles. The Limited Partners are C, a company registered in Seychelles and individuals non-resident in Mauritius who are yet to be appointed. A has a Mauritian based Registered Agent, D. A carries activities mainly overseas.

 

Points at Issue

 

    1. Whether the General Partner and the Limited Partners will be liable to pay any tax on the income and capital in Mauritius;
    2. Whether the registered agent will be liable to pay any tax in Mauritius;
    3. What tax effects would an application for a GBC 1 licence by A have on the General Partner, the Limited Partners and the Partnership as a whole and whether the General Partner and the Limited Partners would be liable to pay the 3 % net tax in Mauritius.

 

Ruling

 

On the basis of information given by you, this is to confirm that :

 

  1. being given that both the General Partner and the Limited Partners are non-resident in Mauritius, any income derived by A from overseas will not be taxable in their hands. The General Partner and the Limited Partners will be liable to pay income tax on their share of income derived from A only to the extent that the income is derived by A from Mauritius.
  2. the registered agent, D being resident in Mauritius will be liable to pay tax on income derived from Mauritius and from overseas.
  3. as regards item (c) above, we are unable to give a ruling as it is based on a hypothetical situation.

 

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TR 138 (Govt Gazette No. 78 of 07 September 2013)

 

Facts

 

X hereafter referred to as the “company” operates a casino and gaming machines. The Finance (Miscellaneous Provisions) Act 2011 (“FMPA 2011”) repealed Item 5 of Sub-Part C of the Second Schedule (the “relevant item”) to the Income Tax Act 1995 (“ITA 95”) so that income derived from the operation of a casino and gaming machines is no longer exempt from income tax. Pursuant to section 21(6) of the FMPA 2011, the commencement date of the amendment is 01 October 2011.

 

Points at Issue

 

    1. Gross income accruing from which date is subject to corporate tax?;
    2. How is chargeable income to be computed in the year of the amendment?;
    3. How are annual allowances to be computed in the year of the amendment and in subsequent years?

 

Ruling

 

  1. Pursuant to the FMPA 2011 which provides for the amendment to be effective as from 01 October 2011, any gross income that accrues from the operation of a casino and gaming machines as from 01 October 2011 is no longer exempt from corporate tax. Hence, gross income derived up to 30 September 2011 would be exempt while gross income derived thereafter would be taxable.
  2. The chargeable income in the year of amendment shall be computed by apportionment of allowable deductions, including annual allowance, between the exempt period and the taxable period. However, expenses directly attributable to the production of gross income from the operation of the casino and gaming machines in each period shall be allocated to that period without apportionment. Only expenses indirectly attributable to the production of gross income of both periods need to be apportioned in a fair and reasonable manner.
  3. The company would be able to claim capital allowance on assets acquired prior to the amendment (that is, assets acquired prior to 01 October 2011). The base value, however would not be the cost of the assets but the carrying value of the assets after taking into account capital allowances for each year of use.

     

    On disposal of the assets, the company will compare the proceeds from disposal with the written down value of the assets to ascertain any balancing charge/balancing allowance. However, in the year of disposal, balancing charge/allowance shall be time-apportioned to reflect the amount thereof attributable to the period of use of the asset during which taxable income was derived.

     

    The written down value of the assets would be the cost of the assets after deducting all the annual allowances attributable to the period of use of the assets.

 

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