Minister Sinatambou has a good sense of humour and believes that information is a privilege and not a right. Contrary to the Minister, everybody knows that the 68 clauses contained in the Finance Bill 2018 are largely dominated by the need to respond to international initiatives on the conduct of business in emerging international financial centres, like Mauritius and in other so-called tax havens. They have very little to do with the transformation of our Economy. They have been thrust upon us.
The Finance Bill is an omnibus legislation. The devil is always in the details and unfortunately regulations and guidelines made by any Minister are not the subject of debates. The views of the stakeholders should be taken on board when regulations and guidelines are prepared.
Seriousness Of Purpose
Who has moved the Bill? A dedicated Minister of Finance or an overloaded PM? Neither one nor the other even though he is one and the same person. As a part time Minister of Finance is he a reliable dialogue partner? Certainly not. The Minister of Financial Services and Good Governance is a total loss, prone to too many wrecks.
At institutional level, there is confusion. Take the KYC Central Register: initially announced in the budget as an FSC project for the non-bank financial sector, it has now become a Bank of Mauritius (BOM) project, adding to regulatory confusion. There is already a lack of coordination in regulation between the BOM and the FSC, and the latter is being marginalized by the appointment of a BOM deputy Governor as Chairman of the FSC, who also claims to be a personal adviser to Government.
• The recent proposed blueprint of this Government on the financial sector has not been made public and I would not be surprised it turns out to be a damp squid.
• The development of the financial sector had been seriously undermined by the former minister of financial services, who turned out to be a destroyer rather than a creator of value, according to his former Cabinet colleagues. As for the present one, he is completely lost in other issues. Responsibility for the ministry of finance should have been entrusted to a fully dedicated minister rather than be an adjunct to the more important responsibilities of a Prime minister’s office.
Amendments to the Bank of Mauritius Act, the Banking Act, the Financial Services Act, the Financial Intelligence and Anti Money Laundering Act, the Companies Act, the Income Tax Act, and other specific investment structures like captive insurance, foundations, limited partnerships etc. relate to changes in the global business regime, mainly to ensure greater substance and tax transparency, and to combat Anti-Money Laundering and the Financing of Terrorism (AML/FT).
Since a number of years, three main sources of international pressure are driving us to make changes, and these pressures have intensified in the last 2-3 years. These sources of pressure comprise:
1. the G20/OECD initiative against Base Erosion and Profit Shifting (BEPS), which is a framework, with a specific list of actions, for a global crackdown on tax avoidance and evasion;
2. the EU Tax Haven Blacklist of the Code of Conduct Group of the European Council, especially aimed at curtailing harmful tax measures in emerging international financial centres; and
3. the Financial Action Task Force, FATF, which oversees compliance with its international standards of AMF/FT.
Under the BEPS initiative, we have already signed the Multilateral instrument, i.e. the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, since 2017. We have to comply with 4 minimum standards relating to fighting harmful tax practices, preventing treaty shopping, improving country by country reporting, and enhancing dispute resolution. Treaty Shopping was until then the lifeblood of the global business sector.
In signing, Mauritius has taken a number of reservations, as permitted, which means, there is considerable work and changes still needed to be made in the coming years to be in line with the BEPS framework, notably in the renegotiation of many of our bilateral tax treaties.
Related to BEPS is the commitment to international standards of tax transparency. Mauritius has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, in 2015. Moreover, our country is committed by September 2018, to implement the Multilateral Competent Authority on Automatic Exchange of Financial Account Information, under the Common Reporting Standard.
The concept of confidentiality is being significantly modified to eliminate the need for secrecy, so that tax information can be shared domestically and internationally, for instance, between public sector agencies.
• To comply with BEPS and to enhance transparency, Mauritius is being compelled to abolish the Category 2 Business Licence. The proposed Authorised Company is an attempt to placate the OECD, while also trying to please operators in the global business sector, that business can continue as usual. However, it seems that the Authorised Company is neither fish nor fowl, and is likely to fall between two stools. The provision for an Authorised Company to have a place of effective management outside Mauritius will be especially constraining.
• The Leader of Opposition highlighted the danger of an Authorised Company in the Export-Import business being involved in over or under invoicing. The products may never land in Mauritius but the tainted money will probably be credited in a domestic bank.
• In our endeavour to facilitate business, an effective KYC system is imperative to protect our Jurisdiction from a possible Alvaro Sobrinho scandal.
Uniform Tax Rate
To avoid inclusion on the EU tax haven blacklist, the second source of pressure, Mauritius is also being forced to abolish the deemed foreign tax credit for global business companies, and eliminate any differential taxation between global business and domestic sectors, or between domestic and international business of banks. Hence the famous 3% uniform tax rate.
Financial Action Task Force
The third pressure source, namely the FATF, is engaged since 2015 in another round of mutual evaluations, based on a new methodology for assessing compliance with new FATF AML/FT standards, revised in 2012. The changes in the Finance Bill relating to AMF/FT seek to update our legislative framework in line with the revised FATF standards and recommendations.
Requirements for Customer Due Diligence and Know your Client, (KYC) information, as well as information on beneficial ownership, are spelt out in various legislations, to combat money laundering and the financing of terrorism. A central KYC register is also proposed to be based at the Bank of Mauritius.
To be continued