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Samade JHUMMUN: We have not really seen much happening on the debt segment

Samade Jhummun says that reputation is a key issue for the Mauritius International Financial Centre as we are to project a distinct brand so people know what Mauritius stands for at a time when initial competitive advantages have been eroded.


The Mauritius-India double taxation agreement, which came into effect in July 1983, will bring a major change as of April 1, 2019, following an amendment to the same convention. What is the nature of this change?
The Mauritius-India Double Taxation Avoidance Agreement has played a key role in the development of Mauritius as an International Financial Centre, and we will now be moving into a new phase in the light of the changes to the agreement which will take effect on 1 April.

The most important change is regarding capital gains tax, whereby the taxing right now moves to the source state on disposal of shares. In practice, this means that taxation in India at the full domestic rate will take place as from financial year 2019-20, which is a change from the period 1 April 2017 up until 31 March 2019 where the sale of shares has been taxed at 50% of the applicable rate, subject to the fulfilment of the conditions in the Limitation of Benefits article. However, for other instruments the taxing rights remain in the resident state, i.e Mauritius.

The other significant change is to the interest article, whereby Mauritius enjoys the lowest withholding tax rate among all the treaty partners with which India has tax treaties. This is beneficial for debt structures.

The other changes relate to the exchange of information which is more in line with the OECD model and the other income article. The latter is used when we cannot classify the income within the allocation rules of the treaty and the taxing rights in respect of such income has also moved to the source country following the amendment to the treaty.


How will the regime change in this convention affect the Mauritian financial services sector?
It is clear that the change is going to have an impact on the financial services sector in Mauritius, since we have been heavily dependent on India since our financial centre was first created, and it takes time to build the same close relations with other parts of the world. We do not have the same competitive advantage that we used to have and we will need to consider how we will be presenting our offer and the benefits of our jurisdiction going forward. It is notable that some jurisdictions still retain the taxing rights on Capital Gains arising on disposal of shares in the resident state, such as the Netherlands. In some respects, this creates an unlevelled playing field for Mauritius since there is no Most Favoured Nation clause in the Protocol signed to the India-Mauritius treaty.

In practical terms, the change moves the competitive advantage of Mauritius away from equity and towards debt structuring solutions, but we have not really seen much happening on the debt side yet, and it remains to be seen how lucrative this segment will be for the industry. With the grandfathering provision existing fund managers will continue to use Mauritius as it is a tried and tested jurisdiction with a flexible, transparent and yet accountable legal and regulatory framework. Fund managers are also comfortable with the level of service that is provided by the service providers, be it the management company, law firms, audit firms and so on, at very competitive costs, and we will certainly be promoting Mauritius as a cost-efficient jurisdiction more than we have done in the past.

Overall, I think we need to be realistic about our prospects for the future when it comes to India, and our position has already slipped which was our main concern initially when the treaty was amended. FDI figures for the period April 2000 to June 2018 showed that Mauritius ranked top in terms of FDI inflows into India, which was responsible for 33% of the overall amount, representing US$ 129,073 million out of a total of US$ 389,721. However, the latest figures from the Reserve Bank of India in its Mid-Year External Review covering the six month period ending in September 2018 show a clear decline in FDI coming from Mauritius into India, with a fall of approximately US$ 6 billion in the first months of the current fiscal year, from $9.8 billion in the same period of last year to only US$ 3 billion. This fall of 69.3% is clearly substantial, and it seems that Singapore has been the main beneficiary of this, where FDI inflows into India actually increased from US$ 4.5 billion to US$ 8 billion over the same period. Going forward, in all likelihood India is not going to be the main source of business for the Mauritius International Financial Centre, as we have known for some time, and it is incumbent upon the industry to adapt to this change. Even if there is some grandfathering of existing investments, for new investments we do not have the competitive advantage.


This amendment was introduced by ministerial decree on May 10, 2016. Has Mauritius therefore taken all measures to enable it to begin this step by limiting the impact on the financial services sector?
We have to live with what we have got and we do not have the opportunity to change it. Given that our industry grew up around this treaty, the transitional period of only two years is not sufficient, and so we hope that the Government will manage to extend this although I am not sure whether the recent request that has apparently been made to India for an extension of the transitional period by an additional two years will have a material positive effect. At the same time, in the light of the OECD’s agenda, continuing to use Mauritius for tax arbitrage was not a sustainable proposition for the long term. We will not be able to rely on India in the future in the same way we have done in the past, and for new investors we need to seek for new markets.

We can at least draw some comfort from the fact that by negotiating the grandfathering provisions within Article 13 of the treaty, the interest of those that have made investments prior to 31 March 2017, remains in the resident state irrespective of when the investment is disposed. These investments are also protected by the General Anti-Avoidance Rule (GAAR) introduced in India to combat treaty abuse. We are exploring new markets and Africa seems the more logical route due to our proximity and also as a tried and tested jurisdiction. Mauritius is used as a risk mitigating platform by investors investing in Africa. However, it is not given to everyone since Africa is a continent with 54 countries and different laws and regulations. Also, the size and the quality of the investment differs from India. in view of the challenges ahead, it is imperative that the Government comes up with additional incentives for international investors to use the jurisdiction.


The existence of this convention reveals a characteristic that has always marked Mauritius as part of its evolution on the world economic scene. It is its dependence on mechanisms of guarantee of benefits or nets of protection. After more than 35 years of existence, what was implausible under the double taxation convention a few years ago is no longer the case in 2019. What lessons can be learned from India’s change of stance?
One should really understand the nature of a double taxation avoidance agreement. As set out in most conventions, the idea is to promote investments and create economic benefit by avoiding double taxation by either limiting the taxing rights, allocating tax rights and providing mechanism to relieve double taxation by either the credit method or the exemption method. The India-Mauritius treaty has been beneficial to both countries at a time when they were opening their economy. As I mentioned, more than 33% of FDI inflows over an 18 year period were from Mauritius, starting at a time when India was hungry for investments to develop its infrastructure and develop its economy. We can say the objectives were met with India having had sustained economic growth of more than 7% over the last few years.

«It is imperative that the Government comes up with additional incentives for international investors to use the jurisdiction.»

In Mauritius we have also benefitted from it, with the creation of a new pillar of economy which is the financial services which is currently contributing to 12% of the GDP. We have also seen the positive figures in our Gross Official International Reserves, which has been to a large extent possible through the development of the financial services sector. GOIR estimated at Rs217.6 billion as at end-December 2018 representing 10.5 months of imports as at end-December 2018 per figures published by the Bank of Mauritius on 7 January 2019. Indirectly, the economy as a whole has benefitted from the rise of the financial services sector.

Overall, the key lesson to be drawn, in the light of the treaty change as well as the wider international developments such as the signing of the OECD’s Multilateral Instrument (MLI) is that we need to move away from a model of tax arbitrage and promote a new market offer, and one which will most likely have a far greater focus on Africa.


The diversification of the activities of the Mauritian financial services sector is mentioned by some as a means likely to allow Mauritius to rebound after the change caused by the new stance of India. What are the new avenues for development that a diversification strategy could inject into the Mauritian financial services sector?
It is imperative to diversify. The treaty-based model is not sustainable as there is continuing pressure to demonstrate substance in the structures. We need come up with new regimes for non-treaty based funds since Mauritius is well recognised as one of the most cost-effective jurisdiction for fund administration.

There is much more that we can do in relation to Africa with our well-developed network of Investment Promotion and Protection Agreements, to help facilitate investments.

«We need to move away from a model of tax arbitrage and promote a new market offer, and one which will most likely have a far greater focus on Africa.»

We will also have to move to new products in the era of digital and crypto technology. If we take too much time to roll out the legal and regulatory framework, we might be missing on the competitive edge.

Overall, I think that our future path will be very much guided by the Blueprint for the financial services sector, as presented last year which, besides cross-border investment, highlighted the clear potential for growth in the areas of crossborder corporate banking as well as private banking and wealth management, with the latter of particular interest in view of the rapid increase in High Net Worth Individuals in Asia, for example.


What are the challenges for 2019?
The industry has made a lot of progress in 2018, with important reforms introduced in the global business sector, which now give us a clear sense of direction, and we will see how things unfold over the months to come. We have collaborated a lot with the government authorities to ensure a good outcome that will allow us to maintain our competitiveness.

There will continue to be a number of international challenges to be tackled. It is good news that the Mauritian Regimes which were previously regarded as harmful, have now been cleared by the OECD’s Forum of Harmful Tax Practices, together with the new partial exemption regime. We will need to look at the extension of the partial exemption to other categories of income, to make sure that others are not more competitive than we are.

Mauritius has also not been included in the tax blacklist of the Netherlands, and we are hopeful that the EU’s next report looking at tax practices in third world countries, which is due at the end of first quarter 2019, will recognise the effort and commitments that Mauritius has made, and the changes introduced.

«Indirectly, the economy as a whole has benefitted from the rise of the financial services sector.»

In terms of the Anti-Money Laundering framework, necessary amendments were brought by the Finance Act and FIAMLA Regulations and National Risk Assessment exercise is currently underway. We are hopeful that we will have a positive re-rating by ESAAMLG in April 2019.

We are also confident that the new substance criteria introduced in our new global business regime will create additional employment opportunities, so that will be a positive outcome.

Reputation is a key issue for the Mauritius International Financial Centre and we need to project a distinct brand so people know what Mauritius stands for, particularly at a time when some of our initial competitive advantages have been eroded. We understand that the Economic Development Board will be leading a branding exercise for the Mauritius IFC which will be important for ensuring our visibility on the international stage. Furthermore, we need to ensure that the Blueprint for the financial sector is effectively implemented and the industry stands ready to help.