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This chapter provides a critical analysis of the fundamental opinions gathered from major stakeholders coming from the Global Business Sector, the Ministry of Foreign affairs, Regional Integration and International Trade and sub-departments of the Ministry of Finance and Economic Development.
Data collected from the FSC pertaining to Issue of licenses for the previous three years will be helpful in evaluating the direct impact that the announcement of the implementation of the GAAR had over the Global Business Sector of Mauritius
5.1 Result and Analysis of the survey
The following presents the findings of the survey carried out in the context of this study.
The first part of the survey, that is question one to seven focused more on the Indo-Mauritius double tax treaty, specifically on the market reaction vis-à-vis the GAAR proposed by the Indian Finance Minister in the recent Finance Bill 2012 and the second part implying question eight to eleven sheds more light on how Mauritius is being viewed as a platform to invest in Africa.
5.1.1 Field represented by respondents
As has been shown in Figure 5.1, respondents of this survey, consist of three Offshore Management Companies (OMC), one Financial Services commission (FSC), one Mauritius Revenue Authority (MRA), three Offshore Banks, one Ministry of Foreign Affairs, Regional Integration and International Trade and one Board of Investment (BOI).
5.1.2 Opinion over the GAAR
While expressing their views over the GAAR, 80 % of the respondents strongly believe that lack of clarity over the GAAR has brought about uncertainty thus hampering investor's sentiments. The respondents further explained the investors concern. According to them, investors fear that the Indian Revenue department may 'use' the GAAR as a means to deny treaty benefits in order to get some exempted long term capital gains taxed in India. Thus, they do not opine in favour of the implementation of the GAAR.
The rest 20% of the respondents are in favour of the implementation of the GAAR and support their argument by explaining that GAAR will allow Mauritius to preserve its credibility as an Offshore Financial Centre (OFC) given that India will no longer question Mauritius.
5.1.3 Reasons for deferring GAAR by 3 years
Soon after the announcement of the implementation of the GAAR, the Indian Government deferred its implementation by one year and later extended it to three years. According to the majority of 70 % of our respondents there are multiple reasons for this deferment of the implementation of the GAAR to 2016. Following some of the reasons mentioned out in the report in the ShomeÂ ExpertÂ Committee report, the respondents opined that the deferment is due to the following reasons:
To minimize the further weakening of the Indian economy which has been jeopardized following resistance on the part of investors over the GAAR issue.
To allow entities to rearrange themselves to comply with the commercial substance test, a test which is carried out to take into account the real intention of the parties involved and to verify the purpose of establishing an arrangement for determining the tax consequences.
To give time to tax administrators to get their qualified Indian officers trained to deal with GAAR issues
Moreover, two respondents affirmed that the deferment is mainly to find an alternative to the GAAR so as to counter the notion of misuse of the Indo-Mauritian tax treaty
5.1.4 Tax Residency Certificate (TRC) to address Indian Revenue Authorities Concerns
Following a long debate whether there is a misuse of the Indo -Mauritius tax treat, Tax Residency Certificate (TRC), constituting a bonafide belief of the taxpayer to claim treaty benefit under the India-Mauritius tax treaty was provided by Mauritius authorities for Indian authority's reassurance. However such a measure failed to address the Indian Revenue Authorities concerns and our respondents again enumerate a number of reasons for that. Only one respondent remained silent on this matter but two respondents hold responsible the tax laws in Mauritius. While one of the two believes that there is a gap in the law which is hampering investments, the other refers to the lenient tax laws in Mauritius which plays in favour of investors who are aiming at tax avoidance.
With regards to the TRC, two respondents stated that the Indian Revenue Authorities concern is the lack of stringent rules on behalf of the Mauritian Revenue Authority for the allocation of TRC's while the respondent from the FSC added that the Indian Authorities wants more than a TRC to justify substance in Mauritius. Another respondent further mentioned that Mauritius is always looked at with questioning eyes as there is a lot of misperception about the global business sector of Mauritius in India which needs to be clarified. He elaborated further and said that the Indo-Mauritius treaty had always been providing investors with certainty and predictability which enabled many investors to structure their investments in the most tax-efficient manner. However, uncertainty and prejudice was initially brought about by the Indian press reports regarding the Mauritius-India DTA. Many respondents referred to the failure of the TRC to provide reassurance lead to the announcement of the implementation of the GAAR. However, one respondent completely disagree with the above and state that the TRC did not failed to reassure the Indian Revenue Authorities but in fact Mauritius needs to just ensure that no misunderstanding and questions is raised over the tax laws in Mauritius, by displaying greater transparency.
5.1.5 Reaction of Investors and companies
Soon after the announcement of the implementation of the GAAR, an article dated 09.08.2012 was published in the L'Express and stated the following; "Two dozen companies packed their bags from the Offshore sector, soon after the Indian Finance Minister announced the implementation of the GAAR". While the above statement depicted the immediate panic state of investors, our respondents were thus called to give their views over the prevailing situation among investors and companies.
Almost all the respondents believe that huge level of uncertainty still prevails and the number of investors has decreased considerably since the announcement of the implementation of the GAAR. Moreover, two respondents affirm that some companies are still packing their bags to settle elsewhere, but assure us by stating that the degree to which the Offshore sector is affected is minimal.
The FSC further added that Investors always look for certainty and predictability, thus actually investors are in a wait to see the awaited development in the DTAA between India and Mauritius. In order to see the level of hesitancy coming from investors in the year 2012 after the announcement of the implementation of the GAAR, a look at the number of GBC1 and GBC 2 licenses issued for this year was drafted.
Figure 5.3  was generated from data provided by the FSC and it shows the number of GBC1 licenses issued monthly in 2010, 2011 and 2012.
Figure 5.3 clearly shows that the number of licenses issued in January 2012 is far better than the same period in 2010 and 2011, however the trend after April 2012 till December 2012 is found below the number of licenses issued in 2010 and 2011. It can thus be deduced that the 2012 trend captures the market uncertainty soon after the Indian Finance Minister presented the Finance Bill 2012 whereby the implementation of the GAAR was mentioned. It is highly known that The Low income tax regime and favorable DTA signed with India in 1983 has always placed Mauritius at the top list for investors to route their investments into India a small look at the evolution of global business entities in Mauritius confirms the fact.
5.1.6 Evolution of the global business entities in Mauritius
Source: FSC annual report and Statistical Bulletins
Figure 5.4  illustrates the evolution of non-banking offshore entities. The chart clearly shows the development of the number of global business entities in Mauritius throughout the year, since the establishment of the FSC till date. The number of GBC1 and GBC 2 Global Business companies as can be seen, has increased significantly during the years, thus depicting the preference that investors have for using Mauritius to route their investment. Global Funds and Management Companies also grew slowly representing a total of 3.45% and 0.60% respectively of the total entities in 2012. The huge fall in the number of GBC 2 entities can be attributed to the fact that an economic crisis was prevailing in year 2008 to beginning 2010 and the gradual world economy recovery can eventually be seen as an increase in the number of GBC2 is noted in the year 2011 and the year after. However upon having a close look at the number of GBC 2 licenses issued monthly for the year 2012, it can be seen that along with a decrease in the number of GBC1 licenses issued, even GBC 2 licenses experienced a fall in number.
GBC 2 cannot benefit from the Mauritius Double Taxation Agreements, however the number of licenses issued for GBC 2 in 2012 shows a lower number than the previous year 2010 and 2011. A plausible explanation for this may be because investors worry about the different press coverage where Mauritius is being entitled as a tax haven. Also the fear the global business sector in Mauritius may be brought under additional scrutiny due to prevailing uncertainty, which further questions the compliance and transparency of the offshore sector as a whole. Hence here the FSC and the MRA need to make all necessary efforts to assess the compliance and transparency of our global business sector and to take necessary action in this direction.
5.1.6 Dependency of Mauritius on the Indo-Mauritius DTA.
The above result clearly showed that Mauritius is highly dependent on the Indo-Mauritius DTA. As shown in figure 5.6, even our respondents either highly agreed to it or just agreed to it. None of the respondents took a neutral stance or disagreed to the above stated fact.
5.1.6 'Limitation of Benefits' to bring back certainty
Among the number of suggestions to bring back certainty in the offshore sector and to ensure that the Indo-Mauritius treaty is not being misused, the Indian Authorities have been pressing for the introduction of a clause similar to one as in the India-Singapore double tax treaty, which is 'Limitation of Benefits', into the Indo-Mauritius treaty. Noting that 'Limitation of Benefits' articles restricts the advantages provided under tax treaties to residents not meeting the additional tests, among which is the substance test, all the respondents stress on the adoption of a clause of limitation of benefits relatively less stringent as compared to the India-Singapore treaty so that Mauritius retain its existing competitive edge. This has been shown in figure 5.6. Moreover, the respondent from the MRA opined that a clause similar to the India-Singapore treaty should not be adopted given any circumstances as this will result in Mauritius losing its competitive advantage, but he does favour the adoption of a lesser rigid clause.
5.1.6 Possibility of the Indo- Mauritius Treaty to sustain in the future
Prevailing uncertainty situation brought about the question of whether there is a possibility for the Indo-Mauritius DTA to no longer remain effective in the near future. Despite all the reassurance from the Minister of Foreign Affairs, Regional Integration and International Trade, my survey produced a relatively surprising result to the above question which is shown below.
Figure 5.7 shows that the majority of the respondents affirm that the treaty will not sustain, given the near implementation of the GAAR while 3 respondents firmly believe that the treaty is here to stay for longer years. The above result in figure 5.7 explains why there is a huge amount of uncertainty prevailing in the offshore sector.
5.1.8 No Indo-Mauritius treaty in the future
Many impediments shall come up if DTA between Mauritius and India no longer remain in force in the future. According to our respondents all are of view that the Mauritian economy shall be adversely affected in terms of reduced level of investments which shall eventually lead to the downturn of the Mauritius economy. Recognizing that such a situation is very threatening and may have dramatic consequences in the future, one of the respondents representing the offshore sector further stated that there is a need for Mauritius to diversify its geographical base of its Global Business Sector to reduce its huge dependency on the Indo-Mauritius DTA. Moreover another respondent stated that many people will not have job prospects' in the offshore sector as a domino effect may entail and lead to other treaty partners wishing to have same treaty provisions as the India- Mauritius treaty.
5.1.9 Mauritius as a gateway to Africa.
As at date, Mauritius has 13 tax treaties in force with Africa, with a target of making it 30 treaties in the near future. Mauritius is also being viewed as a means for outward investment into Africa by Indians, thus in view of further diversifying the Global Business Sector and reducing our dependency over the Indo-Mauritius Tax treaty, Mauritius is being highly promoted as the ideal 'Gateway to Africa'.
When asked how far they agreed to Mauritius being the ideal gateway to Africa, only one respondent preferred to take a neutral stand with the rest either strongly agreeing or just agreeing to the above statement. This purely shows that Mauritius is definitely being perceived as the best gateway to Africa. The majority supported their view by highlighting the number of treaties that Mauritius already has with Africa which plays in favor of investors to use Mauritius as a platform to invest in Africa. They also emphasize that besides sharing cultural ties with Africa, Mauritius is also a member of the African Union, Southern African Development Community (SADC), Common Market for Eastern and Southern AfricaÂ (COMESA) and Indian Ocean Commission (IOC).
The respondent, who preferred to take a neutral stance, backed his response by opining that Investors do not need to use Mauritius as they can invest in Africa directly given that even Mauritius has not fully tapped the huge potentials in Africa.
Notwithstanding the above, all the respondents agreed that the accruing benefits to Mauritius while acting asÂ the access centre to Africa will in fact be the birth of another major pillar of our economy known as the Global Business Sector. The FSC further adds that more value activity should be undertaken in Mauritius, so that Mauritius continues to gain in the long run. Following the same line of thought another respondent stated that Mauritius needs to ensure in getting more commercial rationale and not see the Africa route as a conduit for this will not be sustainable, however if value addition is created, such as procurement centre, treasury hub, huge direct and indirect benefits will result causing expansion of the Mauritian economy. A respondent from an offshore management company also adds that Mauritius can position itself to become the undisputed gateway for all cross-border investment into Africa and the rest of the world, going far beyond what Singapore and Hong Kong are for Asia and what Dubai is for the Middle East and do better than the Celtic Tiger of Ireland.
Mauritius has over time gained huge repute as an ideal offshore centre. With further diversifying and expanding as a base into Africa, there are numerous challenges that Mauritius needs to work upon to maintain its position as the preferred OFC for this region. Accordingly all our respondents believe that Mauritius needs to ensure that Internet, telecommunication and transaction costs are lowered. A respondent from the offshore bank stresses that infrastructure and connectivity with African countries will reap huge benefits in the near future.
The respondents further emphasize that there is a need to provide training to create an even more specialized workforce in the offshore sector.
This chapter grasped the reaction of the market following the announcement by the Indian Finance Minister of the implementation of the GAAR in the near future and also shed lights on how far Mauritius is thought to be the ideal gateway to invest in Africa. The next chapter concludes the study.