The majority of the Board of Directors’ meetings must be held in Mauritius, or the executive management of the company must be regularly exercised in Mauritius.
The Mauritius Revenue Authority on November 28 issued a practice statement on the meaning and application of the “place of effective management” test to decide corporate tax residence.
The Finance Act 2018 amended the Income Tax Act to introduce new rules on corporate tax residence. A new section 73A provides that a company incorporated in Mauritius shall be treated as a tax resident in Mauritius if its place of effective management is situated in Mauritius.
The Statement of Practice (SP 17/18) notes that the tax authority shall examine all the relevant facts and circumstances in determining the “place of effective management.” These factors relate to the business activities of the company, including the use of information and communication technologies, in the decision making process.
Generally, a company shall be deemed to have its place of effective management in Mauritius if the strategic decisions relating to the company’s core income generating activities are taken in, or from, Mauritius.
Additionally, the majority of the Board of Directors’ meetings must be held in Mauritius, or the executive management of the company must be regularly exercised in Mauritius.
The OECD, as part of its work on base erosion and profit shifting, recommended countries to use the mutual agreement procedure – an in-built treaty mechanism to resolve double tax disputes – to resolve conflicts relating to corporate tax residence. According to the OECD, a company’s “place of effective management” is one of the factors that countries should look at while deciding corporate tax residence.
The proposal is included in Article 4 of the Multilateral Instrument to implement tax treaty-related BEPS measures (BEPS MLI). A total of 84 countries have signed the BEPS MLI till date. Mauritius signed the BEPS MLI on July 5, 2017.
In its BEPS MLI position statement issued on October 10, 2018, Mauritius noted that it reserves the right to not apply Article 4 to over 40 of the country’s tax treaties covered under the BEPS MLI.
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at email@example.com