Photograph — Financial Times

An investigation by the International Consortium of Investigative Journalists (ICIJ) has revealed how Mauritius, a small island off Africa’s east coast, has helped companies leach tax revenue from poor African, Arab, Asian and American nations. The inquiry is based on a cache of 200,000 confidential records (dating from the early 1990s to 2017) and involves 54 journalists from 18 countries.

Released last week, the report, Mauritius Leaks, exposes a complex financial system and legal structure that is designed to divert tax revenue from poor nations back to the coffers of Western corporations and African oligarchs, with Mauritius getting a share at the expense of its African neighbours and other less-developed countries. 

The island, which sells itself as a “gateway” for corporations to the developing world, is able to attract the presence of international corporations based on its bargain-basement tax rates and a series of “tax treaties” with 46 mostly poorer countries. According to the ICIJ, the treaties have proved a boon for Western corporations, their legal and financial advisers, and Mauritius itself — and a disaster for most of the countries that are its treaty partners.

“What Mauritius is providing is not a gateway but a getaway car for unscrupulous corporations dodging their tax obligations,” Executive Director of the nonprofit Tax Justice Network Africa, Alvin Mosioma, said.

Central to the whole scandal is the Bermuda-based offshore law firm Conyers Dill & Pearman, which has enabled corporations operating in some of the world’s poorest nations to exploit tax loopholes. The leaked records which include emails, contracts, meeting notes and audio recordings, show how the legal firm collaborates with global accounting/audit and advisory firms for some of the world’s largest corporations and some very wealthy individuals.

Beneficiary companies

One of the most prominent corporations that have avoided taxes with the aid of laws in Mauritius is 8 Miles, an investment firm run by anti-poverty crusader and former rock star, Bob Geldof. The private equity firm, which invests in African start-ups, set up subsidiaries in Mauritius, thereby benefitting from treaties to divert tax revenue.

Other multi-billion-dollar U.S. companies Aircastle and Pegasus Capital Advisors, the latter owned by American philanthropist Craig Cogut, also cut taxes through confidential contracts, leases and loans involving Mauritius and other tax havens, the study found.

Moreover, beneficiaries from Mauritius’ opaque financial system include some African companies. According to the Leaks, many Kenyan companies rushed to register and set up subsidiaries in Mauritius after both countries signed a Double Taxation Agreement (DTA) on May 12, 2012, to evade paying taxes to the Kenyan government.

A Tanzanian firm is also accused of “restructuring” its ownership in 2015 by opening an affiliate company in Mauritius. Findings from the Leaks explain that the plan was for the parent company in Mauritius to provide a “loan” to the Tanzanian subsidiary in such a way that any money used to repay the loan would be taxed at only three percent in Mauritius rather than 30 percent in Tanzania, based on the two countries’ respective tax laws.

The report also features a prominent Ugandan businessman who registered a special purpose vehicle in Mauritius to enjoy fiscal benefits such as reduced withholding tax on dividends, interests and royalties, and no capital gains tax.

While in Nigeria, the investigation included Venture Garden Nigeria Limited, one of the biggest financial technology (FintTech) company in the country. In this case, the company’s strategy was to transfer the Intellectual Property (IP) rights of its software from Nigeria to the island nation. Many consider the move as geared towards avoiding payment of tax in Nigeria, where it primarily conducts business.

In response to the accusations, Ventures Garden admitted to Premium Times that it set up the Mauritius firm, but said it was for genuine business reasons. And that it discussed the transfer of its IP rights but it did not execute the plan.

Mauritius government responds to leaks

The Mauritius government has hit back at some of the allegations in the ICIJ report and says the information has been obtained illegally and “has been tampered with” and are “factually incorrect”. While the country’s minister of financial services of good governance Dharmendar Sesungkur, described ICIJ’s information as “outdated.” 

In his words, the minister said that independent organizations, including the World Bank, recognize that “Mauritius is a cooperative and clean jurisdiction that has made significant progress in adhering to international standards.” Mauritius has introduced “major policy (as well as legislative) changes,” Sesungkur added. 

Meanwhile, Mauritian Prime Minister, Pravind Jugnauth, also recently announced tighter rules for companies that want to benefit from the island’s low tax rates; such companies must have greater control and activity in Mauritius and more skilled employees. Despite the government’s attempts to shake off the ‘tax haven’ tag, officials from countries in Africa and Southeast Asia have indicated they would renegotiate the costly tax treaties they have with Mauritius.

Mauritius is just one of several global offshore jurisdictions that cost poorer countries up to $100 billion and world governments over $500 billion in taxes every year. The group of tax havens includes a host of other island nations such as the Cayman Islands, Channel Islands, Isle of Man, Monaco and even Switzerland. International charity organization, Oxfam has suggested ways governments can avoid another “Mauritius Leaks” scandal.

Comments

Elsewhere on Ventures

Triangle arrow