Mauritius challenged as African governments eye tax tightening

from This Is Africa..

By ADAM GREEN

June 25, 2013

African governments are on a push to raise their tax contribution to GDP.

Kenya is planning to reintroduce a capital gains tax according to the recent budget, and Ghana expected to place a CGT on disposable shares from August this year. This puts pressure on the status of Mauritius as a tax efficient – or even tax-free – gateway to Africa.

Bayo Odubeko, a corporate finance lawyer at Norton Rose Fulbright said: “a number of African countries are seeking to impose capital gains taxes on transactions that are essentially offshore transactions.” A common practice, he says, has been to structure investments into Africa via Mauritius – where there is no CGT. If a company then sells the offshore vehicle without making any disposal of a local asset or company, theoretically there has been no disposal in the country.

“Revenue authorities in a number of African countries are seeing this as a way to avoid payment of capital gains tax in their country. They are looking to ensure that those disposals are within the remit of their CGT regulations,” says Odubeko. “A number of African countries – if they are not already – will start to think about it, particularly given the extent of FDI (foreign direct investment) coming into Africa,” he says.

This is important for those looking to take advantage of tax havens or tax efficient jurisdictions like Mauritius, he adds. “What the relevant countries are now saying is, it doesn’t matter if you make an investment in a Ghanaian company using a Mauritius special purpose vehicle – if you sell the Mauritian SPV, or the Mauritian SPV sells the share to the Ghanaian company, we’re still going to charge you the CGT, because you’ve come to our country, you’ve bought for $10, five years later you sold for $50, you’ve made $40, you’ve done very well. How about giving us some of that money?”

Such measures require no collaboration with jurisdictions such as Mauritius. But governments are also looking to alter their tax treaties to deal with corporate capital gains tax avoidance. In late May, frustrated at the erosion of it tax base, South Africa re-calibrated its tax treaty with Mauritius, with tougher rules on determining tax residency of dual residents.

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