Mauritius does not have specific avoidance legislation that deems its residents taxable on profits accumulated by companies in low-tax jurisdictions based on their interests in such companies. However, the Income Tax Act 1995 includes anti-avoidance provisions to address potential tax evasion and ensure fair taxation.
Anti-Avoidance Provisions
Under the Income Tax Act 1995, several anti-avoidance measures are in place to prevent the reduction of tax liability through certain practices:
- Excessive Remuneration or Share of Profits: The Act targets arrangements where individuals receive excessive remuneration or an undue share of profits as a means to avoid higher taxation. If the Commissioner of Income Tax finds that remuneration or profit shares are disproportionately high and designed to reduce tax liability, adjustments may be made to reflect a fair and reasonable amount.
- Excessive Management Expenses: Companies may sometimes inflate management expenses to reduce taxable income. The anti-avoidance provision scrutinises such expenses to ensure they are reasonable and incurred wholly and exclusively for the purpose of generating taxable income. Excessive or unjustified management expenses can be disallowed, thereby preventing the artificial reduction of taxable income.
- Rights over Income-Related Transactions to Avoid Tax Liability: This provision addresses schemes where rights over income or income-related transactions are structured to avoid tax liability. Transactions that are not conducted at arm’s length or are designed primarily to shift income and reduce tax obligations can be recharacterized or disregarded. The Commissioner has the authority to adjust the taxable income to reflect a more accurate economic reality.
Ensuring Fair Taxation
These anti-avoidance measures are crucial for maintaining the integrity of the tax system in Mauritius. They ensure that all taxpayers pay their fair share of taxes and prevent the erosion of the tax base through artificial arrangements. By focusing on excessive remuneration, inflated management expenses, and manipulative income-related transactions, the Income Tax Act 1995 helps to:
- Promote fairness and equity in the tax system.
- Prevent tax avoidance strategies that could undermine public revenue.
- Encourage compliance with tax laws and regulations.
Summary
While Mauritius does not have specific legislation targeting profits accumulated by companies in low-tax jurisdictions based on residents’ interests, its anti-avoidance provisions under the Income Tax Act 1995 are robust. They address excessive remuneration, inflated management expenses, and rights over income-related transactions designed to avoid tax liability. These measures ensure that taxable income is accurately reported and taxed, thereby supporting the fairness and effectiveness of the Mauritian tax system.
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