Treasury blocks Mauritian ‘tax haven’

2013-06-02 10:00

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

Capital flight from South Africa was shot down midair this month as Finance Minister Pravin Gordhan signed a new treaty with Mauritius, long considered a tax haven.

The treaty will come into effect in 2015 and, beyond the expected corporate jitters, experts say its effects may be that corporations will in effect pay tax twice.

Oupa Magashula, head of the SA Revenue Service, moved swiftly to clarify this week.

He said the use of “a mutual agreement between two countries to resolve the question of dual residence is by no means unique”.

Magashula said the new treaty would weigh factors such as where meetings of a board of directors were usually held, and where the chief executive and other senior executives usually carried out their business activities. This will determine in which nation South African corporations operating in Mauritius will pay tax.

He warned that those who abuse the previous treaty between the two nations, which was initially drawn up in 1996, could fall foul of the law.

“The new treaty with Mauritius takes an internationally recognised step in this regard and brings exchange of information up to current international best practice,” he explainedÈ.

Under the current dispensation between South Africa and Mauritius, a company could be incorporated in South Africa and then open a division and register it in Mauritius too.

The company could then do business in a multitude of African and Asian nations, and declare their profit from these offshore operations in Mauritius, where the tax rate is under 3%, secrecy laws are stern, no capital gains tax applies and no exchange controls are in place.

South African companies that house their international wings in Mauritius include mobile telecommunication operators Vodacom and MTN, as well

as packaged goods company Tiger Brands and beverages giant SABMiller.

The new treaty comes as inadequate tax revenues are again in the spotlight after a report by the Africa Progress Panel, led by former UN general secretary Kofi Annan, found that the use of tax havens costs Africa $38?billion (R375?billion) a year in lost revenue.

The Africa Progress Report, which made waves at the recent World Economic Forum on Africa in Cape Town, and includes prominent figures like Graça Machel and former Bank of Botswana governor Linah Mohohlo, revealed that Africa lost close to $1?trillion of capital in the past three decades.

This pales in comparison with the muted $300?billion the Mother Continent has received in foreign direct investment.

South African financial authorities are insisting that companies manage their foreign expansion from home and are willing to make concessions to achieve that. Treasury has offered to relax foreign-exchange rules for JSE companies, but has also raised regulatory supervision.

Mauritius is popular with companies from the US, India and South Africa. South African companies make the nation the fifth-largest investor in that island nation.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.