On Tuesday, 23 July, the International Consortium of Investigative Journalists (ICIJ) published its new investigation called Mauritius Leaks, which unveils how multinational companies artificially transferred their profits from the African countries in which they operate to Mauritius so as to pay fewer taxes. A new tax-evasion scandal that accentuates the need for international tax reform, according to several organisations.
A USB flash drive sent anonymously to ICIJ containing more than 200,000 documents from the Mauritian office of Conyer’s Dill & Pearman’s enabled 40 journalists from around the world to conduct the investigation.
ICIJ explains that the documents do not mention any illegal practices—as in the case of the Panama Papers—but they do demonstrate how Mauritian management companies help their clients avoid high taxes in their countries of operation.
In fact, in Mauritius, foreign income can be taxed as interest payments at the very low rate of 3%. Tax treaties signed between Mauritius and African and European countries enable certain companies to further reduce their tax bills.
“No capital gains tax, no inheritance tax, no wealth tax or gift tax, no legislation on controlled foreign corporations (...): it is not a coincidence that Mauritius is so frequently used as a tax haven through which capital can be extracted from Africa and India”, reiterated the Independent Commission for the Reform of International Corporate Taxation (ICRICT) in a statement.
Yet, Mauritius is not included on the European blacklist of non-cooperative jurisdictions for tax purposes (see EUROPE 12269/3). It is currently on the ‘grey’ list of countries and territories that have committed to modify or eliminate their harmful tax regimes by the end of 2019.
According to ICRICT, Mauritius (like many other jurisdictions) plays along so as to not be denounced as “non-cooperative”, but it can manoeuvre in grey areas. On Twitter, French MEP Manon Aubry (GUE/NGL) called on the European Union to “no longer turn a blind eye” and “put this country on its blacklist of tax havens”. On behalf of the European Parliament's S&D Group, Spain's Jonás Fernandez reiterated the Social Democrats' call for the creation of a subcommittee on tax issues within the Committee on Economic and Monetary Affairs.
According to the OECD, tax evasion and tax avoidance cost the African continent $50 billion every year. “The impacts of corporate tax avoidance are particularly hard on developing countries, which don’t have many options for raising revenue to finance their development”, said Tove Maria Ryding from the European Network on Debt and Development (Eurodad).
In the wake of these revelations, many organisations called for an urgent review of international tax rules. “The true scandal is that this – like most tax avoidance schemes – is completely legal. Real political will is needed urgently to rewrite global tax rules and introduce a global minimum effective tax rate that is paid by all multinational corporations no matter where they are based”, declared Peter Kamalingin, Oxfam’s Pan Africa Director.
In fact, the introduction of a global minimum effective corporate tax is currently being negotiated within the OECD within the framework of international tax reform (see EUROPE 12272/3). Last week, the G7 Finance Ministers reached an agreement in principle but did not discuss the definition of a rate (see EUROPE 12299/10).
Oxfam warns that, in order to effectively curb the transfer of profits, the global minimum effective tax rate must be set at an ambitious level and applied on a country-by-country basis, without exception. For ICRICT, an effective tax rate of less than 15% would only encourage a continuous race to the bottom with regard to corporate taxation.
Oxfam also believes that countries do not need to wait for global action. In doing so, it called on African governments to revise their tax policies with Mauritius and other tax havens so as to ensure that they are better able to collect their tax revenues. (Original version in French by Marion Fontana)