Mauritius, with tighter norms in place against round-tripping of investment, has cautioned investors, including from India, that they would have their licence revoked if found guilty of violating the new guidelines.
Investors from India have been suspected to be indulging in round-tripping, that is, using the tax holiday advantage in Mauritius to take money out of India only to bring it back disguised as foreign investment. The money is routed through firms set up in the tax haven.
To ensure that there are no instances of such round-tripping, the Financial Services Commission of Mauritius, the regulator which supervises non-banking financial services sector and global businesses, has carried out reforms in the Financial Services Act. FSC has also improved the framework of tax resident certificate.
?There were some concerns in India about round-tripping. We have allayed all fears by imposing stringent conditions to prevent round-tripping. This is also meant to protect markets. However, there has been no case of round-tripping reported so far. But if we find any breach of these new conditions, their licences will be revoked,? Milan J N Meetarbhan, chief executive, FSC, Mauritius, told FE on the sidelines of a Ficci-IBA banking conference here.
Now resident corporations proposing to conduct business outside Mauritius would have to apply to the FSC for a global business licence. Though there are no restrictions on any business activity, the FSA now specifically mentions that a licence will not be granted, or would be revoked, if found that the activity ?is unlawful and causes serious prejudice to the good repute of Mauritius as a financial services centre.?
Global business companies (GBC) would have to now compulsorily hold board meetings in Mauritius, have at least two resident directors in Mauritius, and maintain their principal bank account and carry out their auditing in Mauritius. ?We have made it mandatory that GBCs would have to get certification from auditors that all these conditions have been complied with.? ?The new provisions specifying resident directors in Mauritius is a big deterrent as these directors will be liable for any unscrupulous activities. Big companies, with huge reputation at stake, will be careful about appointing directors and would constantly monitor their activities. Besides, Mauritius has a strong auditing culture with best international practices in place,? said Pratik Ghosh, business development consultant, The Mauritius Commercial Bank Ltd.
?However, friendly tax havens cannot impose penalties as it will whisk away investors. That is why the FSC has deployed these indirect ways to deter round tripping,? he added.
?Mauritius is a much more regulated and orderly financial market than tax havens like British Virgin Islands and Cayman Islands. Due to this, a majority of investments from Mauritius to India are clean. The new move by the FSC is to project Mauritius in the global scenario as an efficient and clean IFC, as the investments into Mauritius and their source is not only from India but across the globe,? V Srini Vasan, managing director, SBI International (Mauritius) Ltd, said.
To bring more companies into the net, the new norms say that a resident corporation is still considered as conducting business outside Mauritius if it opens and maintains a bank account in Mauritius, leases, holds or acquires immovable property in Mauritius, employs staff in Mauritius, and deals or transacts with another GBC. This will also bring in more substance, management and control in Mauritius, Meetarbhan said.