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Africa/Global: #MauritiusLeaks Reveals Tax Dodges

AfricaFocus Bulletin
August 12, 2019 (2019-08-12)
(Reposted from sources cited below)

Editor's Note

“Based on a cache of 200,000 confidential records from the Mauritius office of the Bermuda-based offshore law firm Conyers Dill & Pearman, the investigation reveals how a sophisticated financial system based on the island is designed to divert tax revenue from poor nations back to the coffers of Western corporations and African oligarchs, with Mauritius getting a share. The files date from the early 1990s to 2017.” - International Consortium of Investigative Journalists

Despite involving at least two large U.S. companies with worldwide interests, this new set of revelations from the group that broke the Panama Papers in 2016 has had hardly any coverage in the United States, with no mention to date in the New York Times, Washington Post, or Wall Street Journal. Worldwide it has apparently had significant coverage primarily in East Africa and India. But it is a significant case study in how the international tax avoidance system works, particularly with reference to Africa. AfricaFocus Bulletin is accordingly publishing two Bulletins today, one capsulizing the news from ICIJ, and the other looking more deeply at the policy implications, including a profile of Aircastle, based in Stamford, Connecticut, a leading provider of leased airplanes to airlines around the world.

This AfricaFocus Bulletin contains excerpts from the principal article launching the reporting on the Mauritius Links investigation.

Other articles published to date include a profile of the law firm involved, a case study of an American-owned company specializing in luxury vacation resorts and hotels around the world, and a report on the reaction to the investigation in a number of the countries involved.

The other AfricaFocus sent out today, available on the web at, and entitled "Tax Avoidance 101," includes brief background on the investigation, a profile of Aircastle compiled by AfricaFocus based on material from ICIJ and Quartz as well as additional research, and a summary by Tax Justice Network of the significance of the Mauritius material for global action to counter tax avoidance.

For previous AfricaFocus Bulletins on tax justice and illicit financial flows, visit


Break from Publication

Note to readers: AfricaFocus Bulletin will be taking a break from publication for a few weeks, resuming in early to mid-September. The AfricaFocus website and Facebook pages will continue to be updated during the break.

++++++++++++++++++++++end editor's note+++++++++++++++++

Treasure Island: Leak Reveals How Mauritius Siphons Tax From Poor Nations To Benefit Elites

International Consortium of Investigative Journalists

July 23, 2019

[Excerpts only. For full story and many related resources, visit]

Bob Geldof’s firm wanted to buy a chicken farm in Uganda, one of the poorest countries on earth. But first, an errand.

After soaring to fame in the 1980s for organizing Live Aid and other anti-famine efforts, the former Boomtown Rats rocker had shifted to the high- powered world of international finance. He founded a U.K.-based private equity firm that aimed to generate a 20% return by buying stakes in African businesses, according to a memorandum from an investor.

The fund’s investments would all be on the African continent. Yet its London-based legal advisers asked that one of its headquarters be set up more than 2,000 miles away on Mauritius, according to a new trove of leaked documents.

The tiny Indian Ocean island has become a destination for the rich and powerful to avoid taxes with discretion and a financial powerhouse in its own right.

One of the discussion points in the firm’s decision: “tax reasons,” according to the email sent from London lawyers to Mauritius.

Geldof’s investment firm won Mauritius government approval to take advantage of obscure international agreements that allow companies to pay rock-bottom tax rates on the island tax haven and less to the desperately poor African nations where the companies do business.

“One little wad of cash can be the difference between a poor country building big infrastructure or not,” a Ugandan tax official told ICIJ.

Another benefit of a headquarters on Mauritius: opacity. Transactions to and from Mauritius to local units – that can have huge impacts on tax liability – are tucked away in confidential financial reports filed on the island.

The Mauritian newspaper L´Express was the key local partner in this investigation by ICIJ. Credit: L´Express.

A spokesman for Geldof’s firm, 8 Miles LLP, said its investors include international development finance institutions that “request that we consolidate their funds in a safe African financial jurisdiction for onward investment into the various target African countries. Because of its reputation, Mauritius is used by many private equity investors for this purpose.”

The spokesman said the firm’s African investments follow high standards “to create jobs, improve communities…and by generating increasing tax revenues which support the governments where we operate.”  The spokesman said, “Only when we sell a company will the sale proceeds be paid back into the fund in Mauritius.”

Geldof declined to comment.

Mauritius Leaks, a new investigation by the International Consortium of Investigative Journalists and 54 journalists from 18 countries, provides an inside look at how the former French colony has transformed itself into a thriving financial center, at least partly at the expense of its African neighbors and other less- developed countries. In Uganda, more than 40% of the population lives on less than $2 a day.

Based on a cache of 200,000 confidential records from the Mauritius office of the Bermuda-based offshore law firm Conyers Dill & Pearman, the investigation reveals how a sophisticated financial system based on the island is designed to divert tax revenue from poor nations back to the coffers of Western corporations and African oligarchs, with Mauritius getting a share. The files date from the early 1990s to 2017.

The island, which sells itself as a “gateway” for corporations to the developing world, has two main selling points: bargain-basement tax rates and, crucially, a battery of “tax treaties” with 46 mostly poorer countries. Pushed by Western financial institutions in the 1990s, the treaties have proved a boon for Western corporations, their legal and financial advisers, and Mauritius itself — and a disaster for most of the countries that are its treaty partners.

This map, from research in 2017 by ActionAid, shows countries in Africa and Asia that have signed very restrictive tax treaties with other countries such as Mauritius, limiting their ability to tax corporations based in the partner countries.

“What Mauritius is providing is not a gateway but a getaway car for unscrupulous corporations dodging their tax obligations,” said Alvin Mosioma, executive director of the nonprofit Tax Justice Network Africa.

The leaked records – including emails, contracts, meeting notes and audio recordings – provide a glimpse inside a busy offshore law firm working with global accounting and advisory firms for some of the world’s largest corporations and some very wealthy individuals.

They’ve all found their way to an island built on helping the rich avoid paying taxes to nations as far-flung as the United States, Thailand, and Oman.

Mauritius’ minister of financial services of good governance Dharmendar Sesungkur, who oversees the country’s offshore sector, said that ICIJ’s information was “outdated.” The minister said that independent organizations, including the World Bank, recognize that “Mauritius is a cooperative and clean jurisdiction that has made significant progress in adhering to international standards.” [Read the Government of Mauritius’ full response]

Mauritius has introduced “major policy (as well as legislative) changes,” Sesungkur said. Prime Minister Pravind K Jugnauth recently announced tighter rules for companies that want to benefit from the island’s low tax rates; such companies must have greater control and activity in Mauritius and more skilled employees.

From sugarcane to shell companies

A longtime possession of the Dutch, French and then the British, Mauritius was for centuries a poor agrarian society with an economy based mostly on sugarcane. Its economic prospects seemed forever limited by its location, 1,250 miles east of the African coast, and tiny size, smaller than Rhode Island.

Then in the early 1990s, Rama Sithanen pushed an idea.

The Mauritius finance minister at the time, Sithanen observed that Luxembourg, Switzerland, Hong Kong and other, more obscure jurisdictions had grown into financial powerhouses by serving as low-tax gateways to wealthy nations nearby. He said Mauritius should do something similar, offering itself as a stable, corruption-free bridge to Africa and other less developed regions.

“The potential exists to explore new avenues and to look for new markets,” he argued before the Mauritius Parliament in 1992, pushing a bill that would make possible the island’s first shell companies and allow some firms to pay zero taxes on profits and capital gains. One parliamentary colleague called the bill “a wonderful tax tool.”

An opposition member objected, saying the bill would create at least the appearance that Mauritius was benefiting at the expense of poorer neighbors.

“It is a tough world,” retorted another government minister in support of the law. “We cannot waste time.”

Within weeks of the bill’s passage, Mauritius officials were off on marketing trips to Asia. In the law’s first year, 10 offshore companies incorporated in Mauritius. Two years later, that number had passed 2,400.

Tax treaties proliferate

A key part of the island’s strategy: tax treaties, lots of them.

Starting back in the 1920s, “double taxation agreements” were adopted to protect businesses with international operations from being taxed twice for the same transaction. Two nations simply agreed on dividing one set of taxes between them. To encourage investment, tax treaties also limited the tax rate governments could apply to certain cross-border transactions.

Tax treaties surged as global trade blossomed after World War II; a second wave came during decolonizations in the 1960s and 1970s. Under the umbrella of the Western-dominated Organization for Economic Cooperation and Development, richer countries pushed for treaties that awarded most of the tax revenue to themselves, not the poorer countries where the business activity took place.

Officials in some developing countries sensed early on that the system was tilted against them. Among their complaints: Western companies were shifting income out of developing countries by inflating “expenses” and “fees” paid to the home office, reducing local taxable income. “They have taken out of Zambia every ngwee [penny]” owed in taxes, Zambian President Kenneth Kaunda fumed in 1973.

Developing countries believed they had to enter into treaties to attract foreign investment, even if it meant signing away tax revenue that could fund education, health care and other vital government services.

Aid from poor to rich

By 1974, an academic paper was already warning that the treaties in effect represented “aid in reverse – from poor to rich countries.”

Nonetheless, the number of treaties surged again in the 1990s as Western corporations and their advocates within international institutions pushed them as a requirement for attracting foreign investment. Meanwhile, tax havens, seeing an opportunity, dropped their tax rates, encouraged corporations to set up shell “headquarters” in their countries, and promoted tax treaties as a way to avoid paying taxes.

For Mauritius, a big breakthrough came in the early 1990s when an enterprising lawyer in Mumbai discovered that a then-dormant 1982 India-Mauritius tax treaty would allow his Western clients to avoid paying taxes in both the United States and India. Western money poured into the newly liberalized Indian market – after first passing through Mauritius.

“Success has many fathers,” said the lawyer, Nishith Desai, in an interview with ICIJ. “People didn’t even know where Mauritius was located. People mixed things up between Mauritius, Maldives, Malta . . . a lot of small islands starting with the letter ‘M.’ ”

Gushing press releases and news articles suggested that Mauritius was on a path to becoming the Hong Kong or Singapore of the Indian Ocean. “We avoid stacks of tax,” one fund manager told Toronto’s Financial Post in 1994.

Mauritius introduced a flat corporate income tax rate of 15% with foreign tax credits that can drive that down to an effective rate of 3%. Mauritius rolled out Global Business Licence 1, which allows companies with operations elsewhere to be “resident” in Mauritius for tax purposes and pay its low rates. It went on to sign dozens of tax treaties with countries around the world, including 15 in sub-Saharan Africa.

Poorer countries push back

Some countries have tried fighting back – but it’s not easy. Renegotiations can take years. Political leaders often seek to avoid the diplomatic fallout.

South Africa signed a new treaty with Mauritius, which first ignored South Africa’s requests to modify the 1997 text and then resisted for years, according to people involved. Western corporations lobbied the South African parliament to reject the renegotiation and threatened to move their offshore operations to Dubai. The new treaty took effect in 2015.

“The old treaty basically gave the store away,” said Lutando Mvovo, a former South African treasury official who took part in the negotiations.

Successive Indian governments for years challenged the legality of the Mauritius 1982 treaty. And they kept losing. In a landmark 2012 case, India’s Supreme Court held that the tax office could not question U.K. telecom giant Vodafone’s $11 billion acquisition of an Indian rival through a Mauritius company. The decision cost India $2.2 billion in lost tax revenue.

It took 20 rounds of negotiations over 20 years for India to prod Mauritius in 2016 to remove the abusive provisions of the original 1982 treaty, one Indian official told ICIJ.

In separate interviews with ICIJ, tax officials in Egypt, Senegal, Uganda, Lesotho, South Africa, Zimbabwe, Thailand, India, Tunisia and Zambia all said their treaties with Mauritius were crippling.

“Personally, we regret signing the treaty,” said Setsoto Ranthocha, an official with the Lesotho Revenue Authority, now involved in a renegotiation effort. Lesotho’s treaty with Mauritius dates to 1997.

“The companies are the winners,” Ranthocha said. “It makes me go mad.”

Namibia is reviewing its treaty with Mauritius, officials told ICIJ partner The Namibian. In March, Kenya’s high court struck down that country’s treaty with Mauritius for technical reasons. Tax Justice Network Africa filed the complaint, arguing that the treaty would allow companies to abusively “siphon” money out of Kenya. In June, Senegal announced that it would seek to cancel its tax treaty with Mauritius, claiming that the agreement cost it $257 million over 17 years.

“It is the most unequal treaty for Senegal of all the treaties we have signed,” Magueye Boye, a tax inspector and Senegal’s lead treaty negotiator, told ICIJ. It is an “enormous pipeline for tax avoidance,” he said.

Another country reviewing its treaty with Mauritius is Uganda.

‘No nefarious agenda’

Mauritius’ tax benefits are popular with African elites as well as foreign ones.

Patrick Bitature owns telecommunications, energy, media and hotel companies across Uganda. One of Uganda’s richest men, who once sat on the boards of one-third of the companies on the Kampala Stock Exchange, Bitature has been close to Uganda’s authoritarian president, Yoweri Museveni, according to The Indian Ocean Newsletter, a respected news outlet.

He is also majority owner of Electro-Maxx, which runs Uganda’s largest thermal power plant, located in the eastern town of Tororo. It is the first African-owned and financed company to produce power on the continent.

In 2011, the investment company African Frontier Capital LLC proposed a $17.5 million investment in Electro-Maxx that passed through a newly incorporated Mauritius company named African Frontier I LLC, according to minutes of the African Frontier board. The proposal included a  $2.5 million personal loan to Bitature, the minutes say.

The company’s minutes, dated June 2011, also said it would apply for a tax residency certificate every year to “benefit” from the tax treaty between Uganda and Mauritius.

Robert Mwanyumba, a tax researcher focused on East Africa, said that if the company used the treaty with Mauritius, it would have been subject to its low corporate income tax rate instead of Uganda’s 30% rate.

Bitature confirmed the existence of a “bona fide” transaction and said the use of a tax treaty was a question for African Frontier, which did not provide a comment on the subject.

Responding to ICIJ media partner The Daily Monitor, Bitature said that Electro-Maxx sought external financing when it could not raise money for a new project. “The transaction was carried out within the provisions of the tax laws and fully accounted for in tax returns shared with” the Uganda Revenue Authority, he said.

“All taxes if any” were paid, Bitature said, adding “there was absolutely no nefarious agenda.”

African Frontier Capital, via the Mauritius company African Frontier I, ended its investment in Electro-Maxx in 2014. It told ICIJ that the investment was “a completely arms-length transaction” that fully complied with the laws of the countries involved.

Under pressure

In January [2019], after years of complaints from its treaty partners and under pressure from international institutions, Mauritius overhauled the tax laws governing its offshore sector.

Gone is Global Business License 1, the form of shell company that poorer nations denounced as an exploitative tax-avoidance tool.

Mauritius now requires investors to have reasonable local staffing and to spend money on the island that reflects the activities of a real office – known as “enhanced substance” – to benefit from tax treaties or low tax rates. Shell companies are a thing of the past, Mauritius assures outsiders.

Bemoaning the new rules, one member of Parliament blamed the Panama Papers and Paradise Papers investigations by ICIJ, among other exposés, for soiling the offshore industry’s reputation. “Under pressure from the OECD and the European Union, who have at heart only their interest to further tax their citizens and corporations, Mauritius, once again, has kowtowed,” lawmaker Mohammad Reza Cassam Uteem said.

Corporations, fund managers and tax advisers warned the changes would make Mauritius less attractive for investment.

Others, however, suggest that its reforms may be little more than box-checking designed to keep the country off international blacklists. Mauritius, they say, has already found ways to continue providing tax-avoidance opportunities.

The island reluctantly agreed, for example, to a rule that allows a Mauritius treaty partner to deny tax-treaty benefits to a multinational corporation that opens in Mauritius with the “principal purpose” of exploiting those benefits. Experts say that poorer countries will rarely be able to make use of that provision: Denying treaty benefits to a corporation will require technical, financial and political resources that a developing country may not have.

Sol Picciotto, emeritus professor at Lancaster University law school in England, said of Mauritius: “They play the game so as not to be denounced as uncooperative, but they can maneuver within the grey areas of the rules. They can say they’re doing it by the book, but the book is full of technical tricks, and Mauritius has some very skilled technicians.”

This year, Setsoto Ranthocha, the Lesotho tax official, negotiated with Mauritius to fix a treaty that he says has cost his country dearly. “They are tough negotiators,” Ranthocha said of his Mauritius counterparts. “They know what they are doing.”

Meanwhile, Mauritius is pursuing new treaties with 16 African states, bidding to bring its coverage to nearly 60% of the continent.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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