The papers of Conyers Dill & Pearman, which opened its doors in Mauritius in October 2009, were leaked to the International Consortium of Investigative Journalists (ICIJ). The ICIJ has previously covered leaks from other tax havens, including #PanamaPapers and #ParadisePapers.
Conyers Dill & Pearman technically ended its operations in the island nation in 2017 after three directors bought the Mauritius unit. According to draft communiques in the email leaks, that buyout could have also been engineered to reduce taxes paid in Mauritius.
The new trove of leaked documents from the Mauritius-based firm suggests that whilst other African countries may be losing massive amounts of tax revenue, investors use the island nation’s attractive tax regime and the creation of shell companies to anchor investments elsewhere on the continent.
To avoid taxes, companies open a shell company in Mauritius and apply to the government for a Global Business Company 1 certification. The certification serves no other purpose, anti-money laundering attorney Guy Christian Agbor told ICIJ, “but to take advantage of tax treaties and to avoid paying taxes”.
Receiving a tax residency certificate allows companies to cut taxes under double-taxation avoidance agreements (DTAAs) Mauritius has signed with other African countries. According to a 2016 letter to the World Bank, the country has 19 DTAAs and 19 other treaties with other African countries. It has a total of 45 tax treaties.
The transformation of Mauritius into a tax haven began in early 1990’s. It was devised by then finance minister of the island, Rama Sithanen. He observed that Luxembourg, Switzerland, Hong Kong and other, more obscurely located states 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 leaks reveal how global corporates gave bought into this vision and made the most of it to dodge African tax systems.
For instance, Aircastle, the company that leases planes to many airlines including American Airlines and South African Airways, decided to avoid paying taxes in South Africa by creating an offshore company. The resulting company, Thunderbird 1, is one of six similarly named shell companies in different tax havens, all belonging to the same company. The ICIJ’s interactive graphic illustrates just how this works, with documents to prove it.
Thunderbird then sub-leased its Airbus A330-200 plane to South African Airways, earning $772,725.60 in a sample month on the lease. The money was paid through Deutsche Bank, which ended operations in Mauritius in 2018.
“Thunderbird paid only 1.5% tax on profits of $5.5m in its first year,” the ICIJ reports. For three years, the company made $24m in operating profits and only paid $382,600 in taxes.
The tax treaties have not only had an adverse effect on Africa. India had been trying to renegotiate the unfavourable treaty: the case in point being the notorious Vodafone-Essar merger where Supreme Court held that the tax office could not question UK telecom giant Vodafone’s $11 billion acquisition of Essar through a Mauritius company. This cost India $2.2 billion in lost tax revenue.
There has been some little reform as Mauritius has been trying to rebrand its image. They have scrapped Global Business License 1 which allowed corporates to benefit from tax laws with virtually no operations in the country.
Mauritius now requires investors to have “reasonable” local staffing and to spend money on the island that reflects the activities of a real office to benefit from tax treaties or low tax rates.
“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,” ICIJ reports.
Sadly, it has not only been foreign corporates that have been taking advantage of the treaty. African elites in business and politics have been organising their investments to avoid taxes in their home countries.
On the list is Ugandan tycoon Patrick Bitature, who also used the law firm’s services to structure his holdings. In his response to the ICIJ, Bitature said: “All taxes, if any, were paid [and] there was no nefarious agenda.”
African countries are struggling to meet their revenue targets, Mauritius has experienced tremendous progress due to it’s policy.
It now ranks as one of the richest countries in Africa, and the number of individuals with assets over $1m has grown faster than in any other country on the continent. According to AfrAsia Bank’s Wealth Report, the total wealth in the country rose by 195% between 2007 and 2017.
The growth and the wealth creation has been largely at the expense of development of other African countries battling with reaching Sustainable Development Goals.