Game-Changer for Businesses: Mauritius Supreme Court Clarifies 80% Partial Exemption on Interest Income

Grab your coffee and let’s dive into the recent Supreme Court of Mauritius ruling on the Alteo Energy case. But before we get started, let’s take a quick refresher on what we already know about the Partial Exemption Regime in Mauritius.

Recap of the Facts

Alteo Energy Ltd (“Alteo”) is part of the Alteo Group and is primarily involved in producing and selling electricity to the Central Electricity Board (“CEB”). For the assessment year ending 30 June 2019, the company deposited excess cash generated from electricity sales with its sister company, from which it earned interest income. Alteo claimed the 80% partial exemption on interest income in accordance with item 7 of Sub-Part B of Part II of the Second Schedule to the Income Tax Act (ITA) and Regulation 23D(2) of the Income Tax Regulations (“ITR”).

However, on 29 June 2020, the Mauritius Revenue Authority (“MRA”) issued a Notice of Assessment disallowing the exemption. The MRA argued that the interest income did not stem from the company’s Core Income Generating Activities (“CIGA”) and therefore did not meet the exemption conditions.

Alteo objected to this assessment and brought the case before the Assessment Revenue Committee (“ARC”). However, on 24 October 2023, the ARC sided with the MRA, ruling that the exemption could not be granted as only 0,25% of Alteo’s total income came from interest, making it unrelated to its core business. Alteo then appealed to the Supreme Court.

Key Arguments Presented at the Court

Alteo argued that the ARC misinterpreted the term substance in Regulation 23D(2) as the wording is clear and unambiguous and does not require that the interest income to be derived from the CIGA of the company as the use of the word ‘includes’ confirm that the CIGA listed in Regulation 23D(2) is not exhaustive.

According to Regulation 23D(2) of the Income Tax Regulations 1996 (ITR), in order to qualify for 80% exemption, the Company should:

• carry out its core income-generating activities (CIGA) in Mauritius.
• employ directly or indirectly an adequate number of suitably qualified persons to conduct its CIGA; and
• incur a minimum expenditure proportionate to its activities.

The term CIGA is defined in the ITR and includes ‘agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks’.

Meanwhile, the ARC and MRA contended that the partial exemption should only apply to income derived from CIGA and that Alteo’s CIGA was the production of electricity and when read together, Item 7 and Regulation 23D(2) suggest that interest income should be directly linked to the core of the business in order to be eligible of this exemption.

The Supreme Court Judgement

The Supreme Court ruled in favour of Alteo on the following basis:

• As per Item 7, it is clear that any company can claim the exemption and that there is no restriction such as the nature of the business activity and that it does not require interest income to be derived from CIGA provided that the company meets the substance conditions.
• The use of the word “includes” in the definition of CIGA as defined in Regulation 23D(2), ‘includes agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks’ should be interpreted by its own natural meaning as well as the extended statutory meaning which has been given. Thus, the term ‘includes’ cannot have an exhaustive and restrictive meaning.
• Moreover, the exemption was introduced as part of the fiscal regime for both local and GBL companies irrespective of the nature of their business activities provided that the three conditions are satisfied.

Our Take

This ruling is a significant win for businesses in Mauritius. It confirms that interest income does not need to be tied to a company’s core activities to qualify for the 80% exemption, as long as substance requirements are met. The judgment reinforces that tax laws should be applied as written, without adding unnecessary restrictions.

For businesses operating in multiple income streams, this provides clarity and certainty moving forward. If you’d like to discuss how this ruling affects your company, feel free to reach out!

Meet the author

Heemshika Haguthee

Heemshika Haguthee (Sia) is a senior international tax consultant at RvR. She recently completed her BSc(Hons) in Accounting Minor Business Informatics and is currently pursuing her ACCA qualifications. You can contact Heemshika on [email protected]