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1.  Avago Technologies Trading Ltd v/s Mauritius Revenue Authority (“MRA”)

The Assessment Review Committee (“ARC”) delivered a ruling in favour of the MRA on the 04th July 2024 regarding the arm’s length nature of royalty fees being paid and whether same would constitute a tax avoidance scheme.

FACTS

  • Avago Technologies Trading Ltd (“ATTL”/ “Applicant”) is a Global Business Company in Mauritius operating in the semiconductor industry.
  • ATTL holds a portfolio of IP products under a License Agreement with GEN IP (IP Holders), a related party in Singapore forming part of the Avago Group.
  • The said agreement provides that ATTL will retain an arm’s length return (effectively 7% of operating profits) under an arrangement where ATTL would act as an intermediary by sub-licensing the manufacture of Avago products to both related and unrelated parties of Avago Group and on-selling the finished products to ATIS (another entity of Avago Group) only.
  • The Applicant claimed royalties paid to GEN IP as a deduction under section 18 of the Income Tax Act 1995 (“ITA”).
  • The MRA was of the view that the payments of royalty to GEN IP were not in accordance with the arm’s length principle and that the arrangement under the License Agreement was designed to avoid tax in Mauritius.

COMMENTS

The ruling highlights the need for companies to proactively revisit their legacy structures and ensure they have the adequate transfer pricing documentation and agreements in place to support related parties transactions.

 

2.  Godolphin Ltd v/s Mauritius Revenue Authority (“MRA”)

On the 28th June 2024 the ARC upheld the MRA’s decision to deny the claim for partial exemption on interest income on grounds that the taxpayer did not meet the employment criterion as set out in the Income Tax Regulations 1996.

FACTS

  • Godolphin Ltd (“Company”/“Applicant”) is an investment holding company operating under a Global Business Licence issued by the Financial Services Commission of Mauritius.
  • The Company derived interest income on loans provided to Extrupet Pty Ltd (“EPL”), a wholly owned subsidiary in South Africa which specialises in recycling plastics in South Africa. The total amount of the loans advanced was ZAR 75 million.
  • The Applicant sought to claim partial exemption on the interest income derived from its related party loan advanced.
  • The MRA issued a Notice of Assessment to the Applicant denying its claim for partial exemption specifying that part of the functions relating to the loaned amount to EPL are performed by entities operating outside Mauritius.
  • The MRA maintained that the Company did not employ directly or indirectly an adequate number of suitably qualified persons to conduct its core income generating activities (“CIGA”) in Mauritius.

COMMENTS

The ruling highlights the growing need for the MRA to issue further guidance on how they intend for taxpayers to interpret the CIGA requirement as it relates to partial exemption on interest income.

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