Article: The Impact of Multilateral and Unilateral Measures on Profit-Shifting from South Africa to Mauritius

Abstract

The Mauritian global business sector’s favourable tax regime, combined with its extensive treaty network, has made it an attractive investment hub for investments into Africa. Aggressive tax planning strategies targeted at shifting profits to lower tax jurisdictions such as Mauritius, have eroded many higher tax jurisdictions’ tax bases. An exodus of (taxable) funds from South Africa to Mauritius is evident from South Africa’s listing as one of the top five contributors to Mauritius’s foreign direct investments (FDIs). While the base erosion and profit-shifting (BEPS) action plan is aimed at curbing profit-shifting practices, limited research is available on the successful implementation of the BEPS action plan. This article conducts a review of the implementation of the BEPS action plan by both jurisdictions, namely Mauritius (as a low tax jurisdiction) and South Africa (as a high tax jurisdiction). The success of the BEPS action plan in curbing profit-shifting practices from South Africa to Mauritius is measured in conjunction with the South African anti-avoidance legislation. The findings highlight that only Action 5 has been successfully adopted by both South Africa and Mauritius. A preliminary analysis was conducted which indicates that the implementation of the BEPS action plan will not result in less profit-shifting, due to gaps in the South African anti-avoidance legislation that facilitates these profit-shifting practices. It is suggested that the implementation of the BEPS action plan by higher tax jurisdictions should be prioritized. This article contributes to scholarship on evaluating the effectiveness of the BEPS action plan minimum standards for African countries. Action 5, aggressive tax planning strategies, base erosion and profit-shifting, base erosion and profit-shifting action plan, global business companies, foreign direct investments, Mauritius global business sector, minimum standards, offshore trust, profit-shifting, South African anti-avoidance legislation, tax avoidance, tax planning vehicles.