SEBI, India's market regulator, has not expressed any concerns about investment funds based in Mauritius, the island nation's Minister of Financial Services and Good Governance, Seeruttun Mahen Kumar, has said. In an interview with Ashley Coutinho, he says the country is committed to ensure that the FATF Action Plan is fully implemented within the agreed timelines. Edited excerpts:
Nearly 80 per cent of FPIs from Mauritius were put into category II post the reclassification of FPIs into two categories last year. What were some of the apprehensions that Sebi had at the time?
Under the cooperation agreement signed between the FSC and SEBI, the two regulators work very closely together on an ongoing basis. Throughout our collaboration, SEBI has not expressed any concerns in respect to investment funds based in Mauritius.
The changes introduced in Indian regulation with regards to the reclassification of funds into two categories brought unintended consequences as Mauritius was not a FATF member.
However, the situation has since been reviewed, and investment funds established in Mauritius and regulated by the Financial Services Commission are now eligible for registration under Category I FPI.
How has Mauritius been addressing the concerns of FATF after being put in the grey list earlier this year?
Mauritius made a political commitment to the FATF in February 2020 to address the shortcomings in its anti-money laundering and combatting the financing of terrorism (AML/CFT) systems. We are fully committed in ensuring that the FATF Action Plan is fully implemented within the agreed timelines.
Mauritius has extensively revamped its legislative framework to ensure that it is technically compliant with the FATF standards.
Since the adoption of its Mutual Evaluation Report in July 2018, Mauritius has been successfully re-rated for technical compliance with the FATF recommendations. It is now largely compliant or compliant with 35 out of the 40 Recommendations as compared to 14 largely compliant or compliant ratings at the time of its mutual evaluation. More importantly, Mauritius has achieved the FATF expectations with respect to the “Big Six Recommendations” that includes the criminalization of the money laundering and terrorism financing offence, the implementation of a framework for targeted financial sanctions and the reporting of suspicious transactions.
The Indian government has been apprehensive about overseas investments from China, either directly or routed through other regions such as Singapore and Hong Kong. Has it reached out to you in any way to track Chinese investments that may be routed through Mauritius?
I have taken cognisance about the concerns in India over investments coming from China and I wish to reiterate that Mauritius has always been at the forefront of collaboration with all its partner countries, and we have spared no efforts in alleviating concerns or enhancing ties. We adhere to all international standards on transparency and exchange of information.
With India specifically, there is a mechanism between the Mauritius Financial Services Commission and the SEBI, which allows for sharing of any information as and when required. This is an established practice among financial regulators worldwide.
Furthermore, in respect of disclosures, Mauritius regulators adhere to norms set by established by international standard setters such as IOSCO and OECD. Mauritius remains committed, cooperative and collaborative with any government request, in line with our existing sharing of information mechanism.
Despite the tax treaty amendment between India and Mauritius, the latter is still the second largest source of FPI money in India. What makes the jurisdiction so popular?
The buoyancy of our financial services sector emanates from a successful diversification strategy, coupled with decades of good governance and bold policy reforms, which have been instrumental in enhancing our resilience.
The revised DTAC also creates a new impetus to the role Mauritius will play as an International Financial Centre, especially for debt. New avenues of co-operation with India are being actively pursued and these include the debt securities area. India’s debt securities market is booming because of the demand for financing of infrastructural and other developmental projects including housing, roads and power.
Both India and Mauritius have signed the OECD’s Multilateral Instrument (MLI) designed to implement some of the base erosion and profit shifting (BEPS) recommendations. However, Mauritius has kept India outside the network of tax treaties that are covered under the MLI. What are the reasons for doing so?
It is worth mentioning that the transitional provisions in the Protocol between India and Mauritius was extended for two years until April 1, 2019. Consequently, given that the grandfathering period did not expire, India was kept outside the MLI and negotiations continued on a bilateral level between Mauritius and India. You may wish to note that currently talks are ongoing on how best to adopt the BEPS project minimum standards in our tax treaty. Otherwise, no other changes are being envisaged to the treaty for the time being.
Internationally, there has been greater emphasis on combating tax avoidance and evasion. Are these changes compelling Mauritius to make changes in the way it functions as an offshore fund hub and attracts companies and funds? Mauritius has had a reputation for being a tax haven for quite some time now. How is the country trying to shed that image?
The association of tax haven with Mauritius is most unjustified, the more so given that there is no agreed definition of tax haven. So far the OECD established four criteria for identifying tax havens. These were: no or only nominal taxes on the relevant income; transactions with no substantial activities; lack of transparency; and no effective exchange of information. Mauritius is not a tax haven, even if a proper definition of the term would allow an intelligent reader to understand what features are being alluded to.
It is important to note that Mauritius treaties are based on the OECD Model for Tax Convention and has a treaty framework that has been assessed by the OECD Global Forum on Transparency and Exchange of Information to be in line with internationally agreed standards and has rated Mauritius as a compliant jurisdiction with the international standards on transparency and exchange of information. Mauritius has also adhered to the Multilateral instrument (MLI) developed by OECD and has agreed to implement the minimum standards in the MLI including the Principal Purpose Test (PPT) clause which is a powerful measure against treaty abuse.
Mauritius has made several legislative amendments to ensure that companies abide by strict substance requirements. Furthermore, currently, Mauritius does not appear on any list with regards to harmful tax practices.
Singapore has nudged past Mauritius as India's top FDI investor in FY19. How is Mauritius trying to improve its business and trade relations with India?
Over the years, Mauritius and India have strengthened their diplomatic and economic bond through the exchange of MoUs and bilateral agreements. Through these agreements, India is assisting Mauritius in embarking on a development path which leads towards a modern nation built on new pillars such as innovation, infrastructural advancement, and inclusive development.
Mauritius is in the final stage of concluding a Comprehensive Economic Cooperation Partnership Agreement (CECPA) with India. This new agreement, once concluded, will provide mutually beneficial treatment to exports of goods, services, as well as enhanced economic cooperation and protection and promotion of investments. It would also further develop Mauritius to position itself for Indian companies seeking to access the African continent, be it in terms of goods or services. The new agreements will guarantee a mutual preferential market access for both nations, in trade of goods and services.