Former HF portfolio manager. I actually set up a Mauritius entity to invest into India about a decade ago for a large multi-strategy HF.
The suggestion that Mauritius is a stable and well-understood platform for investing into India has the causality completely backwards. Mauritius is stable and prosperous because of the investments that are siphoned through it and the local economy it creates! Compare Mauritius to Maldives for an abject lesson on the effects of the offshore economy on an Island nation.
The fact that the funds are invested in India through Mauritius does not exempt them from Indian laws! The only thing it does is that disputes among the passthru firm's shareholders are resolved in Mauritius court. Similar to using Delaware in the US, it does not exempt the company from US taxes or laws but just makes intra-company disputes the domain of Delaware Chancellery court where laws are well-nderstood.
The only reason for any institution to use Mauritius as a conduit is to avoid taxes under the DTAA and to anonymize the source of funds to Indian authorities. Any large institution will find domiciles to minimize their tax burden. They engage law firms and accountants who bill hundreds of dollars an hour to do this. Every single institutional investor across the spectrum from hedge funds, private equity, venture capital funds to corporations does this. Any other suggestion to the contrary is just fantastic. [edits for clarity]
A lot of the content here seems to be justifying breaching a law firm's security and disclosing sensitive attorney-client privileged information. Unlike some of the prior disclosures, there doesn't seem to be any allegation that the tax haven was being used for money laundering purposes (cf. Panama Papers), but just that the country itself was somehow acting unfairly to less developed jurisdictions. In addition to some of the sentiment below that the benefits in the form of capital inflows of such stabilizing treaties may exceed their costs in the form of top-line cap gains tax, etc., this distinction is striking.
It goes so far as to call out the specifics of an investment by the founder of Live Aid, without accusing him of doing anything illegal or, arguably, immoral.
While there is definitely educational benefit to understanding the potential effects of these sorts of treaties, at what point do these leaks cease to be newsworthy and begin to be gossip?
It's money laundering of a different sort; the meaningful business activities are not taking place in Mauritius, it is just a post office box and some legal forms, so it is a tax dodge to claim the business is conducted in Mauritius (or any of the so-called tax havens). Taxes should be paid where a business does its real business activities.
Tax avoidance is a huge business, and legions of lawyers and accountants have been employed for generations to find or create these loopholes. While they may be considered legal in narrow terms, they most often skirt the intent of the law.
As the legality of these arrangements is often questionable, it is also right to look at them morally. After all, laws are supposed to be equitable, and a system may be 'legal' while also being wrong, either morally or equitably.
Therefore, while Bob Geldolf's investments by be technically legal, it is still in the public's interest to know about these secretive arrangements, especially since 'Sir' Bob made his public acclaim over his supposed charitable interest in Africa, which is now revealed to be financial above all else.
It's not gossip if it is in the public's material interest.
> A lot of Indian black money (especially politicians) is somehow routed back to India via Mauritius
The black money hides amidst legitimate flows. Mauritian courts are generally well run, at least in comparison to Indian courts. (The tax code is also much simpler.)
Foreign investors into India will thus set up a Mauritian entity through which they'll invest under Mauritian law. This is similar to e.g. FDI into China often flowing through Hong Kong or investments into e.g. Wyoming routing through a Delaware entity.
The tax treaty between India and Mauritius was signed in 1982 in keeping with India's strategic interests in the Indian Ocean and India's close cultural links with Mauritius. The treaty provides for a capital gains tax exemption to a Mauritius resident on transfer of Indian securities.
Another link by QZ. It highlights how Sequoia used this to its advantage in India and one of its invested companies is now under investigation for money laundering for P.Chidambaram's (former finance minister) son.
Again anecdotal and i know this is frowned in HN, but unofficial estimates put P Chidambaram's family net worth at 20k crore INR (~ 3 billion $).
If the Mauritian tax treaty is such a pain for India, then they should just get rid of it. They clearly haven't, so it must be of some value -- thus you can't shame companies for using it to legally sidestep taxes.
Do we have evidence of this? A lot of investment into India would not occur without a stable legal and tax environment on which to stage it. Traditionally, those have been Singapore and Mauritius.
Are we sure that it's the stability of Mauritius which is the sought after quality here? That seems a little euphemistic.
Not that it's an unstable nation, all things considered, but I feel like it goes without saying that these companies and individuals are almost definitely solving for minimal tax rather than maximal "stability".
From the article, quoted from a leaked email: This is primarily being done to ensure the Druva restructure does not result in it becoming taxable.
> it goes without saying that these companies and individuals are almost definitely solving for minimal tax rather than maximal "stability"
Why does it go without saying? Indian courts can take 10+ years to resolve simple disputes; Mauritian courts are much faster.
A portfolio of stocks and bonds held in a Mauritian entity costs a few tens of U.S. dollars of extra accounting costs to do taxes on a year; a portfolio in India held by a foreigner can easily cost hundreds of dollars for an American investor to comply with.
Mainly because their motivations for doing so (namely: tax avoidance) were spelled out by the companies and their accountants in a series of email leaks. That's the thread we're in right now.
Australia and Canada have DTAs with India too. Pretty stable countries by most people's reckoning, potentially moreso than Mauritius and both with solid legal systems. Yet we aren't seeing PwC recommend to Silicon Valley investment firms that they spin up Australian shell companies to facilitate Indian investment.
We could probably speculate as to why not, or we could look at what the companies and their accountants said in the aforementioned series of leaked emails.
It's tax avoidance. It's not illegal, but it's not simplification or stability.
@JumpCrisscross: "A portfolio of stocks and bonds held in a Mauritian entity costs a few tens of U.S. dollars of extra accounting costs to do taxes on a year; a portfolio in India held by a foreigner can easily cost hundreds of dollars for an American investor to comply with."
Yea, it's got nothing to do with extracting the maximum amount of revenue out of the host country whilst managing to avoid giving anything back in taxation :]
> whilst managing to avoid giving anything back in taxation
I’m comparing accounting costs. Both paid to the same offshore accountant. Indian tax codes are complicated and unpredictable. Mauritian ones are not. As an outsider, simplicity wins. (I’d gladly pay a higher foreign tax rate if it meant simpler paperwork.)
Yeah, because a country is a person, and looks after its own best interest -- not an area, often ruled and exploited by ruthless opportunists the detriment of the population...
By that reasoning, every double taxation treaty that contains some sort of exemption is exploitative.
The Mauritian treaty does not contain any abnormal clauses that are uncommon in intra EU treaties and for example, most US-EU treaties.
Double taxation treaties are a way to incentivise people to invest in a specific country. Generally both countries exempt (or promise to partially exempt) booked income from the other country so that it does not get taxed twice. It does not exempt them from all taxation whatsoever.
But an example: if as a UK resident you invest in the US and book a capital gain on a shareholding, you won't pay US capital gains tax. That will be exempt. But you will pay capital gains tax in the UK.
> If they are treaties with tax havens, places used purposefully for those reasons
"Tax haven" is an ambiguous term. Double taxation treaties exist so investments aren't taxed twice, once at the origin and again at the destination. The Indian-Mauritian treaty mostly covers capital gains, and in that way is similar to most such treaties.
The principal benefit of jurisdictions like Mauritius, the Cayman Islands, Delaware or Singapore is less to reduce taxes than to simplify them. Indian taxes are wonky and volatile. Indian courts are slow and expensive. Going through Mauritius lets an international investor finance projects in India while abstracting away a lot of cruft.
I searched around a bit out of curiosity and it looks like it is USD500k investment to get permanent residence and 2 years of residence to apply for citizenship.
> In Uganda, more than 40% of the population lives on less than $2 a day.
I could retire now!
In my alternative universe, all system administrators unite and take back all the stolen money from the poor. They are effectively the only people who can do this.
African politicians steal taxes, I am from South Africa and see the corruption first hand. Mauritius is a well run country unlike most of Africa, makes sense to use it as a base to do business in Africa
Ugandan here: when I read this story, I admit this was exactly what came to mind. Of course the system is dodgy if you can leverage Mauritius to get around taxes but the vast majority of taxes in Africa is just padding on a politicians bank account.
Politicians stealing money isn't solely an African phenomenon, and in many "first world" countries the lower and middle classes suffer due to lobbying which politicians can use to enrich themselves and their cronies.
The suggestion that Mauritius is a stable and well-understood platform for investing into India has the causality completely backwards. Mauritius is stable and prosperous because of the investments that are siphoned through it and the local economy it creates! Compare Mauritius to Maldives for an abject lesson on the effects of the offshore economy on an Island nation.
The fact that the funds are invested in India through Mauritius does not exempt them from Indian laws! The only thing it does is that disputes among the passthru firm's shareholders are resolved in Mauritius court. Similar to using Delaware in the US, it does not exempt the company from US taxes or laws but just makes intra-company disputes the domain of Delaware Chancellery court where laws are well-nderstood.
The only reason for any institution to use Mauritius as a conduit is to avoid taxes under the DTAA and to anonymize the source of funds to Indian authorities. Any large institution will find domiciles to minimize their tax burden. They engage law firms and accountants who bill hundreds of dollars an hour to do this. Every single institutional investor across the spectrum from hedge funds, private equity, venture capital funds to corporations does this. Any other suggestion to the contrary is just fantastic. [edits for clarity]
It goes so far as to call out the specifics of an investment by the founder of Live Aid, without accusing him of doing anything illegal or, arguably, immoral.
While there is definitely educational benefit to understanding the potential effects of these sorts of treaties, at what point do these leaks cease to be newsworthy and begin to be gossip?
Tax avoidance is a huge business, and legions of lawyers and accountants have been employed for generations to find or create these loopholes. While they may be considered legal in narrow terms, they most often skirt the intent of the law.
As the legality of these arrangements is often questionable, it is also right to look at them morally. After all, laws are supposed to be equitable, and a system may be 'legal' while also being wrong, either morally or equitably.
Therefore, while Bob Geldolf's investments by be technically legal, it is still in the public's interest to know about these secretive arrangements, especially since 'Sir' Bob made his public acclaim over his supposed charitable interest in Africa, which is now revealed to be financial above all else.
It's not gossip if it is in the public's material interest.
Tbh i do not understand how such things work and it is anecdotal.
I do know that Mauritius has always been one of the top source of Foreign direct investment for India and i think some preferable treaties help them.
The black money hides amidst legitimate flows. Mauritian courts are generally well run, at least in comparison to Indian courts. (The tax code is also much simpler.)
Foreign investors into India will thus set up a Mauritian entity through which they'll invest under Mauritian law. This is similar to e.g. FDI into China often flowing through Hong Kong or investments into e.g. Wyoming routing through a Delaware entity.
________________________________________________________
The tax treaty between India and Mauritius was signed in 1982 in keeping with India's strategic interests in the Indian Ocean and India's close cultural links with Mauritius. The treaty provides for a capital gains tax exemption to a Mauritius resident on transfer of Indian securities.
Another link by QZ. It highlights how Sequoia used this to its advantage in India and one of its invested companies is now under investigation for money laundering for P.Chidambaram's (former finance minister) son.
Again anecdotal and i know this is frowned in HN, but unofficial estimates put P Chidambaram's family net worth at 20k crore INR (~ 3 billion $).
Got a source for that?
Do we have evidence of this? A lot of investment into India would not occur without a stable legal and tax environment on which to stage it. Traditionally, those have been Singapore and Mauritius.
Not that it's an unstable nation, all things considered, but I feel like it goes without saying that these companies and individuals are almost definitely solving for minimal tax rather than maximal "stability".
From the article, quoted from a leaked email: This is primarily being done to ensure the Druva restructure does not result in it becoming taxable.
Why does it go without saying? Indian courts can take 10+ years to resolve simple disputes; Mauritian courts are much faster.
A portfolio of stocks and bonds held in a Mauritian entity costs a few tens of U.S. dollars of extra accounting costs to do taxes on a year; a portfolio in India held by a foreigner can easily cost hundreds of dollars for an American investor to comply with.
Mainly because their motivations for doing so (namely: tax avoidance) were spelled out by the companies and their accountants in a series of email leaks. That's the thread we're in right now.
Australia and Canada have DTAs with India too. Pretty stable countries by most people's reckoning, potentially moreso than Mauritius and both with solid legal systems. Yet we aren't seeing PwC recommend to Silicon Valley investment firms that they spin up Australian shell companies to facilitate Indian investment.
We could probably speculate as to why not, or we could look at what the companies and their accountants said in the aforementioned series of leaked emails.
It's tax avoidance. It's not illegal, but it's not simplification or stability.
Yea, it's got nothing to do with extracting the maximum amount of revenue out of the host country whilst managing to avoid giving anything back in taxation :]
I’m comparing accounting costs. Both paid to the same offshore accountant. Indian tax codes are complicated and unpredictable. Mauritian ones are not. As an outsider, simplicity wins. (I’d gladly pay a higher foreign tax rate if it meant simpler paperwork.)
The Mauritian treaty does not contain any abnormal clauses that are uncommon in intra EU treaties and for example, most US-EU treaties.
Double taxation treaties are a way to incentivise people to invest in a specific country. Generally both countries exempt (or promise to partially exempt) booked income from the other country so that it does not get taxed twice. It does not exempt them from all taxation whatsoever.
But an example: if as a UK resident you invest in the US and book a capital gain on a shareholding, you won't pay US capital gains tax. That will be exempt. But you will pay capital gains tax in the UK.
If they are treaties with tax havens, places used purposefully for those reasons, then yes, they are.
"Tax haven" is an ambiguous term. Double taxation treaties exist so investments aren't taxed twice, once at the origin and again at the destination. The Indian-Mauritian treaty mostly covers capital gains, and in that way is similar to most such treaties.
The principal benefit of jurisdictions like Mauritius, the Cayman Islands, Delaware or Singapore is less to reduce taxes than to simplify them. Indian taxes are wonky and volatile. Indian courts are slow and expensive. Going through Mauritius lets an international investor finance projects in India while abstracting away a lot of cruft.
Well, I seriously doubt that. Especially when extremely elaborate schemes are used to route taxes to those destinations and "simplify" them...
I could retire now!
In my alternative universe, all system administrators unite and take back all the stolen money from the poor. They are effectively the only people who can do this.
"Hackers reveal client data for Bermuda based law firm and we bought in on Empire for .25 BTC"
"Save on taxes by using this little known trick!"
"Mauritius legislature competitive in global trade"
"Africa single market growing towards being a wild success, thanks to Mauritius"
they choose to use words like "siphon", OP chose to use words like "exposes"
they could just as benignly report a "trade imbalance" such as when basically any G7 country combination is being discussed