On 24 October 2023, the Assessment Review Committee (ARC) ruled in favour of the Mauritius Revenue Authority (MRA) in the case of Alteo Energy Ltd (ARC/IT/217-21).
Alteo Energy Ltd (“Alteo” or the “Company”) is engaged in the production and sale of electricity. During the year ended 30 June 2019, it derived income from the sale of electricity as well as interest from an inter-company loan, car loans advanced to staff and on treasury account.
Alteo claimed 80% exemption on interest income in accordance with item 7 of Sub-Part II of the Second Schedule to the Income Tax Act (ITA). According to Regulation 23D 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 a non-exhaustive manner 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’.
The Company’s claim for 80% exemption on interest income was denied by the MRA on the ground that the interest income represents about 0.25% of the total income of the Company and as such was not derived from the core activities of the Company.
Alteo argued that the test to be satisfied was whether the core income generating activity insofar as it relates to the production of interest income is performed by the Company in Mauritius.
The ARC ruled in favour of the MRA and took the view that to benefit from the exemption, what needs to be considered first is the substance of the activities of Alteo. As such, Alteo had to satisfy all three conditions laid down in Regulation 23D of the ITR. In this case, the ARC took the view that since the interest income only represented 0.25% of the total income for the year, it could not be said that the interest income was derived from the CIGA of the Company.
Our views:
We note that the ARC has given a restrictive meaning to the definition of CIGA whereas the term is defined in a non-exhaustive manner in the ITR. The term “includes” in the definition of CIGA suggests that the intention of the legislator must have been to ascribe a wider meaning to the term CIGA.
The MRA’s stand seems to contradict what is spelt out in paragraph 6 of its Statement of Practice SP 22/21 which acknowledges that partial exemption on interest income can be claimed by a company which carries out multiple core activities and one of those core activities relate to money lending or provision of debt finance.
