By Feroz Hematally, Head of Tax, Africa, India and Middle East
On 31 January 2025, the Supreme Court of Mauritius overturned the Assessment Review Committee’s (ARC) ruling and upheld that Alteo Energy Ltd (Company) is entitled to a partial exemption (PE) of 80% on its interest income.
Background
The principal activity of Alteo Energy Ltd is the production and sale of electricity. During the year ended 30 June 2019, the Company earned interest income from excess cash deposited with a sister company, representing 0.25% of its total income. The Company claimed partial exemption on the interest income in its tax return.
The Mauritius Revenue Authority (MRA) denied the claim for PE on the basis that the interest income was derived from activities not related to the Core Income Generating Activities (CIGA) of the Company. The case was referred to the ARC and the latter ruled in favour of the MRA.
The Law
Under the Income Tax Act (ITA), the 80% partial exemption on interest income is available to a company provided that it:
- Carries out its CIGA in Mauritius
- Employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities
- Incurs a minimum expenditure proportionate to its level of activities
CIGA is defined under the regulation of the ITA and includes ‘agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks.’
The Supreme Court’s decision
The Supreme Court held that the Company is entitled to 80% PE on interest income on the following basis:
- The language of provision of the law in question is unequivocal and unambiguous to the effect that there are only the three conditions mentioned above to be met and no other further conditions
- There is no qualification in the law that the granting of the exemption is reserved to a specific type of business; the only requirement is that the company satisfies the conditions relating to the substance of its activities as prescribed
- Referring to the parliamentary speech at the time the partial exemption regime was being introduced, the Court found that the substance conditions were introduced more in relation to Global Business Companies (GBCs) since local companies are located in Mauritius and carry their main business activities generating their main source of income locally
- The term ‘includes’ should be given its ordinary and natural meaning as well as the enlarged statutory meaning to therefore include also companies making funding agreements, monitoring and managing risks
- CIGA should be given its natural meaning, i.e. any business activities that generate the main income of the company as well as the extended statutory meaning given to CIGA to claim the partial exemption
- There is no such restriction that the interest income should be derived from CIGA only or must be necessarily included in the CIGA of a company
Our comments
This judgement provides reassurance and certainty to taxpayers, especially to the Global Business Sector, on the eligibility of the partial exemption regime in relation to interest income.
