“Like mothers, taxes are often misunderstood, but seldom forgotten.” – Lord Bramwell, 19th Century English Jurist
In an effort to render the Mauritius tax system better understood by the taxpayer, we endeavour to present select case studies where rulings have been passed, thus providing our interpretation of such sections of the relevant taxation law of the land.
Under section 159 of the Income Tax Act, any person who derives or may derive any income, may apply to the Director General for a ruling as to the application of the Act to that income.
Case Study 27: Joint venture and Goodwill (Intangible Asset)
Facts
A Mauritian company is involved in the manufacture and sale of chemical products, water treatment equipment and spare parts for domestic and industrial use.
A foreign company has a royalty agreement with the Mauritian company to provide the latter with formulations for the production of water treatment chemicals.
A new company was incorporated to establish a joint venture between the Mauritian company and the foreign company.
A division of the Mauritian company was transferred to the newly incorporated company for a specific amount of money. The transfer consisted of the existing staff of the division and the existing clients of the Mauritian company.
Point at issue
Whether the receipt by the Mauritian company constitutes a taxable income.
Ruling
The receipt by the Mauritian company representing consideration for the sale of “goodwill” is not chargeable to income tax.
Goodwill
In general, when someone acquires a business as a going concern and purchase consideration paid for the business is more than the net assets acquired, the difference is recognised as goodwill in administration facilitation.
It is an intangible asset arising from business connections or trade name or reputation of an enterprise. Goodwill conveys a positive reputation built by a person/company/business concern over a period of time. It is built over a long-term process effort.
Tax implication of goodwill
Goodwill amortised under normal administration facilitation principles is not allowed as an expense for tax purposes. However, the cost amount can be capitalised, and an annual allowance of 5% of cost can be claimed for tax purpose.
Joint Venture
A joint venture is not a partnership. That term is reserved for a single business entity that is formed by two or more people. Joint ventures join two or more different entities into a new one, which may or may not be a partnership.
The Income Tax Act recognizes that a “société” formed under any enactment in Mauritius can include a joint venture. Other aspects and requirements governing joint ventures can be found under Part XVI of the Companies Act 2001 relating to amalgamations.
