“People who complain about taxes can be divided into two classes: alive and dead.” Anonymous.
Change has impacted many areas in the world of tax. Tax executives need to closely monitor policy changes to manage risks proactively.
Trend watching in the world of tax has always been complex. Tax trends tend to be technical and opaque to all, except the most committed of observers within the profession.
Tax executives who diligently monitor global and national tax policy changes can provide their companies with early risk management, proactive decision-making support, and ultimately mitigate the impact of “surprises”.
Even so, businesses today are finding it a challenge to keep up with the sheer volume, pace and complexity of global tax changes.
Where are the areas of change?
Indirect tax is an area that has seen much change – and more can be expected. The EY annual publication, The outlook for global tax policy and controversy in 2019, found that six of the 45 jurisdictions that are tracked in the publication and that have a federal value-added tax or Goods & Services Tax are expected to increase the VAT/GST rate in 2019; another eight are forecast to expand their VAT/GST base this year. This is a distinct change from the 2018 edition of Outlook, which reported no predictions of rate increases.
Transfer pricing refers to the pricing of goods, services and intangibles between related parties – continues to be a source of risk. In fact, for every issue of Outlook published for the past nine years, transfer pricing has been found to be the leading trigger for tax audits.
Digital taxation is another area of tax policy that warrants a close watch for the rest of this year. Close to half of the 48 jurisdictions tracked by Outlook anticipate a greater tax burden on digital business activity. In recent months, many countries have moved ahead with public consultations or legislative proposals on digital services taxes.
Research and development (R&D) incentives is likewise seeing significant changes. Previously, many countries were focused on creating or improving R&D incentives. In a surprise reversal, that global trend now seems to be declining this year. The number of jurisdictions reported in Outlook as expected to make their R&D incentives more favourable is around half what it was in 2018.
Stability in some areas
While constant tax change has become the “new normal” there remains stability in some – though not many – areas. For almost a decade, headline country corporate income tax (CIT) rates have been falling and tax bases are broadening. It appears that many countries are convening around what might best be described as a rate “corridor” of between 17 and 25 per cent for CIT rates.
Another consistent trend over the years is the reality that tax enforcement is not letting up. Of particular note is taxpayers’ perception of tax administrations. Seventeen per cent of the jurisdictions tracked in Outlook said that their national tax authority is seen as “generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening/using criminal sanctions”.
In the case of Mauritius which follows a harmonised system of taxation, however, the tax authority is described as “proactively building trust-based relationships with taxpayers, encouraging cooperative compliance, while still insisting on substance-based approaches”.
Where does Mauritius stand?
In many ways, our rainbow nation is a trendsetter in tax policy. Its corporate tax rates have stood at 15 per cent since 2004. The VAT rate, at 15 per cent, is both steady and lower than many other countries, although we now await the next budget to note any changes to our tax regime.
Mauritius is also known for its enhanced R&D incentives. This offering is further bolstered by the recent addition of the Intellectual Property Development Incentive, which provides for tax holidays on income derived from qualifying intellectual property assets.
On digital taxation, Mauritius has adopted the Organisation for Economic Cooperation and Development (OECD)’s 2015 recommendations and will apply VAT on business-to-consumer imported digital services from 1 January 2020, for items valued above 2000 MUR (approx. 50 USD).
With respect to the taxation of digital business models, the state is watching and awaiting the outcome of the ongoing OECD project to develop a consensus-based solution addressing the tax challenges arising from digitisation of the economy.
There is no imminent response to adopt any unilateral measures such as the digital services taxes being pursued by some countries in the interim. The government’s patience in this aspect, guided by the principles of certainty and consistency, is welcomed.
Overall, the Mauritius business tax regime has proven to be one of the most stable in the world. Still there is no room for complacency. Keeping a close watch on emerging trends continues to be critical for Mauritius.
In particular, the new proposals that are being discussed at the OECD this year could transform the global tax system and have dramatic implications for cross-border trade and investments. Mauritius should continue to participate actively in the OECD discussions and engage with the international community. This will help the country stay ahead of global tax developments and enable it to continue to provide a conducive environment for both businesses and residents.
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