Mauritius Supreme Court rules on eligibility to claim partial exemption

The Supreme Court of Mauritius overturned, on 31 January, an Assessment Review Committee (ARC) decision in favour of the taxpayer in a judgment that confirmed that companies are entitled to the 80% income exemption even where the income does not originate from Core Income Generating Activities (CIGA).

In Alteo Energy Ltd v Assessment Review Committee & Anor, the taxpayer was a subsidiary of the Alteo Group that was primarily engaged in electricity production. As part of its financial management strategy, excess cash generated from electricity sales was deposited with a sister company, from which interest income was earned.

For the 2019–2020 year of assessment, Alteo treated 80% of this interest income as exempt under the Income Tax Act 1995 (ITA), which provides for an 80% exemption on specific categories of income, including interest income, subject to the company meeting the prescribed substance conditions.

Item 7 of the Second Schedule of the ITA states that a company can claim an 80% exemption on interest income, provided that it is not an excluded financial institution and that it satisfies the three substance conditions in Regulation 23D (2) of the Income Tax Regulations 1996, which are as follows:

• The company must carry out its CIGA in Mauritius.
• The company must employ an adequate number of suitably qualified persons to conduct those activities.
• The company must incur a minimum level of expenditure proportionate to its business activities.

The Mauritius Revenue Authority (MRA) issued a Notice of Assessment disallowing the exemption because the interest income did not originate from the company’s CIGA and therefore did not meet the conditions for the 80% income exemption. The amount assessed was MUR158,145.

The Assessment Review Committee (ARC) upheld the MRA’s position in October 202, finding that the interest income was unrelated to Alteo’s CIGA, and therefore, the exemption could not be granted.

Alteo appealed to the Supreme Court, arguing that the ARC had misinterpreted Regulation 23D (2) by imposing an additional requirement that interest income must be derived directly from the company’s main business activity. It said the wording of Item 7 and Regulation 23D (2) was clear and unambiguous, and there was no statutory requirement that interest income must originate from CIGA. Further, the term ‘CIGA’ was inclusive and should be interpreted broadly rather than restrictively.

The ARC and MRA countered that the legislator’s intent was that the exemption should apply only to income derived from CIGA and that, when read together, Item 7 and Regulation 23D (2) inferred that interest income should be directly linked to CIGA.

The Supreme Court agreed with the taxpayer. It held that the language of Item 7 was clear and did not require interest income to be derived from CIGA. The exemption applied to any company that met the substance conditions, irrespective of its business activity, and the ARC had erred in law by reading additional conditions into the statute.

The use of the word “includes” in the definition of CIGA had the effect of expanding its scope rather than limiting it and there was no basis for imposing further conditions beyond the three set out in Regulation 23D (2).

The Supreme Court’s decision has important implications for companies in Mauritius, particularly those engaged in diverse business activities with multiple income streams. The judgment confirms that companies are entitled to the 80% income exemption provided they meet the prescribed substance conditions – even if the income does not originate from CIGA.

It also explicitly recognises that strategic financial planning, such as placing excess funds in related entities, will not automatically disqualify interest income from the exemption. This gives businesses flexibility in optimising their financial arrangements while remaining compliant with tax laws.