Mauritius does not have formal transfer pricing legislation. Instead, the arm’s-length principle is embodied in Section 75 of the Income Tax Act 1995 (“ITA”). This provision empowers the Mauritius Revenue Authority (“MRA”) to adjust the taxable income of a taxpayer if its related-party transactions are not considered to be at arm’s length. However, until the Finance Act (“FA 2025”) was enacted, there was no obligation to keep transfer pricing documentation. The FA 2025 is a game changer in this regard, introducing formal transfer pricing documentation requirements and providing certain definitions. While these changes step-up Mauritius from an international standard perspective, they also increase the compliance obligations, and associated costs, for companies engaged intra-group transactions.
What Section 75 already provided
The arm’s length provisions under Section 75 of the ITA applies to any business or other income earning activity carried on in or from Mauritius (a) which is controlled by a non-resident; or (b) by a non-resident company or by a company in which more than 50% of the shares are held by or on behalf of a non-resident; or (c) where the person controlling that business or activity is not, in the opinion of the MRA, at arm’s length with any other person, either by reason of his relationship or otherwise, with respect to any commercial or financial transaction. Accordingly, if the net income reported is less than that what is expected by the MRA under arm’s length terms, the latter may adjust the tax person’s net income accordingly and impose additional taxes, including penalties and interest.
It is widely acknowledged today that many of the tax assessments raised by the MRA on transfer pricing cases do not lay on solid foundations. Adjustments are made to the net income of taxpayers on basis that are often not verifiable or supported by empirical studies or evidence. For instance, the most common transfer pricing disputes in Mauritius arise over interest applied on related-party loans. In raising assessments, often the MRA would impute an interest rate to a covered loan transaction but would neither provide the rationale as to why the interest applied by the tax payer is not at arm’s length nor why the adjusted interest rate is considered to be at arm’s length. With the coming into force of the amendments brought by the FA 2025, we expect that taxpayers will have more solid grounds to defend their transfer pricing policy, through properly prepared and supported documentation required by law and, at the same time, the MRA will be called upon to be more factual, transparent and scientific in disputing arm’s length results set out in such documentation.
Requirements under Finance Act 2025
The FA 2025 significantly strengthens the provisions under Section 75 by adding obligations designed to align with international best practices. The new subsection (2A) under Section 75 provides that a company which engages in a transaction to which Section 75(1) applies shall prepare and keep records in such manner as may be prescribed. Regulations are expected to be issued soon to provide detailed guidance as to the form, content, and details of the documentation required to be kept by taxpayers.
A new subsection 4 has also introduced two essential definitions, namely (i) relating to “Connected persons”, which is defined to include persons where one controls (by relationship or otherwise) the business or income-earning activity of the other, in or from Mauritius, and (ii) relating to “Transaction”, which is defined broadly to cover any transaction or series of transactions between connected persons (whether or not enforceable), including cross-border business or income-earning activity of the same person.
With the new amendments to the FA 2025, taxpayers must anticipate that proper documentation, most likely in accordance with OECD TP Guidelines (i.e. including FAR analysis, selection of Transfer Pricing Methods, process and results of benchmarking searches, etc.), will need to be maintained and made available, presumably on request, to the MRA. While the specific regulations are not yet published, the direction of travel is clear. Mauritius is set to navigate into international standards in the transfer pricing area.
Taxpayers who transact with related parties need to gear up with the documentary requirements and be ready to defend their transfer pricing policy under expected stricter scrutiny. WTS Mauritius offers end-to-end transfer pricing support, including documentation drafting and benchmarking analysis, to ensure compliance and alignment with international standards.
Speak to us for your transfer pricing requirements.
