Mauritius sovereignty and FATCA

The Foreign Account Tax Compliance Act (FATCA) is a United States legislation originally introduced in 2010 with the so-called objective of combating US tax evasion by improving exchange of information between tax authorities around the world in relation to U.S. citizens and residents who hold assets in other jurisdictions. Surprisingly, this foreign law requires financial Institutions outside the U.S. to report information on financial accounts held by their U.S. customers to the U.S. tax authorities. Where a foreign financial Institution fails to comply, the law purportedly imposes a percentage withholding tax on the U.S. source income of that financial institution, with the possibility of heavy fines and further requires the financial Institutions to close accounts where their U.S. customers do not provide information to be collected by the financial Institutions.

Despite what can only be described as a colonial and imperialist attitude, our then Minister of Finance and the MRA blindly caused us to sign a Reciprocal and Inter-Governmental Agreement (IGA) and a Tax Information Exchange Agreement on 27 December 2013 with the United States, and the provisions of the IGA been ratified by the last government in 2014 and included in the Income Tax Act, giving it force of law in Mauritius. So from now on, Mauritius financial institutions may be caught by the FATCA definition of Foreign Financial Institution (FFI) when it comes into force in the United States, and will be required to report to the MRA relevant account details relating to U.S. persons, including companies, and the MRA will in turn have to report same to the U.S. Internal Revenue Service (IRS). The rationale for signature being that, had we said no to FATCA law the U.S. would most probably put a halt to many important financial transactions taking place in Mauritius, concerning U.S. individuals, or entities, and hinder the business of any related institution found in the U.S.

Thereafter, the MRA have washed their hands by issuing a 190 page “draft” guidance notes which reflects the American legislation in all its arrogance and vagueness. Even if we assume that this law could be implemented in practice, I am not sure that every institution could or would be willing to make the effort to understand it, given the onerous and costly administration required. For commercial reasons or for simplicity sake, it may be more viable for some to offload all existing U.S. clients and refuse to take on any new ones and accept losing good business. Needless to say that we are now faced with numerous legal issues of conflict, compatibility, and interpretation surrounding the implementation of a US law in Mauritius, whilst our financial institutions in their usual oblivion put their heads in the sand.

There is however opposition and presently legal action is being courageously taken against the Canadian government by citizens who see this law as breach of the Constitution. They argue that the law gives Canadian sovereignty away to the United States, that it goes against fundamental principle of privacy and creates a discrimination between Canadian and American residents in Canada. Whilst this matter is causing stir in many other jurisdictions, unexpectedly there also seems opposition in the United States. A group of Republicans wish to kill the scheme of FATCA which they see to be contrary to the Constitution of America. Meanwhile, in our Constitution, it is clearly stated that Mauritius shall be a sovereign democratic State and that the Constitution is the supreme law of Mauritius, and if any other law is inconsistent with it, that other law shall, to the extent of the inconsistency, be void. We also have privacy provisions and rules against discrimination. On the question of sovereignty, if we have claimed at various international forums that the Chagos Islands are the territory of Mauritius and that the Americans are illegally squatting there, then how can we accept the United States impose an American Law on another sovereign State or ourselves. Unless I’m mistaken, we are still a sovereign State and our lawmakers do not have the Constitutional authority or power to accept that we act like a colony of the United States of America, neither can I understand how a foreign law can bind us to act discriminately between Mauritius citizens, those with U.S. nationality or American residents on Mauritius soil, in terms of private information that should be transmitted to the MRA or American Tax authorities such as the IRS.

We have also witnessed other foreign incursions into our financial services space in the past years, for instance the demands of the Indian governments in relation to the double taxation treaty between our respective countries and threat of the Indian GAAR, where we have even agreed to employ Indian nationals in our financial institutions, increase administrative burdens on the industry in order to appease, not to mention the controversy over the Agalega Islands. There is the question of remaining on the white list of the OECD and their imposed conditions with multiple levels of paranoid compliance which serve only the purposes of the G8 whilst reducing our competiveness. FACTA should be the last straw, but unfortunately it also constitutes a dangerous precedent giving rise to whispers of a European FATCA for all member states.